Legal regulators “need to up their game” on anti-money laundering work

The body tasked with overseeing legal and accountancy regulators’ anti-money laundering (AML) work said that while most of them are complying with money laundering regulations, how they supervise is still not consistently effective.

In its fifth annual report, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) found none of the regulators – called professional body supervisors (PBSs) – assessed were fully effective in all areas.

For example, the report found weaknesses in how PBSs were using enforcement powers and tools to supervise members, with the number and value of fines issued declining on the previous year.

Proactive information and intelligence sharing with regulators and law enforcement was also inconsistent, with some PBSs improving but limited sharing elsewhere hampering efforts to make a real dent in the flow of illicit funds in the UK.

OPBAS, part of the Financial Conduct Authority (FCA), oversees the activities of the nine legal and 13 accountancy AML supervisors.

In the law, these are CILEX/CILEx Regulation, the law societies and bar councils of the three UK jurisdictions (including also the Solicitors Regulation Authority and Bar Standards Board), the Council for Licensed Conveyancers, and the Faculty Office of the Archbishop of Canterbury, which supervises notaries.

The report said PBSs should be “demonstrably reducing the risk of illicit funds in the UK by taking increasingly proactive and effective interventions among their populations” – and to achieve this, many will have to do “much more to improve their current approach”.

OPBAS said it has used an increasing range of supervisory tools to hold PBSs accountable, including using its powers to direct two unnamed PBSs to take action to remedy shortcomings.

Overall, the accountancy sector PBSs assessed showed their supervision was better than the legal sector’s, but gaps remained “across the board”.

The legal sector did not have clear selection criteria for inspections or formalised supervisory cycles; one PBS had not classified any members of its supervised population as high risk, despite some providing trust and corporate services, which are designated as high risk.

“We also identified a PBS in the legal sector that considered the inherent risk of money laundering to be low in its supervised population and so did not provide regular AML training to its staff in specialist AML roles.”

OPBAS conducted a ‘deep dive’ that found “weaknesses across key areas” in the three PBSs responsible for barristers and advocates.

“In our view, the PBSs in this sub-sector did not appear to sufficiently prioritise AML supervision on a par with other regulatory obligations, with relatively low AML resource (staffing) levels and low expenditure dedicated to AML.

“There was a consistent view among the PBSs in this subsector that the risk of money laundering and terrorist financing to barristers and advocates is low. We increasingly agree this low relative risk assessment is reasonable, but that some level of risk remains.”

Andrea Bowe, director, specialists at FCA, said: “The FCA is committed to playing a leading role in reducing and preventing financial crime. Through OPBAS, we have intervened to tackle failings where we have found them. However, we are still not seeing the consistent, effective improvement we need.”

OPBAS’s role is to ensure robust, consistent supervision across the PBSs, as well as good information sharing.