Quarter 1 2017

21st April 2017

Sources Reviewed for this bulletin:


Financial Conduct Authority (FCA)

Prudential Regulation Authority (PRA)

British Bankers’ Association (BBA)

European Securities and Markets Authority (ESMA) 

Commodities Futures Trading Commission (CFTC)

Financial Action Task Force (FATF)

HM Treasury (HMT)  

Joint Money Laundering Steering Group (JMLSG)

National Crime Agency (NCA)

Transparency International (TI)

Deloitte Forensic Centre (DFC)

Credit Industry Fraud Avoidance System (CIFAS) 

Financial Fraud Action UK (FFA)

International Compliance Association (ICA)

Emerald: Journal of Financial Crime (JFC)

Financial Fraud Action, Police: The DCPCU

BBC Business

Financial Times

New York Times




Financial crime has devastating effects to Financial stability. The Economic Crime Directorate cites figures obtained from the National Crime Agency; the current cost to UK Economy being £52bn, every year.

It threatens not only people’s livelihoods but also their lives.

Over the course of the last trading quarter we have witnessed a recent upsurge in failures to comply with Anti-Money Laundering and Counter Terrorist Financing protocols. In the UK financial system recent failures have seen sanctions passed, from the mid-tier Investment management firms to large scale banks.

The net result highlights the highly prevalent risks of the digital financial platform the UK operates within. In case the £1.2bn fine received in 2012 was not enough, HSBC have again come under scrutiny with recent reporting by US Attorney Michael Chekrasky raising fresh suspicions of connections to Terrorist Financing.

Another illustration of the importance of Fraud and Anti Money Laundering protocols can be evidenced in the FCA’s intention to resume their investigation into HBOS’ Asset Team and the fraudulent business dealings involving corruption and fraud.

The Severity of such suspicions can be highlighted by the recent publication of the Financial strategies used by the terror group ISIS; the allegation of association of western currency markets and the middle-eastern channels to wire the currency across the European continent. This would be another example of a failure in Money Laundering Controls.

Concerns of the UK Economy raised by the National Crime Agency have demonstrated the severity of Money Laundering with the current volume of foreign currency posing a particular worry. David Little, head of Money Laundering and Corruption Intelligence at the NCA has highlighted how lack of co-operation from the Russian authorities has left more questions unanswered whether the UK Financial system is subject to Russian Proceeds of crime.

In light of such compelling criminal allegations there is a growing need for businesses to enhance their Internal Money Laundering controls. The Industry and government authorities have proposed updated provisions which firms are to be compliant with moving forward.

It is clear there is an overhaul of the UK Regulatory framework regarding Money Laundering and Terrorist Financing which has necessitated stringent requirements of control with the sole purpose of heightening preventive measures to Financial Crime.

The introduction of the 4th Anti Money Laundering Directive (4AMLD) is a testament to the fact large corporations and smaller regulated firms are not doing nearly enough to tighten Money Laundering controls.

European member states are to ensure their respective money laundering laws are updated and the new requirements are to be transposed into local law by 26 June 2017. Will this enforcement be followed after businesses implement this?

The directive aims to give effect to the updated Financial Action Task Force (FATF) standards. It introduces a number of new requirements on relevant businesses and changes to some of the obligations found under the Third Money Laundering Directive (‘3MLD’) and the Money Laundering Regulations (‘MLRs’). The FATF updates the rules regarding information on payers and payees accompanying transfers of funds, in any currency, for the purposes of preventing, detecting and investigating money laundering and terrorist financing (ML/TF), where at least one of the payment service providers is established in the EU. An example of such a role can be seen in the FATF 2012 decision to upgrade the Philippines from dark grey to grey signifying the countries compliance to AML controls – new initiatives released by the government to enhance transparency and accountability in financial transactions.

