The last 24 months have been far from quiet in the worlds of anti-money laundering (AML), counter terrorist financing (CTF) and sanctions compliance. But 2018 brings even greater challenges to the United Kingdom, not least from the impending visit from the Financial Action Task Force (FATF), the inter-governmental body that sets standards in these areas.
FATF's "National Risk Assessments" and resultant "Mutual Evaluations" are the mother of inspections. They last took place in 2007, in which a pre-financial crisis and pre-Brexit vote UK was a markedly different operating environment both economically and politically.
High on FATF's list will be two UK industries that have boomed in the intervening decade: real estate and gaming. Along with money services, in which London still moves half of the world's foreign exchange, and a continually surging fintech sector, real estate and gaming represent known "high-risk" sectors in the fight against money laundering.
FATF's presence will no doubt intensify the spotlight on the raft of legislation implemented in the last 12 months. Headline focus will be given to how far organisations in those high-risk sectors have implemented key provisions contained in the EU's fourth anti-money laundering directive (AML4), which was transposed into UK law in June. Close attention will be paid to customer due diligence, treatment of politically-exposed persons (PEPs) and risk assessment.
Real estate and overseas registries of beneficial owners
The UK real estate market, particularly London's, has been on the regime's radar since FATF's last mutual evaluation. Transparency International's highly influential report in 2015 lifted the lid on the scale of dirty money flowing through bricks and mortar and onwards into the UK's financial markets.
Her Majesty's Revenue and Customs (HMRC) has been knocking on a few more doors of late, with fines for AML breaches showing an upward trend. The tax department is currently at loggerheads with the Royal Institute of Chartered Surveyors (RICS) over HMRC's stance that both sides – seller and buyer – should be subject to robust due diligence, including verification of ultimate beneficial ownership. Industry bodies believe a more pragmatic position must be achieved. We'll see whether FATF agrees that they're doing enough to stem the tide.
Government has also been consulting on whether to create a new register of beneficial owners for overseas entities that own property in the UK, an initiative similar to the register of "people of significant control" (PSCs) maintained by Companies House. Will 2018 bring greater visibility on the 86,000 UK properties held by anonymous entities?
Growth of gambling
The Gambling Commission, one of the UK's 22 supervisory AML bodies – an issue which itself is due for further review this year following a recent consultation, which led to the creation of unified regulatory body, OPBAS – has for the first time been pulled front and centre to participate in a FATF visit.
Statistics on the UK's gambling industry show that it generated over £13 billion in total revenue in the previous financial year, employs over 100,000 people and is growing at a rate of 1.8%. It is also the largest regulated online gambling market in the world. So it makes sense that FATF are especially interested in getting their teeth into AML protection. It was also of little surprise when news broke this month of investigations into 17 remote gaming firms for potential breaches of AML regulations.
Other rules on the horizon
Beyond the visit of FATF there is plenty more legislation in the pipeline on both domestic and supranational footings, which will further shape market conditions in 2018. The Criminal Finances Act 2017 raises the bar for professional services firms, often the facilitators of market abuse, by creating a new corporate offence of failing to prevent the facilitation of tax evasion.
The Sanctions and Anti-Money Laundering Bill will help to create a post-Brexit domestic legislative framework for the imposition and enforcement of sanctions.
Established in 2016 and so still in its infancy, the UK's Office of Financial Sanctions Implementation (OFSI) will surely grow into a fully formed targeting – and therefore revenue-generating – agency at some point on the medium-term horizon.
From within the EU, the next iteration of AML4 was greenlit in December. The directive aims to strengthen beneficial ownership registries by clarifying who can access them and scrutinises two financial "weapons of choice" utilised by terror groups accessing finance: prepaid cards and virtual currencies. Card providers will need to revisit their approach to know-your-customer (KYC) operations as lower-value clients are in scope.
The first move to regulate virtual exchanges – gateway platforms enabling trade of crypto-currencies or "cryptos" – may have a lot more to run, and 2018's latest City boom (or is that bubble?) may well be higher up the agenda next time FATF come calling.
Company and ownership information
A crucial component of a compliance officer's activity will continue to be due diligence on the
third parties they deal with. As ever, Bureau van
Dijk can help through access to Orbis, its
database of 280 million private companies from around the world.
In addition to a wealth of rich data, its monitoring tools allow users to set up alerts for changes in directors and owners, with beneficial ownership identification according to user-defined percentages, being one of its strongest suits.
Download our new definitive guide to beneficial ownership.