Treasury Committee unhappy with anti-money laundering supervision

The committee recommends the Government give a higher priority to tackling economic crime, possibly centralising both policy and operational responsibility for it. It wants the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to take a tougher line with under-performing professional body supervisors and for the Government to consider moving away from the self-regulatory model for anti-money laundering (AML) supervision

The report can be read here.

Growth in economic crime (overview)

Key recommendations:

• The Economic Crime Plan should be adapted as necessary and renewed for a further three years
• The Government should consider whether policy responsibility should be centralised in a single government department
• The Government should consider whether there should be a single law enforcement agency with clear responsibilities and objectives to fight economic crime
• The Government should publish an annual account of its spending on economic crime, including an account of how the yield from the Economic Crime Levy has been spent, and an evaluation of its effectiveness

Setting the scene for a wide-ranging report the Treasury Committee state that there is no ‘silver bullet’ solution to economic crime and government must work across departments, regulatory bodies and law enforcement agencies to address all aspects of the problem. A plan to co-ordinate this work, such as the existing Economic Crime Plan, is a sensible approach, it concludes.

The committee welcomes the minister’s frankness about the (lack of) progress made on tackling economic crime. “We acknowledge that there is a lot of activity going on across Government, by regulators and crime-fighting agencies, to tackle economic crime; but fraud and economic crime have continued to rise at an alarming rate.  Work being done by Government is still not enough and not urgent enough to stem the rise, let alone start to bring it under control.”

It calls on the Government to give tackling economic crime ‘a far higher priority’, extending the Economic Crime Plan and considering centralising policy responsibility in a single government department. “The Government should move to a strategy for combatting fraud which focuses on outcomes, not processes. Its explicit target should be to reduce substantially the level of fraud.” 

The committee welcomes the design of the Economic Crime Levy “as it is simple and excludes the vast majority of regulated businesses. However, spending on anti-money laundering should match the need and should not be limited by the yield of the Levy alone.”

Describing the number of agencies responsible for fighting economic crime and fraud as ‘bewildering’ the committee poses the question of whether there should be “a single law enforcement agency with clear responsibilities and objectives to fight economic crime.” They recommend that the Government seriously considers this issue as part of a review of the Economic Crime Plan. 

Anti-money laundering

Key recommendations:

• OPBAS should be resourced to carry out more checks and allowed to take ‘punitive action’ against professional body supervisors
• The Government should consider a move away from the self-regulatory model and the creation of a new supervisory body which takes more direct responsibility for policing professional body compliance with anti-money laundering regulations
• HMRC’s role as a supervisor should be reviewed and they should not be self-assessing their own performance

The report praises the National Crime Agency’s focus on Suspicious Activity Reports (SARs), which has included investment in new IT systems and plans for increasing staff and analytical capacity. “The SARs reform programme is likely to improve anti-money laundering systems and the ability of law enforcement agencies to handle large numbers of SARs quickly and effectively, so as to make full use of them in the fight against economic crime and organised crime more generally,” it continues. However the committee is disappointed that the reform programme is not yet complete and calls on the Government to provide a timeline showing when the programme’s milestones are expected to be met.

The committee argues that the effectiveness of SARs might be increased if banks were permitted to share information with the National Crime Agency and other law enforcement agencies, before the suspicion threshold required under existing anti-money laundering legislation is reached. 

The committee praises OPBAS for making ‘good progress’ but expresses disappointment that it is still encountering ‘poor performance’ from a large proportion of the professional bodies that it supervises. There needs to be a plan to ‘ramp up compliance’ in this sector, by resourcing OPBAS to do more checks and to allow it to take ‘punitive action’ against professional body supervisors, the report states. 

“The forthcoming government review of the regulatory and supervisory regime for anti-money laundering and counter-terrorist financing, expected to conclude by June 2022, needs to address the concerns we have heard in this inquiry about the limited forward steps in compliance that OPBAS has so far secured, state the committee. The review “should not shy away from considering radical reforms, including a move away from the self-regulatory model and the creation of a new supervisory body, potentially independent of the FCA, which takes more direct responsibility for policing professional body compliance with anti-money laundering regulations. The review should also take a hard look at enforcement measures which apply to professional bodies.”

