Should Payment Firms Rely On Gatekeepers For AML Compliance?

September 28, 2021
Back
From time to time, payment firms rely on so-called gatekeepers — accounting and legal firms that give businesses access to the financial system — to provide them with background checks on customers and other forms of anti-money laundering (AML) information. The Office for Professional Body AML Supervision has, however, determined that these gatekeepers are not particularly well-regulated.

From time to time, payment firms rely on so-called gatekeepers — accounting and legal firms that give businesses access to the financial system — to provide them with background checks on customers and other forms of anti-money laundering (AML) information. The Office for Professional Body AML Supervision (OPBAS) has, however, determined that these gatekeepers are not particularly well-regulated.

OPBAS is lodged within the Financial Conduct Authority (FCA), of which the Payment Systems Regulator (PSR) is a small division. It does not oversee statutory regulators such as the PSR, but does oversee professional bodies such as the Law Society and the Association of Chartered Certified Accountants, which double as AML regulators.

There are 22 "professional body supervisors" (PBSs) that supervise accountants and lawyers for AML purposes, plus three that have delegated their regulatory functions to others.

Referring to OPBAS' latest report, the FCA has written: "There are key areas in which many need to improve. Many PBSs had not implemented a risk-based approach that effectively prioritised their AML supervisory and enforcement work, based on a robust assessment of the AML risks posed by their supervised population."

The report states: "Just over 60% of PBSs allocated the responsibility for managing AML supervisory activity effectively through clear governance structures with appropriate independent decision making.

"A third of PBSs did not have an effective separation of their advocacy and regulatory functions, presenting a clear risk of conflict of interest. PBSs in the accountancy sector were more effective in handling conflicts of interest appropriately than those in the legal sector."

On top of that, OPBAS encountered differing levels of achievement and some significant weaknesses and wrote that "we ... did not assess every Sourcebook area for every PBS", implying that the picture of compliance that the report paints is incomplete.

OPBAS suggests these trade bodies formalise their policies and procedures that clearly delineate different functions and ways in which compliance officers or money laundering reporting officers (MLROs) make decisions.

Just over half of them showed OPBAS that senior managers at their firms were properly involved in AML supervision. A problem in the sector is the paucity of "reporting and escalation agreements" and the appropriately delegation of powers. OPBAS believes that their decision-making processes rely too heavily on "key individuals".

The report, however, found that all PBSs have sufficient information gathering and investigative powers and about 62 percent of accounting PBSs and half of legal PBSs use these powers effectively.

Jonathan Jensen, the regulatory policy advisor at GBG, the compliance software giant, told VIXIO: "The OPBAS report on progress made in tackling money laundering by professional body supervisors demonstrates that regulatory concerns regarding AML compliance extend beyond sectors already highlighted by the FCA, including retail banking and electronic money institutions. It confirms the need for regulated entities across all sectors to review and update their AML compliance processes, to ensure adequate regulatory compliance."

The report states: “Many PBSs had not implemented a risk-based approach that effectively prioritised their AML supervisory and enforcement work, based on a robust assessment of the AML risks posed by their supervised population.”

Jensen commented: "This comment highlights a significant failure to comply with a fundamental principle of the AML compliance regime."

Our premium content is available to users of our services.

To view articles, please Log-in to your account, or sign up today for full access:

Opt in to hear about webinars, events, industry and product news

To find out more about Vixio, contact us today
No items found.