Reforming anti-money laundering and counter-terrorism financing supervision

The HM Treasury has launched a high level consultation on potential reforms to the anti-money laundering (AML) and counter-terrorism financing (CTF) supervisory regime in UK to address current weaknesses that were identified during a 2022 review of the framework. Also, a review by the Financial Action Task Force on Money Laundering (FATF) showed that the existing supervisory regime is missing efficiency and effectiveness, although it is working well overall. „High level“ means that no particular rule amendments are proposed; instead, the Treasury seeks to inquire about a feasible supervisory model that will mitigate the current shortcomings.
#### Background – and the current supervisory structure
There are a total of 25 AML & CFT supervisors: three of them are statutory supervisors, including the Financial Conduct Authority (FCA), the Gambling Commission (GC), and the Revenue and Customs (HMRC). They supervise firms under their direct supervision – whether solo-regulated or dual-regulated in case of supervision by the FCA. Additionally, there are 22 Professional Body Supervisors (PBS) which are responsible for monitoring AML & CFT compliance of the accounting industry and the legal sector. Most PBS are trade associations or professional membership bodies. To ensure some consistency in the supervision of in-scope firms, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) was created in 2017 whose primary responsibility is the ensure „a robust and consistently high standard of supervision, and to facilitate information and intelligence sharing between PBSs, statutory supervisors, and law enforcement agencies“.
#### The proposed new supervisory models
In view of the shortcomings of the above noted supervisory structure (various supervisory methodologies, little standardization, high costs for coordinating efforts), the HM Treasury is now consulting on different supervisory models that shall enhance the efficiency and effectiveness of AML & CFT monitoring AND foster the convergence of supervisory methods applied at supervised firms. The four proposed models are briefly described below:
(1) Model 1: This model, the so-called OPBAS+, proposes enhancing the powers of the Office for Professional Body Anti-Money Laundering Supervision without making any structural changes to the AML & CFT supervisory regime. By giving OPBAS increased authority, it aims to improve the effectiveness of supervision by the Professional Body Supervisors. This model seeks to leverage the progress made by OPBAS since its establishment in raising supervisory standards.
(2) Model 2: The proposed model suggests a reduction of the number of PBS to either two or six that would be responsible for AML & CFT supervision of the accountancy and legal sector. In the first option (2 PBS), there would be one supervisor for the accountancy sector and one for the legal sector, both with nationwide authority in the UK. In the second option (6 PBS), there would be one accountancy sector supervisor and one legal sector supervisor in each jurisdiction of England and Wales, Scotland, and Northern Ireland. In both cases, a decision would have to be made regarding whether accountancy firms currently supervised by the HMRC should be transferred to the corresponding PBS.
(3) Model 3: Model 3 proposes the establishment of a Single Professional Services Supervisor (SPSS) to oversee ALL legal and accountancy sector firms for AML & CFT compliance. This model could potentially extend its supervision to other sectors currently regulated by HMRC. The SPSS would operate independently from any ministerial department but be accountable to the Treasury. While the existing professional body supervisors would no longer be responsible for AML/CTF supervision, they could continue to supervise firms for other purposes. The three statutory supervisors, the FCA, the GC, and the HMRC, would continue to exist and monitor AML & CFT compliance of supervised firms.
(4) Model 4: Model 4 would introduce a single anti-money laundering supervisor (SAS) for ALL AML & CTF supervision in the UK. The FCA and the two other statutory supervisors would no longer be responsible for AML & CFT supervision of their in-scope supervised firms.
The consultation now seeks views on the potential benefits of each model and factors that may disqualify one or the other. The comment period closes on September 30, 2023.