Senior management and boards are increasingly acknowledging the threat of financial crime as a critical risk to their business that must be addressed. This has been exacerbated in the last 12 months through the impact of the pandemic as well as rising domestic and international tensions. Our financial crime compliance specialists, located in the UK, US, Canada, Australia and Asia, are looking ahead to 2021 to identify the incoming legislative changes, growing role of technology and the need for an effective regulatory response. This forms part of a seven part series which will assess amongst other things the expansion of virtual currencies, the growth of the role of the money laundering reporting officer, the changing world of sanctions regimes, and how the Biden Presidency could shape financial crime compliance into the future.
Part 1: recent and incoming legislative change
Anti-financial crime (AFC) remains a regulatory hot topic, and 2020 saw a raft of new AML regulatory changes implemented across the globe. New developments have and continue to redefine multiple arenas within this space, including anti-money laundering (AML), counter terrorist financing (CTF), sanctions compliance, market manipulation, insider dealing and anti-bribery and corruption (ABC). This article discusses a selection of key recent and upcoming AFC legislative change across the globe and highlights practical steps to enable firms and market participants to respond to these developments.
From an EU perspective, 2020 was bookended by the implementation of the 5th EU Money Laundering Directive (MLD5) in January 2020, followed by the Sixth (MLD6) in December 2020. The EU also updated its list of high-risk third countries in October 2020, committed to a new comprehensive action plan in May 2021 and adopted a global human rights sanctions regime in December 2020. In addition, there has been continued interest amongst prudential supervisors to include the AML agenda in their supervisory remit, particularly in light of the European Banking Authority’s opinion setting out how prudential supervisors should consider money laundering and terrorist financing risks in their supervisory approach. Across the bloc there has been stepwise evolution of AML legislation which will require careful consideration by both jurisdictions and firms to translate into their AML frameworks.
31 December 2020 also marked the end of the UK’s Brexit transition period. In the run up to this deadline and the days following, there have already been calls for the UK to tighten its legislation, particularly in relation to money laundering and tax evasion. There has been pressure from the European Parliament to consider measures such as withholding permits from UK financial services companies to prevent them from gaining unfettered access to the EU market until the UK do more to tackle economic crime. However, the UK’s formal exit from the EU has provided the UK with the opportunity to implement its own rules and regulations, including relating to financial crime prevention. A number of provisions and sanctions regimes laid under the UK’s Sanctions and AML Act 2018 did not fully come into force until 11pm GMT on 31 December 2020. This Act requires firms to take heed of the UK’s own national AML, CTF and sanctions framework and targets lists, whereby the UK can now impose its own economic and other sanctions, and money laundering regulations, as opposed to continuing to adopt EU and UN legislation. 2021 is also anticipated to bring reform to the UK’s suspicious activity reporting (SAR) regime and Companies House register to enhance corporate transparency, support domestic and international investigations and contribute towards the global fight against white collar crime.
Across the pond, the US’s National Defense Authorization Act for Fiscal Year 2021 was approved as we entered the New Year. Provisions within this annual iteration of defence policy legislation seek to deter and curb the use of US-owned shell companies for the purposes of money laundering and terrorist financing by obliging such entities to disclose beneficial ownership information to local authoritative bodies. In addition, new provisions within the Act encourage individuals privy to criminal practices to come forward as whistle-blowers by offering greater protection and incentive for doing so. This will likely bring considerable process changes both for firms and authoritative bodies to align to and benefit from these legislative changes.
Finally, in the APAC region, both China and Singapore have announced updates to their respective AML legislative frameworks. China’s central bank has stated that it will expand its existing scope of AML legislation into various other financial and non-financial institutions, e.g. non-bank payment institutions, internet micro-lenders, consumer finance companies and wealth management subsidiaries of bank. In addition, on 30 December 2020 the People’s Bank of China (PBOC) published draft of Administrative Measures for AML and CTF relating to Financial Institutions for consultation. Once approved, these new Measures will supersede the existing AML regime established by PBOC in 2014. The Monetary Authority of Singapore (MAS) is also in the process of amending its Payment Services Act to implement enhanced AML standards for cryptocurrency firms. These developments indicate Asia’s growing commitment to align towards western AML legislation, whereby the AML supervisory remit has recently become more broad and complex (such as through the implementation of MLD5 and MLD6 in the EU). This is likely to drive greater regulatory scrutiny in the APAC region, but also support the global agenda with respect to AFC.
In summary, across the globe the expanded remit of the scope of AML legislation, augmented with additional scrutiny from wider authoritative bodies, has placed an even greater pressure on a wider scope of firms from an AFC perspective. There is much for firms to do just to remain compliant. It is now more important than ever for firms to continually horizon scan to keep on top of legal and regulatory AML developments, both at a local and global level, including market practices to enable them to survive and thrive in these turbulent times.