Jane Jee on the key to OPBASs success

February 2018 Kompli-Global

The Office for Professional Body Anti-Money Laundering Supervision is now fully operational and promises to begin a new era of anti-money-laundering supervision.

Backed by the Financial Conduct Authority, OPBAS has been billed as a “supervisor of supervisors” because its brief is to monitor the performance of supervisory bodies in many sectors that include law, accountancy and real estate.

These sectors are all money laundering venues. For example, law firms were heavily implicated in the clandestine deals revealed in the Panama and Paradise Papers. Indeed, the Financial Action Task Force for Money Laundering (FATF) has stated that “legal and financial professionals have become an increasingly ‘common element’ in complex money laundering schemes, pa1ticularly those involving ‘significant financial fraud and organised crime.”’

HM Government’s National Risk Assessment (NRA) in October was particularly critical of accountancy firms. It said: “The inherent risks and vulnerabilities of accountancy services remain due to the value of these services to those engaging in high-end money laundering, and these services remain prevalent in cases identified by law enforcement, though there are strict controls in place in certain areas. There is therefore still assessed to be a high risk of money laundering for accountancy services.”

The NRA also remarked that “legal services remain attractive to criminals due to the credibility and respectability they can convey, helping to distance funds from their illicit source and integrate them into the legitimate economy.”

Enter OPBAS!

With these problems in mind, it is no wonder that the Government and regulators such as the FCA wanted to subject these sectors to another tier of regulation. In total, they are already supervised by more than 20 self-regulatory organisations (SROs) in the UK for money-laundering and ‘Know Your Customer’ (KYC) purposes.

Despite - or, perhaps, because of - the sheer number of SROs, the quality of supervision and compliance rates is inconsistent both between sectors and between supervisors. For instance, compliance rates in the financial services sector (regulated by the FCA) are considerably higher than in the legal, accountancy and real estate industries. This is because finance has long been seen as the obvious area for money-laundering control. Now, though, the legal, accountancy and real estate sectors are considered vital to the prevention of such financial crime in the long term, making consistently high standards of supervision crucial.

A cautious reception for a toothless tiger?

So far, OPBAS has received a wary response from many of the organisations and SROs in its purview. People at law, accountancy and real estate firms are worried that OPBAS will interfere in their day-to-day operations and damage their client base and consequent income.

In a letter to the supervisors of professional bodies last year, Rob Gruppetta, the head of financial crime at the FCA, explained that “OPBAS may give directions in writing to professional body supervisors for the purpose of ensuring compliance with, or, remedying a failure to comply with the money laundering, terrorist financing and transfer of funds .”

Hopefully OPBAS will exercise this power, as the guidance issued for each sector has so far been lacking in detail, is inconsistent and falls below the standards imposed by the FCA on financial institutions. It should be consistent with that issued by the Joint Money Laundering Steering Group (JMLSG) and the European Supervisory Authorities.

OPBAS is permitted to issue public censures but cannot impose financial penalties for any failings that it identifies. Reputations are important to organisations, so its censure will count for something, but their biggest fear is always a loss of income and it is not certain the OPBAS will be able to threaten their incomes to a sufficient degree if it cannot fine them.

If it is able to create consistent standards of oversight across the UK, OPBAS can boost the trust of HNW immigrants. As the UK leaves the EU, this trust will be vital to ensure that the country continues to attract them from around the world.

OPBAS might also take the lead in promoting new compliance processes by, among other things, recommending various pieces of RegTech KYC - perhaps even by name - to firms.

Obstacles

OPBAS is considerably under-resourced for an organisation with its reach and range of responsibilities - it is no small task to oversee so many bodies in so many sectors. Moreover, those bodies are not likely to trust it. If it is to be successful, it ought to talk to the organisations and sectors that it oversees, explaining its job to them, offering guidance and providing regular updates about its work. The FCA says that OPBAS “will seek to engage constructively” with the Anti-Money Laundering Supervisors’ Forum (AMLSF), a standing committee that represents the accountancy and legal sectors, among others, that has met regularly since March 2007, to spread good practice.

More than this, though, OPBAS needs to demonstrate the value of both the improvements in compliance that it is seeking to impose and the cross-sector consistency that it wants to promote. It must do so while avoiding conflicts of interest, stating that “a professional body supervisor should keep the advocacy functions it performs (that promote the interests of its members) functionally separate from the inspection and investigatory functions.” It suggests doing so by withdrawing people it describes as ‘conflicted persons ‘ from its discussions.

Such effort s ought to inspire regulators to trust the new body and to help it prevent money laundering in future.

Editor’s note

OPBAS draws its limited powers from the Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017.

Regulation 7 gives OPBAS’s umbrella organisation, the FCA, the right to force people to provide specified information or documents and to attend interviews in relation to AML regulation. It can hold on to material for as long as it likes. Nobody is obliged to hand over information subject to legal professional privilege.

Under regulation 13, if the FCA reasonably wants to obtain a report by a ‘skilled person ‘ (often a compliance consultancy) concerning an AML matter , it can order one of the other AML regulators (the regulations give them the rather farcical title of ‘self-regulatory organisations’) to appoint that skilled person to do the job and then send it the report. It can set the form of the report and the terms of the contract between the regulator and the ‘skilled’ firm.

Regulation 23 says that if a person fails to comply with a requirement that OPBAS (or the FCA) imposes on him under regulation 7 or regulation 13, the FCA may certify that fact in writing to a court. If the court believes that he failed without reasonable excuse to comply with the requirement, it may deal with him as though he was in contempt. In the UK, contempt of court carries a maximum two-year sentence.

There are circumstances in which it is an offence for the bodies with which the FCA deals (various police forces and SROs) to divulge information that the FCA has given them.

Regulation 26 says that any charge imposed on an SRO by the FCA under the regulations is a debt due from that SRO to the FCA and is recoverable accordingly through the courts. The FCA can only, however, impose charges on SROs and others to cover supervision expenses.

There is therefore no mention of any penalty that OPBAS, through the FCA, might impose on the SROs for not obeying its diktats. What hold, then, does the FCA have over the SROs? Section 139A Financial Services and Markets Act 2000 gives the FCA the power to ‘give guidance.’ It can do so with respect to any other matters which it deems desirable. Regulation 3 says that the FCA must have regard to the importance of ensuring that SROs comply with any supervision requirement when discharging the FCA’s functions under the regulations and in drafting any guidance in relation to self-regulatory organisations that the FCA may issue under section139A in relation to the Money Laundering Regulations. This may be the nexus through which the FCA may compel the SROs to obey the pronouncements of OPBAS.