The committee says that there is a case for a ‘supervisor of supervisors’ — including statutory supervisors – and recommends that this also be considered by the review. Additionally it thinks the review should look at HMRC’s role as a supervisor, and at what can be done to improve money laundering compliance by trust or company service providers. The MPs also want HMRC to find a way to provide the assurance of independent assessment, regarding HMRC’s self assessment of its performance as not truly independent.

Online economic crime

Key recommendations:

• More responsibility on online companies to prevent their platforms being used to promote financial fraud
• The Government should seriously consider whether online companies should be required to contribute compensation when fraud is conducted using their platforms

The committee wants to place greater responsibility on online companies to prevent their platforms from being used to promote financial fraud. This would include designating fraudulent content as “priority illegal content”, thereby requiring online firms to be proactive rather than reactive in removing it from their platforms.

The MPs suggest the Government should consider whether online platforms and social media companies should be required to do Know Your Customer checks on their advertisers, to make it more difficult for fraudsters to promote themselves. They welcome the steps taken by some online firms to prevent entities not authorised by the Financial Conduct Authority (FCA) from using their platforms for financial promotions, and urge other online companies to follow suit. 

It is not appropriate that online companies should profit both from paid-for advertising for financial products and from warnings issued on their platforms by the FCA about those advertisements, states the committee. We urge all online companies to work constructively with the FCA and to follow Google’s example by giving advertisement credits to the FCA for the future. We also expect them to refund money that has been spent in the past by the FCA.”

Placing a responsibility on online companies to reimburse consumers who are victims of online fraud could rapidly transform their approach to fraud, the MPs argue. But they stress that any move to force online firms to compensate victims of fraud should not be to the detriment of the outcomes for consumers already achieved through the compensation banks and other financial institutions pay.

Other measures

Key recommendations:

• The Government should significantly increase the costs of company and Limited Liability Partnership incorporation
• The Government should pursue reform of Companies House with greater urgency
• Ensure proper consumer protection regulation across the cryptoasset industry                                                                                                                        

The report praises moves towards reform of corporate criminal liability and reform of Companies House but the committee feels that, in both cases, the Government is not moving forward with sufficient urgency. “The problems with UK company structures were identified by the Government in 2014,” they point out. “While there have been welcome innovations, such as the People with Significant Control register, on current plans it will have taken over 10 years to improve matters, during which time a large number of UK companies may have been put to criminal use by a wide range of criminals.”

The committee argues that the low costs of company formation, and of other Companies House fees (such as filing fees), present little barrier to those who wish to set up large numbers of companies for dubious purposes. The MPs say that large numbers of registrations of companies place cost burdens on other parts of the public sector, such as HMRC, and on the regulators and law enforcement agencies tackling economic crime. “A fee of £100 for company formation would not deter genuine entrepreneurs, and would raise significant additional funding for Companies House and for the fight against economic crime. It would also help compensate for the wider costs on the public sector of large numbers of company formations.”

The MPs urge the Government to include the long-promised Registration of Overseas Entities Bill in the Queen’s Speech for the next parliamentary session, to improve transparency of ownership of UK property.

The committee welcomes the announcement by the Treasury that the Government will legislate to bring advertising of cryptoassets into line with that of other financial services and products. It calls on the Government to ensure that there is proper consumer protection regulation across the whole cryptoasset industry. It says that it is unacceptable that, having introduced AML regulations for cryptoasset firms in 2020, there remain many firms which have not yet been registered.

The committee welcomes the work of the Payment Systems Regulator to improve the Contingent Reimbursement Model Code, agreeing it will help improve consumer outcomes and reduce fraud. However, once again it criticises the slow pace of change. “We recommend that the Government urgently legislates to give the Payment Systems Regulator (PSR) powers to make reimbursement mandatory, and that the PSR then take rapid action to protect consumers,” say the MPs.

By George Crozier, CIOT External Relations Manager