Desperately seeking Regulations


* Alert!  This is a long, ranty post – you may need a Jaffa Cake or two to stay the course…*

I’m quite bright.  Not “University Challenge” winning team bright, but I have a couple of degrees, I can sometimes do a whole cryptic crossword and I’ve managed to keep myself fed and clothed for twenty-five years by running my own business, so I reckon I’m smart enough.  Added to that, I have become familiar with AML legislation: I know how it’s structured, I know what the various terms mean, I’m au fait (or is it au courant? neither of my degrees was in French) with the various burdens of proof.  So as the full horror of Brexit looms and new regulations come at us thick and fast, I thought that – even through my tears – I would be able to understand what the UK’s AML regime is going to look like on 1 January 2021.  It just goes to show that even in these tough times I can retain a naïve optimism.  Readers, I am floundering.

On 9 November 2020 the Chancellor declared this: “We are starting a new chapter in the history of financial services and renewing the UK’s position as the world’s pre-eminent financial centre.  By taking as many equivalence decisions as we can in the absence of clarity from the EU, we’re doing what’s right for the UK and providing firms with certainty and stability.”  (Please put to one side any uncharitable thoughts you may have about the phrases “pre-eminent financial centre” and “absence of clarity from the EU”, and roll your eyes back to the front of your head.)  Now, equivalence – there’s a word that disappeared from the UK AML lexicon a while ago, but I’m perfectly prepared to welcome it back again.  And I appreciate that equivalence in this context is more to do with (as Mr Sunak has it) “managing cross-border financial services activity with the EU and beyond” than with lists of dodgy or non-dodgy jurisdictions, but still, if a jurisdiction is considered equivalent for the purpose of cross-border financial services activity, surely we can take some comfort that its AML regime will be up to snuff…?  So, filled with girlish anticipation, I turned to the UK’s “package of equivalence decisions [granted] to the EU and EEA member states”.  Of which there are seventeen, and I gave up after three – I just don’t think they’re AML-ish at all.  To be fair, the government has also issued guidance on the UK’s “Equivalence Framework for Financial Services” – but all that says about AML is that one of the principles of the equivalence framework is that “equivalence decisions are compatible with the UK’s policy priorities, including those relating to the rule of law, international sanctions, human rights and efforts to combat money laundering”.  (Please put to one side any uncharitable thoughts you may have about the idea that this government might give a fig about the rule of law, and roll your eyes back to the front of your head.)

I returned rapidly and wretchedly to Rishi’s remarks (sorry – one of my degrees was in English and I can’t resist alliteration).  Ah, this might be it: “The Financial Services Bill, which will be debated in the House today, is an important step in the process of adapting the UK’s regulation to reflect its new position and boost the competitiveness of the sector, whilst demonstrating that the UK remains committed to the highest international standards of regulation.”  Surely the FSB will be packed to the gunwales with matters AML – after all, “highest international standards of regulation” and all that.  But no: mention is made of the application of money laundering regulations to overseas trustees, but that’s it.

So where is the document setting out clearly the AML position on 1 January 2021?  As I see things, we have the current Regs, and then various amendments – the most recent being the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020.  Most of this amendment serves to tidy up the earlier Regs with regard to section numbering and came into force on 14 September 2020.  (And it takes a great deal of patience to sit with the original Regs and all subsequent amendments in front of you and work out which sections remain and which are replaced – it’s not an exercise that every MLRO should have to do independently, when they can go to prison for getting it wrong.)  Other bits to do with reporting requirements around tax-relevant trusts will come into force on 6 April 2021, while the sections concerning the reporting of discrepancies in the beneficial ownership of trusts, and access to information on that register, will come into force on 10 March 2022.  The only bit that acknowledges the seismic change about to hit the UK’s AML regime is the redefining of “third country”, which comes into force on “IP completion day” – i.e. at 11pm on 31 December 2020.  You’ll know it from the black fabric draped over the mirrors and paintings in my house.

Of course we do have the Sanctions and Anti-Money Laundering Act 2018, but that simply provides the facility for the creation of future Regulations along the lines of the current ones – it contains no compulsion (“An appropriate Minister may by regulations make provision…”).  Even when you turn to Schedule 2, which contains the detail, the jaundiced-eyed among us will note that “[money laundering] regulations… may do any thing mentioned in paragraphs 2 to 17…”, suggesting a pick-and-mix approach in the future.  May, may, may – no must, or even should.

Those of you with legal training, can you help?  Have I missed something crucial?  Or is it that the government has run out of time/inclination to expend any more energy on AML and will simply let the current Regs run their course and get around to dismantling them at a later date?  As we know – thanks to terrific work by the team at RUSI – the government is already lagging behind on its own Economic Crime Plan, with 9% of actions overdue and 3% completely inactive.  My fear, of course, is that without the threat of EU sanctions for failure to implement their AML directives, the UK’s determination to be a “pre-eminent financial centre” and an “open and attractive market” will see AML obligations quietly (or perhaps openly gleefully) elbowed out of the way.