New UK anti-money laundering ‘mega watchdog’ launches

Challenges and key aspects

By Natasha Reurts

The United Kingdom’s anti-money laundering ‘supervisor of supervisors’ unit is now open for business. The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is mandated to provide consistency across 22 money laundering professional body supervisors.

Unfortunately, its initial proposal and now commencement has failed to forge unity, consistency in opinion and enthusiasm for OPBAS supervision among professional body supervisors.

What does this mean for the future success of OPBAS?

Challenges ahead

On 18 January 2018, OPBAS, a new division housed within the Financial Conduct Authority (FCA), became operational.

Consultation on OPBAS ended in October 2017 and in late January 2018 OPBAS published a “specialist sourcebook” for professional body supervisors.

The sourcebook, a publicly available document, sets out the standards required of professional body supervisors by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).

OPBAS states that it will endeavour to work with professional body supervisors to meet these standards and facilitate collaboration and information sharing between the various sectoral supervisors, law enforcement and other statutory supervisory authorities.

Here are some of the challenges it presents:

The Sourcebook

The sourcebook is principles-based. Although some professional body supervisors stated during consultation they were content with this approach, others sought more sector-specific material rather than a “one-size-fits-all” document.

Although the sourcebook does go some way to providing a degree of clarity with examples of good and bad practice, the document is a general overview of MLR 2017 and supervisory requirements. It is questionable how consistency and clarity in oversight can come from such a generalist document.

And, as pointed out by the General Council of the Bar, it is questionable how its generalist nature reflects the risk-based approach required by MLR 2017.

Essentially, how are professional body supervisors to translate one-size-fits-all principles into their supervisory oversight practice? On the other hand, the sourcebook is a living document that will be updated and tailored over time.

To OPBAS’s credit, in spite of some calling the publication of a sourcebook “premature”, OPBAS felt it important to publish guidance which drew on the FCA’s experience as a supervisor and member of the Anti-Money Laundering Supervisors Forum.

Supervisory approach

Of interest, and as raised during consultation, the sourcebook does not set out OPBAS’s supervisory approach.

This is instead contained in an annexure to an open letter dated 24 July 2017.

Quite why it appears there is unclear. In any event, it would seem that OPBAS will undertake a review of each sector subset.

Adopting a risk-based approach, OPBAS will commence with, and commit supervisory resources to, the sector deemed to be the highest risk.

However, the sector, or indeed professional body supervisor, first up remains unknown.

Indeed, the process of determining who is deemed the greatest risk is also an unknown. No doubt, those in the regulated sector will find the method (a varied form of a risk assessment) helpful insight that may be used to inform their own risk assessments.

Although this review will result in OPBAS developing sound sector specific knowledge, the process will take time.

The knock-on effect is that any changes to the approach of supervisory bodies will not be seen for a while.

Correct supervisees?

The recent penalties imposed on estate agencies and gambling operators for lax anti-money laundering controls begs the question whether the right sectors are within the remit of OPBAS.

In February 2018, William Hill was penalised £6.2 million by the Gambling Commission.

The National Association of Estate Agents has disclosed that estate agents have been fined “six and seven figure sums for failing to comply.”

It is clear from the penalties imposed that two sectors without designated professional body supervisors who are supervised by OPBAS, real estate and gambling, have money laundering vulnerabilities.

Moreover, the literature identifies the money laundering threat in the real-estate sector as high risk.

How is it then that this sector continues to lack a professional body supervisor? Here, the General Council of the Bar’s response to OPBAS consultation has merit.

The General Council has repeatedly pointed to the low money laundering risk presented by the work undertaken by barristers and questioned the rationale of imposing upon them supervision by OPBAS and a fee levy to sustain OPBAS running costs.

How is it proportionate for a low risk sector of the legal profession (which, granted, has been assessed as having a higher money laundering risk) to be subject to greater scrutiny, potential public censure and increased costs in instances where clear money laundering activity goes unsupervised in the same manner in other known areas of high risk?

Joining up

An avenue to remedy this is available. Upon application to OPBAS, a professional body without supervisory responsibilities under the MLR 2017 may apply to be given the role.

OPBAS, after considering whether the body meets standards expected of supervisors, may recommend to Treasury to amend the MLR 2017 to give the applicant body the formal role.

When regard is had to the generalist nature of these standards, the criteria is currently unknown. However, whether bodies will immediately sign themselves up to OPBAS is questionable.

Professional bodies without the formal role would likely wait to see how this ‘supervisor of supervisors’ operates and supervises its current 22 bodies before making an application for formal designation as the 23rd.

The future

As OPBAS’s work commences, the next challenge for the supervisory watchdog and other stakeholders will be determining and measuring its impact and success.

In June 2022, OPBAS’s effectiveness is to be evaluated by HM Treasury. Until then, the work of OPBAS will be closely watched.

Professional body supervisors will want to ensure that the annual estimated bill of around £2 million, effectively borne by professionals, is put to good use.

More broadly, those interested in and affected by money laundering supervision will want to ensure that OPBAS and its work is not an exercise in wasted time and effort.

Natasha Reurts is an Associate at Bright Line Law and undertakes policy work at The White Collar Crime Centre.