The Winds of Change Require a Windbreak against Financial Crime in the UK

The start of 2015 brings the realisation that a number of changes will affect the anti-financial crime function within financial services regulated firms. Some of these are obvious, some less so. But either way, the financial services and finance training and development needs of both the compliance staff and the wider firm must not be lost along the way.

Europe rings in the changes

The final text for Europe's Fourth Anti-Money Laundering Directive now looks set to be made public by the end of January 2015. This means that the timeline for firms to implement the changes moves ever closer, and sometime during 2017 appears reasonable as a final implementation date.

Firms in the UK need to prepare to make changes, even though the effect here may not be as keenly felt as in other parts of Europe. The Directive (or 4MLD as it is more commonly known) hangs mainly on the principle of allowing firms to take a more risk-based approach when setting their Anti-Money Laundering (AML) controls. Nothing new here for UK firms you might think.

And you’d probably be right. A lot of the work required by firms in terms of risk assessments will have already been put in place, and will just require a refresh.

The major piece of work here will actually emanate from the requirement to treat domestic Politically Exposed Persons (PEPs) in the same way as for overseas PEPs. In practice, firms will need to carry out the same level of enhanced due diligence for UK PEPs as for those resident overseas. Not just at client on-boarding stage, but whenever payments are made too.

The problem here as I see it, is not just one of new procedures but of sheer volumes. UK firms are likely to have a substantially greater number of UK PEPs than they have overseas PEPs. The bigger the firm, the greater this discrepancy could be. Some firms may strike pre-emptively by already treating UK PEPs the same as overseas PEPs anyway, but if not, then this means a significantly increased burden of responsibility for those in the first line who operate the controls.

The other significant change is around the definition of beneficial ownership. This is where rules require those who, for example, have a controlling interest in a business, need to be subject to enhanced due diligence requirements. Firms will need to make sure they have collected all relevant information about beneficial ownership from all corporate and trust clients. This should actually be easier in future, given that these entities will be required to hold adequate, up to date and accurate information on their beneficial owners. But again, front-line teams will need to know and understand any changes in process that are required.

Closer to home

Financial services MLROs working in banks, building societies and designated investment firms will need to get to grips with the new Senior Managers Regime (SMR), when it’s finally introduced. The biggest issue right now concerns what needs to be done for them to be “grandfathered” across to be a MLRO under the new regime.

This won’t be as simple as just filling in a form. A “statement of responsibility” will need to be provided to the FCA, which will set out the MLRO’s key areas of accountability. Under the SMR, these will be the controls which the MLRO will be held accountable for by the FCA, even if these controls do not directly contribute to any breach or failing.

The grandfathering constitutes the first stage in the SMR taking effect, and for that reason, it needs to be thought about now. Not just by MLROs themselves but by firms at board level.

Doing the knowledge       

MLROs, financial crime staff and those in administrative functions need to learn and understand a lot of new information; including

  • What changes will be introduced by 4MLD
  • How these will affect procedures and communications
  • Whether risk assessments are still fit for purpose, as well as due diligence requirements; and
  • What the areas of accountability will be for MLROs and their teams. In the latter case, how the new “conduct rules” to be introduced under the SMR will apply in practice to all staff from a financial crime point of view. (I’ll expand on this in a later blog post, as it’s a subject all on its own.)

The plan of attack

There are a number of ways to approach dealing with the knowledge issue.

Firstly, by getting an understanding of the detail of the changes on the horizon. This can be achieved through attendance at seminars and conferences. Now would be a good time to start doing that, especially as there’s more certainty around how 4MLD is likely to shape up.

Secondly, through the structuring of the periodic training on AML matters which needs to be provided to staff in the majority of firms. Many will be looking at structuring this training for delivery some time during 2015. Now could be a good time to think about whether current delivery methods are fit for purpose, or whether it’s time for a change, especially with so much more material to be understood.

If so, then a number of external training providers offer services which could help here.

Finally, there’s the issue of professional standards. If the time has come to increase

the level of skills and understanding within financial crime teams on a more formal and rigorous basis, there are a number of professional bodies offering qualifications at a number of different levels of complexity.

No excuses

This sounds a little harsh, but it’s actually meant to be positive. Access to information and fianancial services and finance training has never been easier, given Industry Events Online’s continued expansion and the ease of use of its search facility.

There’s no doubt that knowledge will become power more and more as the burden of change intensifies.  Good news. There’s no need to be left behind anymore.


Martyn Oughton    

By Martyn Oughton a Professional Member of the International Compliance Association (ICA).  Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.

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