Financial crime

Hello and welcome to the latest in our series of risk consulting videos, which focus on hot topics in the world of risk and regulation.

Thanks, John.

In general, COVID-19 has, unfortunately, revealed quite a few new ways for criminals to exploit public generosity and fear. For example, the Financial Action Task Force noted earlier this month that we have actually seen quite an increase in things counterfeiting in medical goods, investment fraud and cybercrime scams and these generally generate illicit proceeds which can be laundered. There have also been opportunities for criminals to divert funds intended for aids and social support into less savoury activities, things like terrorist financing.

So from an AML and CTF perspective this means we are having to be both reactive and also extra vigilant. So looking through the financial services lens in particular, at the start of the pandemic, the focus was predominantly on the banking sector. There were clearly considerable changes in peoples’ spending habits, which impacted controls like AML transaction monitoring as the customers’ baseline normal behaviour evolved.  Then of course KYC processes needed to be adapted to accommodate for minimal face to face customer contact and challenges of obtaining physical documentation.

Yes absolutely, and unfortunately there is a lot for firms to do just to remain compliant. The regulatory landscape has been consistently evolving over the last few years and regulators globally don’t show any sign of stopping this trend. 

Sure, there are a couple of items that I would like to draw your attention to specifically and these are for especially for firms based in the UK or firms that have significant UK presence. First of all I want to talk about crypto. I mentioned a little earlier that the AML-regulated sector has recently expanded into the crypto asset firms and alongside this there are a few development firms for crypto to be prepared for. Firstly guidance was released earlier this year to help firms implement money laundering regulations – this was in a form of a new chapter, Number 22, which is dedicated specifically to crypto assets. Also the European Commission indicated over summer that they will be publishing new AML legislations which are targeted at virtual currencies which are likely to come in early next year. I therefore recommend that newly regulated crypto asset firms strongly consider the new guidance to ensure they have factored it into their AML control environments and also keep an eye out for any new legislation coming in.

Then from an EU perspective, with Brexit on the horizon, there are a few developments that firms need to be aware of. Firstly, the EU list of high-risk countries came into force on the 2^nd October earlier this month. This has increased the number of high-risk jurisdictions from which more stringent due diligence measures are required, so it is really important that all firms in scope for the money laundering regulations are aware of this list. They should have also updated their customer onboarding and relationship management processes, as well as governance and training mechanisms accordingly. 

Then, secondly, the EU’s Sixth Anti-Money Laundering Directive, focusing on countering money laundering of terrorist financing by criminal law, will be transposed into UK National Law by 3^rd  of December this year, i.e. before the Brexit transitional period ends. Amongst other things, this directive requires all member states to legislate a harmonised set of 22 predecet offenses to money laundering. It also standardised the punitive action that can be taken against natural and legal persons who are convicted of money laundering offenses.  The purpose of these changes is to seek to minimise the chance that any member state that becomes a weak link that any criminals may want to exploit. Therefore firms should consider performing a gap analysis if and when new regulations are published so they can understand which control framework areas may need enhancement

From a UK perspective, the government launched a consultation in July this year proposing that all AML regulated firms will be required it contribute to an Economic Crime Levy. This will go towards funding new AML initiatives, the SAR reform and Companies House Enhancement which I shall talk to you about shortly.

Thank you for those very useful updates and insights Clarinda. So in summary, in this session we have discussed there continue to be step-wise changes in the AML regulatory environment, both at EU and UK level. Now these affect a wide spectrum of business and, coupled with the challenges brought about with the pandemic itself, have left the financial crime compliance space a challenging one to navigate.