An overall objective of transposition is to ensure that the UK’s anti-money laundering and counter terrorist financing (AML/CTF) regime is kept up to date, is effective and is proportionate. Will this enable the UK to have a comprehensive AML/CTF regime and ensure that the UK’s financial system is an increasingly hostile environment for ML/TF? Current negotiations between the UK and the European Leaders will undoubtedly pose uncertainty as to where the UK will be positioned yet a change is not imminent and remains to be seen.

Officials from HM Treasury have indicated that the UK legislation will likely be passed just in time for the deadline. The two laws that require an update are the Money Laundering Regulations and the Proceeds of Crime Act.

The Directive includes some fundamental changes to the Anti-Money Laundering procedures including changes to Customer Due Diligence (CDD), a central register for beneficial owners and a focus on risk assessments. With proper preparation and training, the transition to the new regime should be seamless for most firms. Will this better harness the UK financial system from the failures we have seen in banking; the net effect will undoubtedly be seen at the end of the following financial quarter.


Who is included in the Directive  ?

For the most part, those persons covered by MLR 2017 (“relevant persons”) will remain the same as under the existing rules. Relevant persons who continue to be subject to the MLR control requirements are:

Credit Institutions – Banking Consolidation Directive

Financial Institutions

Auditors, Insolvency Practitioners, External Accountants, Tax Advisors

Independent legal professionals

Estate Agents

High Value dealers and Casinos

Where there is little risk of money laundering or terrorist financing, the government has the discretion to exempt some entities engaging in financial activity on an occasional or very limited basis.


What is changing?

Under the directive, Corporates and other Legal entities will be required to maintain accurate and current information on their beneficial ownership. They must provide that information to the government. That information on beneficial ownership will be held by each member state in a central register that will be accessible to banks, law firms and “any person or organisation that can demonstrate a legitimate interest”.

These interconnected registers will contain the names, dates of birth, nationality, country of residence and the nature and extent of the beneficial owners’ interests in the transaction.

This is potentially good news for regulated businesses in the financial sector. A primary requirement, and administrative burden, of CDD at the moment is identifying beneficial owners. Access to a pan-European register will likely make CDD research much easier and will prevent failures of Deutsche Bank AML control mechanisms and the resulting fine of £136, 076 122 for more detail see  https://goo.gl/JyZtcK

A key difference is that relevant persons will be obliged to adopt a more risk-based approach towards anti-money laundering, in particular, how they conduct due diligence. Determining the appropriate level of due diligence will require analysis of risk factors based on the EU Directive which are set out in MLR 2017. Sector-specific guidance will also follow. The requirements within Money Laundering Regulations 2017 are prescribed below.

MLR 2017 is more prescriptive, particularly when it comes to risk mitigation procedures. A relevant person must produce a written AML risk report addressing its customers, countries of operation, products and services, transactions, delivery channels and the size and nature of the business. The relevant person must then translate the findings of this process into written policies.

Risk Mitigation : these policies and controls must be in writing, be proportionate to the risks identified and be approved by the relevant person’s senior management. They must include internal controls over money laundering and terrorist financing risks (e.g. appointing a board member responsible for MLR 2017, screening agents and training staff). The policy must also include revised customer due diligence procedures as well as reporting, record keeping and monitoring requirements.

 Level of Due Diligence: the circumstances in which simplified customer due diligence is permissible will become more restricted under MLR 2017. In a significant departure from MLR 2007, and as part of the risk based approach, there will cease to be “automatic” simplified due diligence requirement for any transactions. Instead, a relevant person will need to consider both customer and geographical risk factors in deciding whether simplified due diligence is appropriate. Another major change in MLR 2017 is the creation of a “black list” of high risk jurisdictions which, if involved in a transaction, will make enhanced due diligence and additional risk assessment compulsory.

 Third Party Reliance: relevant persons will still be able to rely on the CDD carried out by a third party if that third party is either subject to the MLR 2017 or an equivalent regime. However, the conditions for doing so are prescriptive. The third party must effectively provide the CDD information it has obtained and enter into a written agreement under which it agrees to provide within two working days -copies of all CDD documentation in respect of the customer and/or its beneficial owner.

