AML reform could strip accountancy bodies of supervisor powersby
The government has set out four ways to reform money laundering regulations which range from bolstering the existing regulator to stripping the accountancy bodies and HMRC of their AML supervision powers and creating a new, all-powerful watchdog.
The Treasury has issued a consultation document addressing arrangements for the supervision of accountants and lawyers' compliance with money laundering regulations, and has proposed four options to shake up supervision:
- Carrying the least impact is an option to beef up the supervisor of supervisors: the Office of Professional Body Anti-money laundering Supervision (OPBAS).
- One alternative is the creation of single regulators for the accountancy and legal sectors in the UK, relieving the professional bodies of their supervisory roles.
- Another option is a single new regulator covering both accountants and lawyers.
A number of models described in the consultation would completely change the landscape of anti-money laundering (AML) supervision.
The biggest shake-up would be for the professional bodies. A couple of the proposed options would strip accountancy bodies and HMRC of AML supervision responsibilities, instead handing them over to new public bodies.
David Winch, AccountingWEB’s resident AML expert and the director of MLRO Support, commented: “The consultation looks to primarily affect the accountancy and legal sectors, and particularly the professional body supervisors for those sectors. Regardless of which model the Treasury chooses, AML supervision is only going to increase.”
Sweeping AML reform
Reasoning the need to overhaul AML supervision, the consultation noted that the introduction of OPBAS in 2017 has “delivered substantial improvements in professional body supervision” but concluded that “significant weaknesses remain in the UK’s supervision regime”.
Indeed, OPBAS’s recently published fourth report found that the effectiveness of supervisory interventions across professional body AML supervisors (PBSs) remained inconsistent.
There are currently 22 PBSs, with 13 being accountancy sector bodies. As of 2021-22, there were 33,911 supervised entities in the accountancy sector and 8,462 in the legal sector.
This consultation comes shortly after the government unveiled its economic crime plan 2, which set out a three-year plan to reform suspicious activity reports and amend money laundering regulations. The Treasury’s 2022 review of the UK’s AML regime also concluded there was rationale for further reform.
Four new models for AML supervision
The consultation suggests several significant changes to AML supervision. The Treasury wants stakeholders to consider supervisory effectiveness, improved system coordination and the feasibility of the following four potential models.
Model 1: OPBAS+
Under this option, the supervisor of supervisors would have enhanced powers, enabling it to drive further improvements in the effectiveness of professional body supervision. Statutory supervisors such as HMRC can continue as they are.
If the Treasury was to go ahead with this model, it would require no structural change and would be the most immediately feasible and least destructive option.
OPBAS had already indicated to the Treasury that having rule-making powers akin to the FCA would improve the effectiveness of the supervision. It has stated that FCA-powers would enable it to create rules that would set expectations for the professional bodies.
Currently, OPBAS only has powers to criticise a PBS publicly for failure to comply and recommend to the Treasury that a professional body should no longer be able to supervise, but the consultation acknowledged that this is a “narrow toolkit”.
The consultation suggests OPBAS+ could have additional powers such as publicising details (in part or in full) of supervisory interventions it takes against PBSs, restricting or reducing the supervisory population, fining PBSs for supervisory failings and a range of other sanctions.
Due to the need to hire new staff to carry out the added duties, this option could lead to a potential increase in the OPBAS levy, which consists of a flat fee of £5,000 if the professional body supervises up to 6,000 individuals and a variable fee for every supervised individual above this threshold (which currently stands at £35.19). As an illustrative example of the levy in practice, according to an ACCA FAQ document the OPBAS levy cost the professional body £97,331.85 in its last full year, with the cost borne by UK practising certificate holders.
Model 2: PBS Consolidation
This model could see two or six professional bodies retain responsibility for AML supervision, which could potentially create a messy situation between accountancy bodies.
The consultation explains that there could be one accountancy sector supervisor and one legal sector supervisor with either UK-wide remits, or six professional bodies with one responsible for each of the accountancy and legal supervision in England and Wales, Scotland, and Northern Ireland.
As a result of this model, HMRC would no longer be able to supervise accountancy service providers and that population would transfer to the consolidated professional bodies’ supervision. However, an alternative solution could be that HMRC retains the supervision of some firms.
Of course, the selected professional bodies would have to take on the population of the deselected professional bodies and those of HMRC, but there would be consideration here on the impact of those professional bodies having to scale up to cover the demand of supervising a larger population.
OPBAS would likely have to stay as the supervisor of supervisors under this option in the short term to oversee the consolidated professional bodies, and it could even have the OPBAS+ enhanced powers for effective supervision.
The Treasury said this option could reduce inconsistency and complexity while keeping only the highest-performing supervisors.
As for funding this option, the consultation said deselected firms could collect fees from members and transfer the fees to the bodies that retained their supervision powers or a third party could collect the fees and pass them to the consolidated supervisor.
Model 3: Single Professional Services Supervisor (SPSS)
The third model would be a public body that would supervise both the accountancy and legal sectors and potentially some of the wider sectors supervised by HMRC.
The creation of SPSSs would mean the accountancy bodies would no longer be responsible for AML supervision and instead, the new public body would supervise over 60,000 legal and accountancy firms and trust or company service providers (TCSPs), and potentially more than 17,000 estate agency and letting agency businesses. The consultation noted that this is a much bigger population to supervise than any supervisor under OPBAS+ or the consolidated PBS models.
The consultation said one benefit of this option is that it’s more appropriate for a public body to hold broad enforcement powers and scope to expand its remit than a private body.
The consultation acknowledged that the downside with this option is that another supervisor could increase information-sharing barriers and regulatory burdens, as well as make the supervision less effective by having a supervisor with less expertise than the “highly specialised PBSs”.
There would be a need to hire experienced individuals, but public sector pay restraints and resourcing a public body could prove to be more complex than expanding the work of a professional body.
SPSS would be independent of a ministerial department but accountable to the Treasury.
Model 4: Single Anti-Money Laundering Supervisor (SAS)
Under the final model, a single public body would oversee all AML supervision in the UK, including the supervision currently done by HMRC, the gambling commission and the FCA.
The one supervisor to rule them all would lead to OPBAS winding up and all professional bodies and HMRC being stripped of their AML supervision responsibilities.
This option shares a lot of the same benefits as described with the SPSS model, such as the increased population leading to the pooling of data and information. The consultation also suggested that the SAS would allow better monitoring of threats and suspicious activity.
But the negatives of this model include a lack of expertise in sector-related areas. The risks for this option are also heightened compared to SPSS because this body would oversee the financial services sector, casinos, and money service businesses (that transmit or convert money) currently supervised by HMRC.
The consultation envisages a staggered approach to rolling out this model. If chosen, it could take over the supervision of legal and accountancy firms from smaller supervisors before eventually taking on the larger supervisors.
Both the SAS and SPSS would charge firms an annual fee to offset the cost of supervision, but the consultation noted that the cost of setting up a new public body would require considerable investment to cover set-up costs such as a new physical location, IT system and hiring new staff.
The closing date for comments to be submitted is September 30 2023. The government will then make a decision on the chosen model and publish a response by Q2 2024.