AML Treasury Report 2022/2023: Key Insights for Regulated Businesses

The Treasury published its AML and CTF Supervision Report for 2022/2023 last month. This article provides those within regulated businesses with an overview of that report and some take aways from it

How the AML Regime is Supervised in the UK

There are 45 AML Supervisors in the UK – the bodies with responsibility for ensuring that regulated businesses comply with their obligations under the AML regime. The big two are the FCA, which supervises financial services and crypto businesses, and HMRC, which supervises company and trust service providers, estate and letting agencies, money services businesses, high value dealers, art market participants and some accountancy service providers.

The Gambling Commission supervises both online and land-based casinos operating in the UK or advertising to British consumers. 22 other bodies, including the SRA and the ACCA, supervise the regulated activities of the legal and accountancy professions. Given the importance of the role of the supervisors to the UK’s defence against illicit finance, their activity is subject to scrutiny by The Treasury.

Effectiveness of AML Supervisors

Whilst the UK’s AML/CTF regime is one of the most robust in the world, the supervision of that regime has been found to be less than effective in previous years. Various measures are being taken to address this.

In good news, regulated businesses should expect to hear more from their supervisor and receive greater support in terms of guidance and training. However, this also means that businesses will find themselves under greater scrutiny as supervisors ensure that they are implementing appropriate controls. Supervisors have a wide range of powers to request information, interview officers and staff members and to attend business premises. A greater use of these powers is anticipated. Undoubtedly this will result in an increase in enforcement action – a trend which has already begun.

Key Causes of Non-Compliance

The Report sets out some of the common causes of non-compliance that have been identified by the supervisors. Common themes include:

• Engaging in regulated activity prior to registration.
• Inadequate policies and procedures.
• Inadequate risk assessments – both business wide and client.
• Inadequate customer due diligence, particularly around enhanced due diligence, and identifying and monitoring high risk customers.
• Inadequate ongoing monitoring.
• Inadequate training programmes.
• Insufficient monitoring of the effectiveness of the business’s compliance regime.
• Inadequate knowledge and understanding of the MLR, particularly among smaller firms and sole practitioners.

Supervisor Action 2022/2023

All supervisors adopt a risk based approach to compliance, with resources being directed at those businesses considered to be at highest risk. This does not mean that businesses in lower risk areas are free from scrutiny. All supervisors conducted reviews of businesses with varying degrees of risk.

The supervisors have a range of enforcement tools including fines, public censure, suspension or cancellation of registration and referral to law enforcement agencies for criminal investigation. In 2022/2023, 47 businesses had their registration cancelled, 6 were suspended and 1,009 fines were issued, with a total value of £197,000. Whilst the value of the fines was lower than in the previous year, the number of fines issued has almost doubled each year since 2020/2021. The vast majority of those fines are issued by HMRC.

The report gives a sense of the level of contact between the different supervisors and the firms under their supervision and the number of cases in which action is taken.

The FCA supervised approximately 18,000 businesses during 2022/2023. 231 desk based reviews were conducted of which 45% were found to be compliant, 13% generally compliant and 4% not-compliant (reviews had not concluded in the remainder of the cases). 7 onsite visits were carried out of which 1 was rated not compliant. The FCA also opened an additional 375 cases relating to financial crime and sanctions, including 95 cases relating to crypto assets. Formal action was taken in all cases of non-compliance.

The Gambling Commission supervised 263 businesses in 2022/2023,  mainly remote casino operators. It carried out 25 desk based reviews and 9 onsite visits. It found that 48% of firms subject to a desk based review, and 89% of firms subject to an onsite visit, were non-compliant.

HMRC supervised 35,411 businesses in 2022-2023. It conducted 834 desk based reviews and 907 onsite visits, meaning around 5% of the businesses under its supervision were subject to some form of review. 493 resulted in assessments of non-compliance (28%). Formal action was taken against all of them, with the largest fine in this period being just under £1.5m. In addition, action was taken in 454 cases where businesses which should have been registered for supervision were not.

The 22 professional body supervisors supervise around 34,000 businesses in the accountancy sector and 7,998 businesses in the legal sector. In 2022/2023 they conducted 1665 desk-based reviews and 1,555 onsite visits, meaning that around 9% of the businesses supervised by them were subject to review. Informal action was taken against 39% of these businesses, and formal action against 19%.

Takeaways for Regulated Businesses

The effectiveness of Supervisors in combatting illicit finance is under the spotlight. The level of contact between Supervisors and the businesses which are regulated by them is increasing, a trend which is likely to continue.

Supervisors play a vital role in ensuring that businesses comply with the MLR. Whilst enforcement action is necessary to send out a clear message that breaches will not be tolerated, key to the fight against financial crime is a collaborative approach. It is hoped that going forward supervisors will provide increased guidance, support, education to the firms they oversee.

It is vital that businesses have effective compliance programmes in place, not only to identify risks associated with new customers and clients but to ensure that there is ongoing monitoring of activity across the business. These must be subject to regular review as businesses evolve and the risks posed by money laundering changes. Businesses which are found to be non-compliant will undoubtedly face formal action.