On 18 January 2018 a new body within the FCA was empowered to oversee the anti-money laundering and anti-terrorist financing regimes of 22 regulatory organisations in the legal and accountancy sectors.
As part of the Government’s overall strategy to counter money-laundering and terrorist financing, published in late 2017, (please see our analysis of the strategy in our article "UK Government unveils a new anti-corruption strategy") there has been a greater emphasis on the need to engender cooperation and collaboration between various entities. In the same way that the Government is seeking collaboration between various law enforcement agencies to collaborate with the National Economic Crime Centre, the Government has also sought for regulatory bodies overseeing accounting, legal and notary work to operate in a more coherent fashion with respect to anti-money laundering (AML) and counter-terrorist financing (CTF) efforts.
To that end, the Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 (Regulations) empower the Financial Conduct Authority (FCA), through the creation of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), to oversee 22 regulatory bodies who supervise accountants, notaries and lawyers for compliance with AML and CTF requirements. The aim of the OPBAS, as stated by Megan Butler,1 is “to ensure consistency and quality and to drive up standards across all professional body AML supervisors in the UK.”
It is unclear, at present, quite how wide ranging the use of these powers will be. It is unlikely, in our opinion, that private businesses will be immediately affected. We believe it is more likely that the initial impact of the Regulations will be limited to regulators who will feel an additional level of scrutiny placed on their systems and controls. This is evidenced by the initial stated goals of the OPBAS to be:
- developing an understanding of the regulatory bodies it oversees
- subsequently concentrating resources on the areas of the greatest risk, and
- accordingly sharing best-practices between regulatory bodies and avoiding supervisory conflicts.
If OPBAS is successful at coordinating these 22 regulatory bodies and eliminating inconsistencies between different regimes, then private businesses may ultimately feel a tighter, more coordinated, squeeze from their advisors enforcing these new “high watermark” polices.
There is a risk, however, that by adding another regulatory body to the mix, regulators may be confused by which guidance they should be following and how each component of the system interacts with the others. This may lead to an even more inconsistent approach as to how AML and CTF guidance and regulations are enforced by the regulators of professional advisors.
Only time will tell if the OPBAS is able to bring clarity and uniformity to the Government’s AML and CTF efforts.
The OPBAS powers of supervision
Under the Regulations, the FCA shall have the power, through the OPBAS to engage in the following:
Publishing guidance and ensuring that these regulatory bodies carry out their AML obligations
The FCA will start to issue guidance to the regulatory bodies as the role of the OPBAS becomes more defined. It should be noted, however, that the National Crime Agency will still be the authority that oversees the suspicious activity reporting regime, and the Treasury will still retain ultimate oversight for AML policy.
Require information or documents from a regulatory body
The FCA may require the production, by a regulatory authority governed by the Regulations, of specified information and documents, or a specific type of documents and information, to it in connection with its role in the context of the Regulations. Connected individuals may also be required to attend at interview to answer questions. A connected individual, broadly, is someone who is either an officer, manager, or agent of a regulatory body or within that regulatory body’s undertakings.
Both of these powers can be subject to strict deadlines applied by the FCA.
These powers are, however, subject to the following safeguards:
- the information can only be requested if it is reasonably required by the FCA in connection with the exercise of its OPBAS functions, and
- unless the disclosure of the reasons behind the request would potentially prejudice a criminal investigation, the FCA must disclose the reasons behind the request.
Furthermore, material can only be retained by the FCA under these powers for “so long as it is necessary to retain it”.
It should be noted that there is a gateway that allows the FCA to disclose the information it receives to a relevant authority for use in enforcement proceedings if this constitutes an effective exercise of its functions, or the functions of the relevant supervisory authority (such as the NCA, the SFO or the Treasury), for the purpose of preventing money laundering.
Seek a report from a “skilled person”, either instructed by the FCA or the regulatory body, in connection to any of OPBAS’ functions under these regulations.
The FCA can, in the course of its supervisory position under the Regulations, either instruct, or require a regulatory body to instruct, an appropriately skilled person (such as a forensic accountant) to provide a report into issues that the FCA requires clarifying.
Issue a direction to a regulatory authority to prevent or correct a breach of an obligation
Under the Regulations the FCA has the power write to a regulatory authority to impose a direction upon that authority. In doing so the FCA will need to consider if, at the necessary time, the regulatory authority followed any guidance that was issued by the FCA relevant to them and any relevant guidance issued by a European Supervisory Authority under the Fourth Money Laundering Directive.
It is envisaged that this will enable the FCA to ensure a uniform approach to AML and CTF regimes by supervisory authorities, and prevent inconsistencies in the system from being exploited.
Publically censure a regulatory authority
The FCA has the power, under the Regulations, to issue a public statement censuring a regulatory authority if it:
- breaches a supervision requirement
- breaches a requirement to provide information to the FCA
- fails to undertake a corrective or preventative direction issued by the FCA, or
- fails to satisfy any charges that the FCA imposes for the costs of supervision.
It is unclear, however, to what extent this power will prove to be an effective first step in the enforcement process in the event the OPBAS’ directions are disregarded.
Recommend to the Treasury that the regulatory body’s role supervising those professionals is removed
If a regulatory body has failed to comply adequately with the Regulations, then the FCA can recommend to the Treasury that this regulatory body be stripped of its supervisory powers. Failure to comply with this regime includes any potential breach worth censure, or where a regulatory body provides false and misleading information to the FCA.
Before recommending this course of action, however, the FCA must ensure that the regulatory authority has taken all reasonable steps and due diligence to attempt to comply with the Regulations.
Bring criminal charges against an individual in an instance of inappropriate disclosure of material
If a person fails to provide information to OPBAS or a skilled person compiling a report then the FCA can confirm this to a court in writing. If the court believes that the individual has failed without reasonable excuse to comply with these requests for information then it may deal with that individual as though they were in contempt.
If a person discloses confidential information provided to the FCA or a skilled person compiling a report without disclosing the information through the appropriate channels then they may be liable to imprisonment for up to two years. It would be a defence, however, to show that the person reasonably believed the disclosure was lawful, or the information was already in the public domain.
The bodies under supervision by the OPBAS
As at 18 January 2017, the bodies that are under supervision are as follows:
|Association of Accounting Technicians||Association of Chartered Certified Accountants||Association of International Accountants||Association of Taxation Technicians|
|Chartered Institute of Legal Executives||Chartered Institute of Management Accountants||Chartered Institute of Taxation||Council for Licensed Conveyancers|
|Council for Licensed Conveyancers||Faculty Office of the Archbishop of Canterbury||General Council of the Bar||General Council of the Bar of Northern Ireland|
|Insolvency Practitioners Association||Institute of Certified Bookkeepers||Institute of Chartered Accountants in England and Wales||Institute of Chartered Accountants in Ireland|
|Institute of Chartered Accountants of Scotland||Institute of Financial Accountants||International Association of Bookkeepers||Law Society|
|Law Society of Northern Ireland||Law Society of Scotland|