Another disappointing report card

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You know only too well my views (here and here, for instance) on the ridiculously over-crowded AML supervisory “space” in the UK: we have three statutory supervisors (the Financial Conduct Authority, HMRC and the Gambling Commission) and then 22 “professional body supervisors” for the accountancy and legal professions, which are themselves supervised by OPBAS.  It’s not that I’m opposed to admin – indeed, on a good day, with an episode of “Desert Island Discs” playing in the background, I quite like it – but that I think such a complicated and bureaucratic structure needs to be shown to be working better (much better) than something simpler, to justify its existence.  And so each year I wait, willing to give the benefit of the doubt, for the publication of HM Treasury’s review of the effectiveness of the UK’s AML/CFT supervision arrangements.  This year, 19 November was the big day.

The report is, of course, written in government-ese, so allow me to fillet it for you.  You may recall that the FATF published their mutual evaluation report of the UK in December 2018.  Great was the excitement throughout Whitehall as it was declared the BEST MER EVER!  But those of us who are picky about these things read the whole 252 pages, and it turns out that “the quality of supervision varies among the 25 AML/CFT supervisors which range from large public organisations to small professional bodies” and that “there are significant weaknesses in the risk-based approach to supervision among all supervisors, with the exception of the Gambling Commission”.  We’ve had three years to put these faults right, so I’m expecting a glowing review, with all 25 supervisors at the top of their game, and all supervised entities quaking in their boots, knowing that any infringement will be, well, stamped on by even bigger boots.

Sadly, it seems that the supervisors are still not scary enough:

  • “The FCA reported that 33% of the firms subject to a desk-based review (DBR) and 47% of firms visited were classified as ‘generally compliant’. 6% of firms subject to a DBR were classed as non-compliant and 50% of firms visited were non-compliant with the regulations.”
  • “Of the 1,829 firms subject to supervisory activity by HMRC in 19-20, 24% were assessed as not compliant. However, 585 cases (32% of the total firms subject to either a DBR or onsite visit) did not result in a compliance rating being recorded in the figures returned to the Treasury.” [Eh? The supervisor forgot to keep records of 585 visits?]
  • “The Gambling Commission found that 53% of firms subject to DBRs and 56% of firms visited were assessed as non-compliant.”
  • “In the accountancy sector, PBSs reported that approximately 5% of the obliged entities were subject to a DBR and approximately 9% of these were classed as non-compliant with the MLRs [while] 5% of their population were subject to onsite visit, with 19% of those visited classified as non-compliant.”
  • “Legal sector supervisors reported that 6% of the obliged entities were subject to a DBR and 10% of these were non-compliant with the regulations [while] approximately 5% of the obliged entities were subject to an onsite visit, with 24% of those visited found to be non-compliant.”

Now, I fully appreciate that with a risk-based approach, supervisors should be skewing both DBRs and onsite visits to the riskier end of their supervised community, but don’t those figures still sound high to you?  Perhaps we need to go back to basics: instead of adding layer upon layer of supervision – the supervisor, then the supervisor of supervisors, then the government review of the supervisors and of the supervisor of supervisors, all bound about with Economic Crime Plans and Statements of Progress (again, doesn’t “20 of the 52 original actions have been delivered” – from a plan announced in July 2019 – sound a bit feeble to you?), perhaps we should ask one simple question.  How can we make the whole regulated sector take the Regulations seriously?  The current 25 options seem to be making a poor job of it so far.

And please do take part in my auctions for MLRO mugs and MLRO cufflinks – the mugs are being particularly keenly fought over, and I’d love to be able to send a hefty donation to Book Aid International.  Here are the links to the mugs auction and the cufflinks auction.  To take part, follow the auction link and then click on the photo on the right of the auction description (the one showing the current auction value and number of days left to run).  Both auctions end on 12 December 2021 – with a fair wind, your bounty will be with you by Christmas!