By Vish Gain for AMLi
IT HAS BEEN exactly three months since Brexit and among the many things the UK has ‘shed off’ is the European Union’s set of anti-money laundering directives currently going through an overhaul. But experts are wondering what this divergence means for the future for the two financial powerhouses, especially in a world where financial criminals seem to be evolving faster than governments and institutions.
The post-Brexit trade agreement has the ‘bare bones’ of cooperation in AML law enforcement, said lawyer Anna Bradshaw of Peters & Peters Solicitors. Speaking at the FinCrime World Forum last week, she said that the baseline has now changed for the UK since it is no longer bound by ‘demanding’ EU directives but by the FATF’s general recommendations — subject only to provisions in the trade agreement relating to beneficial ownership register.
What it is losing out, on the other hand, is data exchange from EU databases, operational information exchange and co-operation with EU agencies. “The loss of direct and easy access to some of these EU databases will be acutely felt,” said Bradshaw, referring to the UK’s access to the 2nd generation Schengen information system and the circulation of EU arrest warrants. While it can still access Interpol’s information system, it is not ‘user-friendly’.
Liliya Gelemerova, head of UK financial security at Crédit Agricole in London, warned at the conference of another complication that may stem from Brexit — jurisdiction shopping, or the practice of taking advantage of the discrepancies between competing legal jurisdictions.
“Completely abandoning the path of convergence is not an option for the UK. Financial institutions on both sides found comfort in the equivalence of the FinCrime standards,” Gelemerova said. “Institutions will have to ensure clients offboarded in one location for financial crime concerns do not do jurisdiction shopping trying to get onboarded elsewhere.”
Similarly, on human rights, Bradshaw thinks that any sanctions alignment between the EU and the UK will depend on “whether the EU will continue to perceive the UK as having adequate AML/CFT standards.”
When the UK introduced its own global human rights sanctions regime last year, the impact assessment said that it would help the UK’s reputation as a leader on sanctions — and by extension, it furthers the image of the UK as ‘tough’ on financial crime, said Bradshaw.
‘Now is our chance’
Allan Clare, risk and compliance advisor at Obsequella, took a more ‘glass half full approach’, in his own words. “I think what FinCrime professionals in the UK need to focus on more is adequacy than equivalence,” he told the conference.
“The rules and regulations we have aren’t as effective as we want them to be, and now is our chance.”
International banks with a presence both in the EU and the UK have already established a solid GDPR framework and are likely to continue to share information internally, added Gelemerova, who expects law enforcement agencies and financial intelligence units will continue to share information.
“The rhetoric around info-sharing among law enforcement and FIUs was one of ‘severe impact operationally’ before December 31st,” said Bradshaw.
“Now there is optimism and guarded comments,” she added, referring to the UK’s adopted range of contingency measures. “They will continue to try and to replicate to the best of its ability the types of data exchanges that can take place in the EU.”
‘Complex risk landscapes’ on the way
Speaking of the UK’s position as a lucrative destination for financial criminals, Ian Henderson, CEO of KYC company Kyckr, said it is more the reason for the UK to ensure there is a continued alignment.
“The reality is there will always be bad actors, fraudsters and launderers who will be searching for points of weaknesses,” he said, adding that “the FATF and EU will continue to make it more difficult for those bad actors to succeed. “The reality is they [financial criminals] are smart and they will continue to chip away.”
“The FATF relies largely on naming and shaming and divergence between its 200 members is considerable — so you’re in good company if you fail to meet recommendations.”
Anna Bradshaw
For Gelemerova, if the import-export bureaucracy between the UK and EU increases — it increases the risk of corruption at checkpoints. “Trade with jurisdictions outside the EU may be expected to increase and more high-risk jurisdictions come into the system — leading to more complex risk landscapes,” she added. “Substantive divergence is just not an option.”
But what about EU AML’s rulebook and Brexit? Bradshaw thinks that when the EU moves away from directives to regulations and the divergence between member states decreases, the spotlight will fall on the differences between the UK and the EU.
“Outside the EU, AML/CTF is less straightforward,” she said. “The FATF relies largely on naming and shaming and divergence between its 200 members is considerable — so you’re in good company if you fail to meet recommendations.”
For Clare, the UK needs to focus equally on jurisdictions outside the EU now that Brexit has happened. “We have a huge opportunity and momentum to be a shining light and leader in FinCrime — and with the presidency of the G7 coming up, we can focus on economic crime at large,” he said, adding: “We need to keep doing what we are doing to manage our own risks and cooperate as much as possible.”
With a hat-tip to a pre-Brexit HSBC advertisement starring Richard Ayoade, he quipped: “We’re not an island. We can’t do this alone.”
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