Brexit will have an impact on the UK’s approach to economic crime. It will release the UK from future EU directives and allow it to set its own economic crime agenda. As Brexit approaches, we summarize what the UK Government has planned for the country’s financial crime controls in the year ahead.
1. What are the threats? What is the plan?
One of the first outputs from the UK Government this year will be a new Economic Crime Plan. The Plan will set out the UK’s response to the findings of the FATF Mutual Evaluation Report (MER) as well as detail how the country will meet its aspiration of being a leader in the fight against economic crime.
The plan, which is set to be released in the first half of the year, will be informed by a new Economic Crime Threat Assessment. The Threat Assessment will be compiled by the Government but will also be informed by the private sector. This is interesting as typically threat assessments, like the one produced by the NCA, are only informed by law enforcement. For regulated firms this will be a useful benchmark to compare their own perceptions of risk.
The Threat Assessment and Economic Crime Plan will both be useful to better understand the UK’s economic crime landscape. So too will the first report from The Office of Public Body Anti-Money Laundering Supervision (OPBAS) which is also expected this month. OPBAS’ report will likely expose the sectors which are hitting the mark when it comes to AML and those which are not.
2. Broken and in need of fixing – SARs reform
Last year, the Law Commission set out to review the laws that give us the SARs regime. This month, they are expected to feed back with their initial findings and recommendations. These are likely to include ways of improving the form structure, reducing unnecessary disclosures and improving feedback to regulated entities on what a good SAR looks like.
The scope of the SARs reform program is vast and is set to conclude in 2022 although it is expected the reforms will begin to take shape much earlier than that. We may even begin to see some changes by the end of this year.
3. Owning the problem of Ultimate Beneficial Ownership
One of the three priority areas highlighted by FATF in their recent UK MER was improving the accuracy of available Ultimate Beneficial Ownership information. Problems with the validity of data in the Companies House register have been widely reported. Post-Brexit the UK Government has decided to do something about this but exactly what is yet to be decided. At a recent event, Head of Economic Crime Reform at Her Majesty’s Treasury, Ken Menz said that the Government plans to consult on the issue by the end of this year.
4. Finally lost count – no more AMLDs?
Despite Brexit, the UK has fully committed to implementing the EU’s Fifth Anti-Money Laundering Directive (5AMLD). The directive must be transposed into UK law by the 10th January 2020 meaning that the Government really should begin drafting a new bill this year. Little has been said so far but any new legislation will require a public consultation, so keep an eye out for this.
The Government has not stated whether or not it will implement the EU’s Sixth Anti-Money Laundering Directive (6AMLD). Hot on the heels of 5AMLD, 6AMLD is due for transposition in December 2020 so if a commitment is made, drafting will also be required soon.
5. Getting UK sanctions off the ground
By leaving the EU, the UK will gain the capability to set its own sanctions regime. Last year, the Sanctions and Anti-Money Laundering Act was passed giving the UK Government the legal framework to do just this.
The Treasury however, has a lot of work to do to iron out the logistics of a new regime by the Brexit deadline. HMT has consulted with the private sector, including with ComplyAdvantage, on how to make the sanctions process more efficient. Regardless of its efficiency however, sanction regimes live and die on how stringently they are enforced. Last week, the Office of Sanctions Implementation (OFSI) issued its first ever fine. The fine of £5000 for a £200 sanctioned payment seems like small fry but at least it sets a precedent for future action.
Preparing for the year ahead
The UK Government has set an ambitious workload for establishing itself as a leader in fighting economic crime. In 2019, we will see the foundation laid for many new initiatives which will form the future framework of the UK’s economic crime agenda. Regulated firms should keep an eye on these developments. Big changes look like they are on the way.