Financial Crime - Q2 2022

The EU has published a partial position on the role of the new EU Anti-money laundering Authority, and the latest Financial Action Task Force (FATF) plenary meeting took place. Here in the UK, HM Treasury (HMT) published the output of the two consultations on anti-money laundering and counter-terrorist financing (AML/CTF) regulatory and supervisory regime. A lot for firms to track in this space.

Russian sanctions

• On 28 April 2022, the FCA published a Consultation Paper on how to deal with “affected investments” and protect investors in authorised funds. It is consulting on ways to give Authorised Fund Managers a way to structure funds differently, using separate new classes of units to hold the affected investments – referred to as “side pockets”. Responses were sought be 16 May.

• On 27 April 2022, the EBA released a statement setting out what financial institutions and their supervisors can do to provide access to refugees from Ukraine to the EU’s financial system and to protect vulnerable persons from abuse by criminals. It calls on financial institutions to ensure that compliance with the EU’s restrictive measures regime does not lead to unwarranted de-risking.

• On 3 June, the EU imposed a sixth package of sanctions. This includes a ban on the import of Russian oil to the EU, cutting off more of the key Russian banks from SWIFT and further sanctioning of specific individuals linked to the Russian invasion. 

UK update

• On 22 April 2022, the FCA published the outcome of its Review of financial crime controls at challenger banks. It found a number of weaknesses and set out a number of actions for challenger banks to take.

• On 22 June 2022, FCA fined the insurance broker JLT Specialty Limited £7.8m for financial crime control failings. It said that lax controls meant money flowed into the pockets of corrupt officials.

• On 24 June 2022, HMT published the output of the two consultations launched last July. The Review of the UK’s AML/CFT regulatory and supervisory regime was published concurrently with the post-implementation reviews of the 1) Money Laundering Regulations and 2) OPBAS Regulations.  Taken together, these documents evaluate of the role of the regulations in the UK’s AML regime and set out the next steps to improve their effectiveness.

European update

• On 1 June 2022, the ESAs published a Joint Report advocating for the introduction in all relevant EU sectoral laws a specific legal ground to revoke licences for serious breaches. It assesses the uniformity of existing laws and practices in the EU.

• On 14 June 2022, the EBA published Guidelines specifying the role and responsibilities of the AML/CTF compliance officer and of the management body of credit or financial institutions. These Guidelines aim to ensure a common interpretation and adequate implementation of AML/CFT internal governance arrangements across the EU.

• On 29 June 2022, the EU Council agreed its partial position on the proposal regarding the creation of the new EU AML Authority (referred to as AMLA). The Council adds powers to AMLA to directly supervise certain types of credit and financial institutions, including crypto asset service providers, if they are considered risky. AMLA will also initially supervise up to 40 groups and entities and to ensure a complete coverage of the internal market under its supervision.

International update

• On 19 April 2022, FATF published a Report (the first public report of its kind) outlining the results of its 4^th round of mutual evaluations. The Report on the State of Effectiveness and Compliance with the FATF Standards gives a comprehensive overview of the state of global efforts to tackle money laundering, terrorist and proliferation financing.

• In May 2022, FATF published a Follow-Up Report which analyses UK’s progress in addressing the technical compliance deficiencies identified in its previous Mutual Evaluation Report relating to Recommendations 13 (EDD in correspondent banking) and 29 (UKFIU). The report concluded that the UKFIU is still under resourced and unable to fully perform its duties.

• On 11 May 2022, the Wolfsberg Group published Frequently Asked Questions (FAQs) on Negative News Screening which aims to help entities have a better understanding of who they are dealing with.

• From 14-17 June 2022, FATF’s plenary meeting took place in Berlin. Key outcomes of the meeting include:
  • finalised guidance that aims to help those involved in the real estate sector implement risk-based measures to prevent money laundering and terrorist financing. The report will be published in July
  • added Gibraltar to the list of jurisdictions under increased monitoring, and removed Malta from this list
  • published its third targeted update on the Implementation of FATF’s Standards on Virtual Assets and virtual asset service providers with a focus on the “Travel Rule”, Decentralized Finance (DeFi), Non Fungible Tokens (NFTs) and unhosted wallets.