 Politically Exposed Persons (PEPs): parts of MLR 2007 which applied only to foreign PEPs will now also apply to local PEPs. This will in practice mean enhanced due diligence requirements for a broader range of individuals who have been trusted with prominent public functions both in the UK and overseas.

The 2017 MLRs have been informed by the responses submitted during consultation and reflect the government’s policy decisions. The government’s final policy decisions will be implemented through legislation to come into force by 26 June 2017.


What is being done to help prevent Money Laundering and the Associated crimes?

 It seems a plausible argument that should there be an increase in prospect for Criminal Blameworthiness and custodial sentences, holding Directors and senior officers of the firm accountable may re-iterate the severity of Fraud and Money Laundering. Currency manipulation and insider trading prosecutions from Barclays to JP Morgan traders may then be less likely to occur?

 The Joint Money Laundering Intelligence Taskforce (JMLIT) has been developed to provide an environment in which the financial sector and law enforcement agencies can exchange and analyse information and intelligence to detect, prevent and disrupt money laundering and threats of wider economic crime against the UK. This measure does perhaps go to great lengths in safeguarding our Money Institutions as well as harnessing the Financial system but how tight is the Intelligence sharing?


Enhancing the Law and Preserving the Integrity of the UK Financial System

The Criminal Finances Bill 2016-17 is scheduled to come into law this summer which marks the latest step on the journey the U.K. is taking to overhaul the nation’s approach to tackling financial crime, an effort that includes risk assessments, action plans, and the formation of the Joint Money Laundering Intelligence Taskforce (JMLIT).

At the heart of these efforts is the belief that better information sharing is needed to overcome the public sector’s shortcomings and effectively fight financial crime. The bill contains a raft of radical measures directed at the financial sector in a renewed effort to ensure that criminals cannot enjoy the fruits of their unlawful activities.

 When enacted, the legislation will represent the most extensive shake-up of asset confiscation and the Anti-Money Laundering legislation since the Proceeds of Crime Act was passed in 2002.

 New offences target the criminals and investigating authorities are given additional powers to require explanations as to the source of wealth and to confiscate criminal monies in appropriate cases.

 Unexplained Wealth Orders (UWO) and new measures such as Interim Freezing Orders (IFOs), extended moratorium periods, voluntary information sharing and joint disclosure reports will soon become familiar terms in the UK Financial Regulatory framework.

 The Bill also heralds an astonishingly wide new criminal offence directed at companies and partnerships where tax evasion is committed by those associated with the company, such as its employees, agents and others who perform services for or on behalf of the company. Firms of solicitors and accountants are at real risk of committing this offence if they are not careful with whom they deal.



 Regulated businesses failing to have a regulatory monitoring mechanism has ultimately never been more important. The question left unanswered is whether an overhaul of the AML rule book will tighten the knot in the FCA’s intention to strengthen integrity and enforce stricter provisions and tougher penalties for entities who fail to comply and fall short of the control requirements.

 As we have highlighted the 4th AMLD, the MLR 2017 and the Criminal Finances Bill are indicators that Authorities are pushing forward in establishing updated industry standards for regulated business and the expected AML framework firms are expected to implement and comply with. The scrutiny will inevitably continue and we wait to see which institution is in the public eye for breaches and miss-conduct.


Need more guidance?


CPA Audit’s Compliance team is highly experienced in conducting FCA Authorisations for corporate finance firms and has conducted extensive correspondence with the regulator concerning Anti Money Laundering training.

 CPA is able to assist in a wide variety of ways in relation to the above, including (but by no means limited to):

 FCA Authorisations;

 Tailored Anti-Money Laundering training

 Variation of Permission applications;

 Putting firms in touch with appropriately permissioned placement agents;

 General advice and assistance on regulated activities and their scope


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