HM Treasury reports on AML/CTF

11 Jan 2013

HM Treasury has published its second annual report on “Anti-Money Laundering and Counter Terrorist Finance [AML/CTF] Report 2011-2012”. The report relates to AML supervisor activities from April 2011 to March 2012 and in summarising the analysis of information provided by AML supervisors (set out in Annex A), covers the following key topics: (i) how supervisors adopt a risk-based approach; (ii) compliance visits; (iii) enforcement action; (iv) advice and outreach; and (v) information sharing.

Other key themes in the report include:
• the impact on the City of London and on the rest of the UK of law enforcement agency failures to take action against money laundering and towards its financing risks;
• the importance of UK supervision providing leadership at an international level; and
• the expectation that supervisors work closely with businesses regarding AML/CFT.
Comments (for which there is no deadline) may be made to HM Treasury.

Background

1.1 There are a number of businesses, identified by global standards, which are at high risk of abuse by money launderers and those facilitating the movement of terrorist finance.1EU Member States are required to regulate these businesses under the EU Third Money Laundering Directive. In the UK, these businesses are subject to the Money Laundering Regulations 2007 (the Regulations) and required under the Regulations to do adequate due diligence and ongoing monitoring on their customers and business relationships.
1.2 HM Treasury is responsible for appointing supervisors 2 and for setting the Regulations which set out the role of the supervisors3and gives powers to monitor effectively those businesses in the respective sectors.

In order to illustrate the transparency and accountability of supervision and to encourage good practice, HM Treasury has worked with supervisors to produce this second annual report, which covers supervisory activities from April 2011 to March 2012.

1 For the full list of ‘relevant persons’ subject to the Money Laundering Regulations 2007, see Regulation 3 http://www.legislation.gov.uk/uksi/2007/2157/regulation/3/made
2 The designation of supervisors is subject to Parliamentary approval.
3 The duties of the supervisors are set out in Regulation 24. http://www.legislation.gov.uk/uksi/2007/2157/regulation/24/made

Methodology

1.3 HM Treasury has followed a similar reporting framework to the first annual report published in November 2011, covering a range of topics, including: education and raising awareness; resources and training of staff employed by supervisors; the number of compliance visits carried out; enforcement activities; risk assessments of supervisors’ sectors and their strategies for developing and implementing a risk based approach to supervision, which the Government believes contributes to effective supervision.
1.4 In assessing the information provided by supervisors, HM Treasury used its criteria for effective supervision as a minimum benchmark to assess whether there were deficiencies in supervision and identify examples of good practice.
1.5 HM Treasury’s criteria take into account the provisions of the Regulators Compliance Code and are used to assess applications from professional bodies that wish to become supervisors of the Regulations. The principles of the criteria are:
• experience of standard setting: bodies should have experience of setting standards or rules for their members; standards should include those concerning confidentiality;
• compliance: bodies should preferably have experience of monitoring compliance with standards;
• disciplinary structures and sanctions: bodies should have established disciplinary procedures and have effective sanctions available to them;

• public interest: bodies should have strong public interest objectives, such as bodies incorporated by Royal Charter or those that have charitable status;
• qualifications/education: there is a presumption towards organisations preferring members to possess specific qualifications or equivalent rather than just experience;
• reach: bodies should be of significant size and membership; their ‘status’ in the industry will also be considered;
• capability/resourcing: bodies should be able to demonstrate existing capabilities to be of an appropriate level to take on sufficient supervision;
• collaborative working: bodies should have good, professional relations with other supervisors and relevant public sector bodies;
• effectiveness: bodies should have a good understanding of what it means to have a risk-based approach; and
• Financial Action Task Force (FATF) Recommendations: bodies should be aware of, and meet the requirements of, the global standards relating to supervisors. 1.6 Discussions were held with supervisors and their affinity leads.4These discussions provided an opportunity to clarify how supervisors were meeting requirements for effective supervision and consider any action points to address areas of potential improvement and future focus.
1.7 This approach was adopted with the support of the Anti-Money Laundering Supervisors’ Forum, recognising the diversity of supervised populations and the need for different approaches for different members/firms with different risk profiles. Clearly, with supervised groups as diverse as banks, solicitors, accountants and casinos and ranging in size from micro entities to international organisations, there are variations in methods and policies. Each supervisor is expected to design a risk-based approach that is relevant and effective according to its circumstances.

A copy of the annual report is available. http://www.hm-treasury.gov.uk/d/amlctf_supervision_report_201112.pdf