Sophie Proctor
As we enter a new year, it seems only fitting to look at what we can expect in 2022 in the financial crime compliance space. We’ve divided our market outlook into a five-part series looking into different geographical regions and considering what’s most prevalent for each. We begin our series with the UK and EU.
Cybersecurity in our homes
By now, some of us may have hoped for remote working to be a thing of the past, for others, they’ve embraced it as a new way of life. However, certain challenges arisen with this new flexible working arrangement, including threats to cyber security as well as ransomware. According to a report by Norton Rose Fulbright, fraudulent scams like phishing were up 285% in the first half of 2021. Consequently, it’s likely that this will remain a focus for financial crime compliance teams and how they can keep up with sanctions, AML and KYC requirements.
New legislation
An area to focus on in this region in 2022 is the development by the HM Treasury following a consultation ending in October 2021. They are proposing amendments to the Money Laundering Regulations (MLRs) to ensure that the UK continues to meet international standards set by the Financial Action Task Force (FATF); thus, strengthening and clarifying how the AML regime operates. The MLRs require that HM Treasury publishes their review of AML and counter-terrorist financing by June 26, 2022.
On the subject of legislation, in July of last year, the European Commission presented a package combined with four legislative proposals to strengthen the EU's anti-money laundering and counter-terrorism financing. These four proposals are:
- Establish a new EU AML/CTF Authority
- A Regulation on AML/CFT, containing directly applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership
- A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States
- A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto assets (Regulation 2015/847/EU)
This will introduce new rules including an EU-wide limit of €10,000 on large cash payments and full application of the EU AML/CFT rules to the crypto sector. While the future AML Authority will be established in 2023, with the aim to start most of its activities in 2024, nevertheless it will be something to keep an eye on in the year to come.
Thinktanks take shots
London-based thinktank Chatham House published a report in December of last year criticizing the UK’s AML laws and calling out specific faults such as banks over-reporting suspicious activity, flawed judgements from UK courts and the Conservative parliamentary party being open to influence from wealthy donors. A further finding was highlighted – from the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) – that 81% of the 22 professional bodies had not implemented an effective risk-based approach, and only a third were effective in developing and recording adequate risk profiles for their sector.
To quote the report, “The British government has placed combating serious organised crime at the centre of its foreign policy, but often fails to recognise the intimate connections UK society and institutions have with kleptocratic states and their elites, the latter of which continue to find a home-from-home in London”.
A response from the Law Society shortly followed addressing this report, including a statement surrounding UK Banks over-reporting; “We are concerned the report compares the legal profession’s suspicious activity reports (SARs) with banks. Of the 573,085 SARs filed by regulated sector in 2020, 75.4% were from banks and approximately 1,500 SARs were filed by the legal profession.” Any actions taken following this report should come to light this upcoming year.
Rising compliance costs
An additional hurdle to face this year may be getting compliance costs under control. A survey conducted by the LexisNexis Risk Solutions 2020: True Cost of Financial Crime Compliance Study found three core issues brought on by COVID-19:
- Difficulty accessing information sources for Know Your Customer (KYC) due diligence research (42%)
- Increased challenges onboarding new accounts (41%)
- Longer times to complete due diligence for onboarding new accounts (38%)
While this was addressed as a global issue, firms in Germany saw their compliance costs rise the most, according to this report. Further regulatory trends which were causing a rise in compliance costs extended to AML laws and GDPR issues in the EU and UK. This year, firms may need to focus on bringing these costs down.
Without a doubt, it’s going to be a busy year for fighting financial crime, both on a small-scale level and at a government level. Make sure you keep an eye out for the next four parts in our series, delving into further legislation and hurdles for financial crime compliance this year.
To look back on last year and further insights on the shift we’re experiencing, read our article: https://www.amlrightsource.com/news/in-the-year-2022
For solutions to protect your business against financial crime, explore our range of products here: https://www.amlrightsource.com/solutions.