With a series of proposed reforms on the table to improve the effectiveness of the UK’s anti-money laundering and counter-terrorism financing regulatory structure, First AML’s Simon Luke argues it’s essential to find the right fit for the regime going forward.
A 2022 review of the UK’s AML/CTF framework determined that while the overall regulatory approach was sound, the regime in place has weaknesses that need to be addressed through structural reform.
Four options have been offered for consultation (which closes Sept. 30): an enhanced version of the current model, Office for Professional Body Anti-Money Laundering Supervision (OBPAS), called OPBAS+; a consolidation of the 22 public body supervisors (PBS) to a smaller number; a single body for all professional services; or combining all supervisors into one mega-AML supervisor.
Criminals are using more advanced technology and adapting their illegal enterprises with the times, so it’s important to analyze the benefits and drawbacks of each framework to understand which will help police the perimeter of our financial system most effectively. What is already clear, however, is that consolidation, not further fragmentation, of supervisors is needed to tackle money laundering.
OPBAS+
Under OPBAS+, OPBAS would have strengthened powers, including the ability to fine PBSs for supervisory failings, without any changes in the number or type of supervisors.
However, without any changes to the number or type of supervisors, it’s likely that the current issues will be perpetuated — issues like inconsistent guidance across PBSs, as well as inconsistent policing, fines and penalties. What’s more, this model doesn’t address the failings in communication between supervisors and the resulting blindspots that criminals exploit when they pour dirty money into our financial system. At a time when information sharing is critical, the OPBAS+ model would not bring the supervisory bodies closer to making effective cross-sector communication more achievable.
It is also doubtful whether the OPBAS+ model is flexible enough to keep up with the fast-changing pace of the financial crime landscape and the subtleties of each sector. One of HM Treasury’s conundrums is the tension between the desire to be overly prescriptive in their requirements — a preference of many regulated entities but challenging to execute — and their existing state of being risk-based, leaving the specifics up for interpretation for each regulated entity. This struggle to balance detailed specificity with effective oversight could limit the model’s responsiveness and adaptability.
European Regulators Moving the Needle on Real-Time AML Monitoring
Financial institutions may have adopted methods of detecting fraud in real time, but money laundering detection remains an after-the-fact judgment. Finserv specialist Sujata Dasgupta explores how one bank’s adoption of EU guidance could chart a path forward for true money laundering prevention.
Read moreDetailsThe problem with a single body
The single anti-money laundering supervisor model and the single professional services supervisor also have their unique challenges. We’ve seen Commonwealth countries already operating under one overarching regulator. A single body focused purely on anti-money laundering may initially sound appealing, but these departments often face criticism for being underfunded and overstretched.
Consolidating supervision under a single authority, whether sector-specific or all-encompassing, leads to an immense increase in workload and responsibility for the organization that remains. Without a significant boost in funding and personnel, these models run the risk of being under-resourced, which could impact their ability to carry out effective, in-depth supervision.
Moreover, as with OPBAS+, the broader the scope of each organization, the more varied the risks and complexities to be addressed, increasing the chances of oversight or misjudgement due to limited resources. This could potentially lead to a diluted focus, reduced sector-specific insights and slower response times to emerging threats.
PBS consolidation
The PBS consolidation model — that is, consolidating the raft of overlapping supervisors into one accountancy sector supervisor and one legal sector supervisor — seems promising because it could offer specialized oversight while reducing the fragmentation of the current system. This approach would look to remedy fragmentation and poor communication while embracing the distinctiveness of each sector, acknowledging that a one-size-fits-all strategy doesn’t work in AML.
By reducing the number of supervisors but retaining a degree of sector-specific focus, this model fosters improved coordination and uniformity without stretching resources too thin. It would also assist in collaboration across sectors (as there would be fewer bodies to communicate with) while still valuing the unique insights provided by sector-specific supervision.
This hybrid approach utilizes existing resources more effectively, promoting efficiency without compromising on the quality or depth of supervision and makes the PBS consolidation model a compelling candidate for this supervisory reform.
The bottom line
With all this in mind, it makes sense for PBS consolidation to be considered as the recommended reform option. Its structured yet flexible approach allows for comprehensive sector-specific supervision while also ensuring efficient resource allocation. This model respects the unique challenges and nuances inherent in each sector, ensuring that the strategies developed are grounded in sector-specific realities. At the same time, it promotes a higher degree of supervisory consistency, effectively policing the perimeter and creating a unified front against money laundering and terrorism financing.
Simon Luke is UK country manager at First AML. Simon has over 10 years of experience in banking and alternative credit in New Zealand and UK markets. Simon is responsible for First AML UK's overall market strategy. 
