UK consults on reform to anti-money laundering supervision

HM Treasury has published a consultation on reform of the UK anti-money laundering and counter-terrorist financing (AML-CTF) supervisory system.

AML-CTF supervision is currently undertaken by 22 professional body supervisors (PBSs), who in turn are supervised by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), alongside three statutory bodies: HMRC, the Financial Conduct Authority and the Gambling Commission. The consultation sets out four options for change to this structure.

Supervision concerns

The consultation follows HM Treasury's 2022 review, which found although there had been continued improvement to the AML-CTF supervisory regime, there remained some weaknesses in supervision, which may need to be addressed through structural reform.

The consultation follows criticism by the Treasury Select Committee of supervision among PBSs. In its fourth report, published in April 2023, OPBAS also identified inconsistencies in AML-CTF supervision across the PBSs. HM Treasury therefore considers that reform is necessary to maintain the UK's position as a leading global financial centre.

The consultation also recognises comparable international efforts, including the European Union's intention to create a single EU-level AML-CTF supervisor to address inconsistent supervision across the bloc.

HM Treasury has set out four potential models for reform in the consultation without expressing a preference – the fourth and final model would have a significant impact for financial services firms. What could structural reform look like?

OPBAS-plus

The OPBAS was created in 2017 and supervises the 22 PBSs. Under model one, the number of PBSs and statutory supervisors would remain the same, but the powers of OPBAS would be enhanced. Possible enhanced powers would include the ability to publicise supervisory interventions that currently are not able to be made public, and increased enforcement powers, including the power to levy fines allowing OPBAS to graduate sanctions and take a more proportional response.

PBS consolidation

Model two involves reducing the number of PBSs to either two or six, and consolidating supervision into these bodies. The "two PBS model" would involve having one professional body with responsibility for the legal sector and one professional body with responsibility for the accountancy sector, both with a UK-wide remit. The "six PBS model" has a similar split between legal and accountancy supervision, but with a responsible body for England and Wales, and separate bodies for Northern Ireland and Scotland.

The supervisory roles of the Gambling Commission and FCA would remain unchanged. However, HMRC may have some of its current supervisory responsibility for trust or company service providers and accountancy service providers transferred to the newly consolidated PSBs. There would be no impact on the role of the FCA or the Gambling Commission. The idea is that having PBSs with more sectoral expertise and a wider industry scope would increase supervisory effectiveness and lead to greater efficiency.

Single professional services supervisor

Model three involves consolidating AML-CTF supervision in the legal and accountancy sectors into one organisation, replacing the PBSs and OPBAS. The single professional services supervisor (SPSS) would likely be a new public function, contained within an existing organisation or established as a new public body. This is because HM Treasury considers that there is currently no existing organisation that would be appropriate for the SPSS role due to the specialised nature of the PBSs. It also notes that the Financial Action Task Force has recognised that having these powers in a public body is conducive to more effective supervision regimes.

The SPSS would have wider intervention powers and would be accountable to Parliament, with the benefit of increased information sharing between this body and law enforcement due to its status as a public body. However, there is a risk that the SPSS would lose the sectoral expertise that the PBSs currently have and that the supervised population would be subject to multiple regulators with increased regulatory burden.

This proposal would not affect the role undertaken by the three statutory supervisors: HMRC, the FCA and the Gambling Commission.

Single AML supervisor

Model four is the most far-reaching proposal, which would have a significant impact for financial services firms, and would radically change the AML-CTF supervision undertaken by the FCA and the Gambling Commission. Under this model, all AML-CTF supervision currently undertaken by the three statutory supervisors and the PBSs would be consolidated into one public body. The FCA and Gambling Commission would continue most of their regulatory functions, but AML-CTF would no longer be within their remit. OPBAS would be wound up and the PBSs would no longer have responsibility for AML-CTF supervision.

The benefits of this approach is that there would consistency in AML-CTF supervision across the entire regulated sector, with increased pooling of data and information. Establishing a single AML-CTF supervisor would reflect what is being done in the EU with the creation of the EU-level AML-CTF supervisor, the aim of which is to ensure consistent application of AML-CTF rules across member states.

There is a risk, however, that this approach could increase the regulatory burden on firms, with all financial services firms having to deal with at least two separate regulators (a significant shift for solo-regulated firms). Moreover, as for model three, there is a risk that substantial sectoral expertise within the existing supervisory bodies will be lost and instead silos of knowledge will be created.

Sanctions supervision

The consultation also discusses the introduction of a more formalised system of sanctions supervision, given the change in sanctions resulting from Russia's invasion of Ukraine, the increasing complexity of sanctions supervision, and global non-compliance.

What next?

The government has invited stakeholders to input on the consultation, to ensure evidence-based policy decisions. The closing date for submissions is 30 September 2023, and a government response is expected by the fourth quarter of 2024.

We are expecting a separate consultation on proposed amendments to the UK Money Laundering Regulations 2017 later this year, which could impact the substantive obligations on firms.

If you need support navigating the UK AML-CTF regime, Osborne Clarke has a team of specialists who can assist.

Vincent Guereca-Adair, a Trainee Solicitor at Osborne Clarke, co-authored this Insight.