HMT Financial Crime Consultation Series
On 22 July 2021, HM Treasury (HMT) released two important financial crime regulation consultation documents. To help regulated firms and other stakeholders understand and consider the proposals, we are publishing a short series of articles.
Our first article considered the implementation in the UK of the commonly named and long awaited 'Travel Rule'.
Our second article commented on the new proposals announced for 'low-risk' firms and the impacts they could have.
In this, our third article, we comment on HMT’s proposals to strengthen regulatory supervision by granting anti-money laundering and counter-terrorist financing (AML/CTF) supervisors a right of access to view suspicious activity reports (SARs) submitted by firms supervised by them.
The effect on supervisors
The new proposal is set to affect all AML/CTF supervisors, including the statutory Financial Conduct Authority, HMRC, and the Gambling Commission supervisors. Also in scope are the 25 legal and accountancy Professional Body Supervisors (PBSs) who are themselves supervised by the Office for Professional Body Anti-Money Laundering Supervision.
The Money Laundering Regulations (MLRs) already require AML/CTF supervisors to collect information necessary for performing their supervisory functions (Regulation 51(1)), and (on giving notice and reasons) to collect information if a specified description is reasonably required in connection with the performance of their supervisory function (Regulation 66). However, the feedback from AML/CTF supervisors (as well as our own understanding) is that the regulations are unclear as to whether supervisors can indeed access and view the content as part of their supervisory powers or not.
Since multiple supervisors have taken differing views of this matter, clearly, the UK government’s objective with the new proposal is to consolidate the SARs regime by expressly granting all the supervisors a right of access to view the content of SARs on request.
HMT’s view is that this will provide consistent powers to all AML/CTF supervisors and strengthen overall supervision. If the change is implemented, supervisors will be able to review the content of SARs upon request and include this exercise as part of their monitoring of firms. HMT also consider that granting viewing powers to supervisors will help them identify emerging risks and trends and pinpoint more accurately where to focus their supervisory efforts, enabling them react in a more timely manner.
What is out of scope?
The new proposal would grant legal powers for supervisors to request SARs from their supervised firms. However, it is not proposed that supervisors will have access to the SARs via the National Crime Agency (the UK Financial Intelligence Unit).
Furthermore, the changes of the regime will not include any legal basis to allow supervisors to review SARs for quality assessment purposes. However, it is important to note that the supervisor will be able to use their discretion and flexibility on how to incorporate the access to SARs into their supervisory approach. This implies that supervisors should be able to use their discretion as to whether a quality review of SARs submitted by firms is appropriate.
The impact on firms
The consultation is asking for views on the potential impact the proposals will have on affected firms and nominated individuals. The main concern is the risk of committing a tipping-off offence. Views are being invited, but HMT has also sought to alleviate the concerns that, under section 333, a person does not commit a tipping-off offence if the disclosure is to their AML/CTF supervisor.
While there is limited risk of committing a tipping-off offence if the disclosure is made to an AML/CTF supervisor, in light of proposed changes and given the sensitivity of SARs it will be important for firms to take reasonable steps to ensure that the request made by their supervisor is genuine (for example by checking with their supervisor that their contact details are accurate).
Considering these announcements, and in advance of further announcements, it would be appropriate for firms to review their internal policies to ensure their record-keeping of SARs is in line with regulatory requirements.
In addition, given that quality assessments are potentially in scope, nominated officers should ensure that SARs being submitted do not contain unnecessary and worthless information (as should already be the case). They should also ensure that they do not lack the critical information required for the authorities to act. Ideally, the nominated officer completing a SAR should include, at a minimum:
The information or other matter which gives the grounds for knowledge, suspicion or belief
A description of the property that they know, suspect or believe is criminal property
A description of the prohibited act for which they seek a defence
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