Firms need to support the UK government’s efforts to curb financial crime

The Financial Action Task Force (FATF) has released its Mutual Evaluation Report of the UK’s anti-money laundering (AML) and counter-terrorist financing (CFT) measures. The assessment is mostly positive, but the government can’t fight this alone – efforts to fight financial crime need to be replicated in the private sector. Find out more in this blog.

FATF has been described as “the most powerful organisation most people have never heard of.” Formed in 1989 as a result of pressure from the G7, FATF operates as an inter-governmental body, counting 36 states as members. Its purpose is to act as an international ‘watchdog’ for the global financial system.

The Mutual Evaluation Report is a comprehensive look at the effectiveness of the UK’s AML and CTF measures, systems and regulations, as well as assessing the risk the country faces from these threats.

The UK faces money laundering and terrorist-financing threats from overseas

The UK faces significant money laundering and terrorist financing risks from overseas

While FATF is generally very positive about the UK’s efforts to counter money laundering (ML) and terrorist financing (TF), it is recognised that the level of risk faced by the country remains high.

The report notes that as a global financial centre and the world’s largest centre for cross-border banking, the UK is ‘vulnerable and at risk of being used as a destination or transit location for criminal proceeds’1.

Likewise, on terrorist financing, the report states that the UK ‘faces severe threats from international terrorism’2 noting that terrorist-financing activity is generally focused on funding travel or terrorist attack plans.

There’s a mixed understanding of AML and CFT risks across the UK’s financial institutions

FATF point out that the UK has an ‘extremely large and diverse’3 financial sector, with a wide range of different types of financial institutions in operation. And with this diversity comes an accompanying variety in the types of risks that these organisations will face – making for a complex risk landscape for businesses to navigate.

FATF’s assessment of the general understanding of AML and CFT risks across UK financial institutions notes that banks are particularly strong. Other types of financial institutions, such as money services businesses (MSBs), insurance providers and asset management firms are found to have a ‘good understanding’4. However, interestingly it says that ‘both banks and MSBs, particularly smaller firms have a mixed understanding of risk’5. The report also singles out Designated Non-Financial Businesses and Professions (DNFBs) such as accountants, auditors and real-estate agents as having a ‘much less developed’6 understanding.

Understanding of money laundering risks is mixed across the UK's financial sector

Suspicious activity reports: Quality and quantity needs to improve

Suspicious activity reports (SARs) play a significant role in highlighting potential ML and TF activity, but FATF’s assessment of the UK’s SAR reporting is not altogether positive.

The report notes that: “While SARs of a high quality are being received, there are concerns about
the low level of SAR reporting in many sectors, including some identified as being at high risk, and the large number of poor quality SARs being filed even among banks which submit 85% of SARs filed.”7

Despite a generally positive assessment, UK firms must support government efforts

While the assessment of the UK’s measures against AML and CFT are generally positive, the fact remains that billions of pounds are illegally laundered through the UK every year, with London, the so-called ‘money-laundering capital’8 at the centre of most of this activity. Data suggests that in 2017, up to 90 billion pounds was laundered in the UK9.

The risks faced by the UK are particularly diverse and complex, and it appears that some financial institutions are failing to fully understand and therefore mitigate these risks.

It seems that there is also significant work to be done to address the quality and quantity of SARs across the UK’s financial sector – a critical function to identify illegal activity.

The government has a strong mandate to stop the flow of illicit funds through the UK’s financial markets. However, firms must take an active role in supporting the government’s efforts, as they are, after all, at the frontline of countering these activities. Firms and their staff are responsible for taking the action required to identify when suspicious activity may be occurring and also taking mitigating steps to prevent their firm being used for the purposes of financial crime in the first place.

Effective policies, controls and training are needed to control money laundering and terrorist financing

As a first step, firms must put in place strong policies and controls that enable them to comply with the UK’s Money Laundering Regulations.

Secondly, they need to take a proactive role in understanding the breadth and depth of risks their institution faces and ensure that the appropriate staff in the business can take action to mitigate these risks.

Frontline staff play a critical role in identifying AM and TF activity. Ensuring staff are cognisant to risks and confident in taking the right course of action (such as filing SARs) is vital in protecting both the firm and the UK as a whole.

High-quality financial crime training is a great first step

Effective training can help firms mitigate AML and TF risk by ensuring frontline staff:

  • Understand the risks faced and their impact
  • Can recognise suspicious activity
  • Understand how to escalate ‘red flags’

We have recently redesigned our entire suite of online financial crime training, including our anti-money laundering courses.

The redesigned courses feature:

  • A broad range of interactivity
  • Case studies, scenario-based questions and knowledge checks keep the learning active and give it real-world applicability.
  • Intuitive navigation
  • All the courses have a consistent user interface and navigation, making life easier for learners accessing a range of courses from our generic catalogue.
  • Responsive design
  • Each course can be viewed on mobile devices like smartphones and tablets, creating a more convenient way to consume learning for busy workers.
  • Custom branding
  • We know it’s important that a course resonates with learners, so you can add your own branding, colour schemes and images to our courses.

Find out more about our financial crime courses and access free trials here.

 

Footnotes

1.Financial Action Task Force (2018), Anti-money laundering and counter-terrorist financing measures – United Kingdom Mutual Evaluation Report, p.5

2.Ibid
3.Financial Action Task Force (2018), Anti-money laundering and counter-terrorist financing measures – United Kingdom Mutual Evaluation Report, p. 9

4.Ibid
5.Ibid
6.Ibid
7.Ibid
8.Chatham House (2018), London, the money-laundering capital
9. Ibid

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