Majority of regulated firms risk fines for non-compliance with new money laundering rules

The majority of regulated firms are risking penalties for non-compliance with the Fifth Money Laundering Directive (5MLD), according to new research from LexisNexis Risk Solutions.

Related topics:  Regulation
Rozi Jones
15th October 2020
Weak link unprotected protection warn
"It's been part of the UK’s AML regulations since January, so firms really need to get on with implementing it as quickly as possible, especially as further regulatory changes are likely to follow later this year."

Its research reveals that on average, those in the banking, lending, wealth management and estate agents sectors are only 55% of the way through their Fifth Money Laundering implementation plans, and therefore could face fines from the FCA for not fully complying with The Directive.

5MLD legislation came into force on 10th January 2020 as part of UK’s plans to help combat the growing money laundering problem facing the country, and all firms previously within scope should have been compliant immediately.

However, it seems that the Covid-19 pandemic and national lockdown is not behind firms’ lack of progress. Of the 500 UK compliance professionals across banking, lending, wealth management and estate agent sectors surveyed, almost two thirds (64%) said Covid-19 had sped up their 5MLD implementation plans, rising to 70% of banks.

There also appears to be widespread confusion amongst financial professionals as to the aims of 5MLD legislation, with fewer than half of respondents able to correctly identify either that 5MLD was brought in to prevent the financial system being used for the funding of criminals (47%) or that its purpose is to strengthen transparency rules to prevent large-scale concealment of funds (43%). This fell further, to 39% amongst banking sector professionals specifically. This is particularly poignant given the recent FinCEN files leaks which revealed 2,000 suspicious activity reports outlining how some of the world’s biggest banks have allowed criminals to move $2 trillion of dirty money around the world.

Michael Harris, director of financial crime compliance at LexisNexis Risk Solutions, commented: "It’s no big surprise that firms aren’t yet fully compliant with 5MLD, but it is slightly disappointing that so many are so far behind and that firms appear not to be prioritising this important legislation, given the positive impact it can have on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing.

"The recent FinCEN files have done much to highlight the myriad issues with the UK Anti-money laundering (AML) system – an ineffective suspicious activity report (SAR) regime, the poor use of data and technology and a legal system that inhibits information sharing and a culture that allows companies to hide their beneficial owners through offshore registered entities. The fifth money laundering directive is an important amendment that will strengthen transparency and the existing preventative framework – it’s been part of the UK’s AML regulations since January, so firms really need to get on with implementing it as quickly as possible, especially as further regulatory changes are likely to follow later this year.

"We must switch the focus from the compliance process to effective outcomes and data and technology, which when combined with information sharing between institutions and the regulator will allow us to paint a fuller picture of how financial crime is infiltrating the economy, and take the right steps to fight it. If we don’t reconsider the current approach, we risk being buried under a wave of inefficient, ineffective regulations and protocols, and a flood of dirty money that is so deep we simply drown."

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