Supervisors overview

Question 1

Why is the supervisor system ineffective? What’s the problem?

Answer 1

At the heart of the problem is the fact that the UK has 27 supervisory bodies overseeing AML efforts in relevant sectors such as banking, property and luxury goods.

• Failure to identify where the RISKS are & mitigate against those risks
• The approach to ENFORCEMENT is inconsistent and not transparent or effective
• Many of the supervisors have serious CONFLICTS of interest, which we believe prohibits the bodies from doing a good job

Question 2

Opening/top line

Answer 2

Radical overhaul of the UK’s anti-money laundering system is needed if the UK is to close the door to the billions of pounds in corrupt money coming into the country every year

Question 3

Message 1: The situation

Answer 3

• According to the NCA billions of pounds of corrupt money is laundered through the UK each year.
• We therefore need a strong AML regime to detect and prevent it.
• The system is place to prevent and detect that money is ineffective

Question 4

Message 2: The System is not fit for purpose

Answer 4

At the heart of the problem is the fact that the UK has 27 supervisory bodies overseeing AML efforts in relevant sectors such as banking, property and luxury goods.

This fragmented approach leads to problems:

1. Failing to identify where the risks are & mitigate against those risks. The lack of a risk-based approach leads to poor oversight
2. The approach to enforcement is inconsistent and not transparent or effective
3. Many of the supervisors have serious conflicts of interest, which we believe prohibits these bodies from doing a good job.

Question 5

Message 3: The solution (top recommendation)

Answer 5

To reduce the UK’s role as a safe haven for corrupt money, change must be made to ensure the AML regime is fit to detect & prevent dirty money.

The Government should consolidate the number of AML supervisors in the UK

Question 6

Top 3 recommendations?

Answer 6

1. The Government should CONSOLIDATE the number of AML supervisors in the UK
2. Ensure adequate levels of ENFORCEMENT against AML failures
3. Increase TRANSPARENCY over who really owns companies – helps the private sector do better checks on customers.

Question 7

More info: conflicts of interest

Answer 7

The Government has identified that almost all of the private sector supervisors are also lobby groups for the sectors that they supervise and are funded by the firms that they are obliged to investigate.

This leads to conflicts of interest where the supervisors are lobbying and promotional bodies for their sector as well as the enforcement authorities.

Key stats: Only 6/22 meet the Clementi standard for conflict of interest.

Only 7 of the 22 supervisors control for institutional conflicts of interest affecting their supervisory responsibilities.

Question 8

More info: risk-based approach

Answer 8

HM Treasury requires that AML supervisors have a good understanding of what it means to have a risk-based approach. Over half of the supervisory bodies are failing to identify where the risks are.

However, in the 2012 to 2013 supervision report by HM Treasury, over half of all supervisors reported that the money laundering risks do not vary across the firms they supervise.

It is difficult to imagine those respondents had a good understanding of risk-based regulation if they thought all firms under their supervision were of an equal risk, regardless of size, location, commercial focus, historic money laundering performance, or previous compliance history. It is almost inevitable that the lack of appropriate risk assessments will result in the inappropriate supervision of some businesses.

Question 9

More info: enforcement

Answer 9

No sector supervisor in the UK is providing a proportionate and credible deterrent to those who engage in complicit or wilful money laundering.

The average house price in central London is more than the total amount of fines dished out to those who laundered money through property last year

Out of the 22 supervisors, only the FCA has above a low or unreported level of enforcement of the rules.

The level of enforcement and fines by AML supervisors in the UK is generally low relative to the scale of money laundering passing through the UK, and is not likely to have a deterrent effect.

Question 10

More info: enforcement transparency

Answer 10

Of the 22 supervisors, 20 fail to meet the standard of enforcement transparency demanded by the Macrory standards of effective regulation. In the public sector, HMRC appears to be particularly hampered by an institutional tendency towards secrecy. In general, the private sector supervisors are characterised by inconsistent and opaque enforcement.