ICAEW REPRESENTATION 86/17

Transcription

1 ICAEW REPRESENTATION 86/17 Anti-money laundering supervisory review: consultation ICAEW welcomes the opportunity to comment on the Anti-money laundering supervisory review: consultation published by HM Treasury on 20 July 2017, a copy of which is available from this link. The following responses reflect the views of ICAEW as a regulator. ICAEW is a Supervisory Body recognised by HM Treasury for the purposes of the Money Laundering Regulations 2017 dealing with approximately 13,000 member firms. Given the extremely short consultation period the ability of HM Treasury to draw valid conclusions from this exercise will be limited. We draw attention to government guidance regarding consultations The Institute of Chartered Accountants in England and Wales Level 1, Metropolitan House 321 Avebury Boulevard Milton Keynes MK9 2FZ UK T +44 (0) F +44 (0) icaew.com

2 ICAEW is a world-leading professional accountancy body. We operate under a Royal Charter, working in the public interest. ICAEW s regulation of its members, in particular its responsibilities in respect of auditors, is overseen by the UK Financial Reporting Council. We provide leadership and practical support to over 147,000 member chartered accountants in more than 160 countries, working with governments, regulators and industry in order to ensure that the highest standards are maintained. ICAEW members operate across a wide range of areas in business, practice and the public sector. They provide financial expertise and guidance based on the highest professional, technical and ethical standards. They are trained to provide clarity and apply rigour, and so help create long-term sustainable economic value. Copyright ICAEW 2017 All rights reserved. This document may be reproduced without specific permission, in whole or part, free of charge and in any format or medium, subject to the conditions that: it is appropriately attributed, replicated accurately and is not used in a misleading context; the source of the extract or document is acknowledged and the title and ICAEW reference number are quoted. Where third-party copyright material has been identified application for permission must be made to the copyright holder. For more information, please contact representations@icaew.com icaew.com

3 RESPONSES TO SPECIFIC QUESTIONS Section 1 questions applicable to all respondents Q1: Do the draft regulations deliver the government s intention that OPBAS help, and ensure, PBSs comply with their obligations in the MLRs? In particular, are further legislative amendments required to ensure legal PBSs can raise funding for the OPBAS fee? The regulations fundamentally fail to deliver an effective oversight function ICAEW has supported the concept of an AML oversight body but the exclusion of public sector bodies (and HMRC, in particular) from its scope will lead to a two-tiered system where professional bodies, their members and ultimately their members clients, will bear the costs of increasing obligations while non-professional service providers and those supervised by public sector bodies will not. 1. Gold-plating an oversight function for the UK s successful professional services sector, while failing to establish consistent enforcement powers over the high-risk section of the accountancy profession (as well as the other high-risk sectors of banking, gambling, money service bureaux, high value dealers and estate agents) is counterproductive and clearly not in the public interest in a highly competitive global market. A key driver for an AML oversight function has been stated as the removal of inconsistencies between supervisors noted in the 2015 National Risk Assessment. The proposed solution comprehensively fails to address this fundamental issue. 2. The proposed regime will also inevitably lead to additional charges being passed on to the clients of professional firms, giving an unfair advantage to unqualified, non-professionals who are not required to undergo continuous training or quality review or be subject to any 'fit and proper' checks, code of ethics, professional indemnity insurance or disciplinary process. This does not support the public interest nor does it support the government s aim of making the UK s financial system a hostile environment for illicit finance. And it is clearly not in the public interest if professional service providers leave their highly regulated membership bodies and/or their clients move to non-professional providers. 3. If there are no viable alternatives to appointing the FCA, which we accept can t oversee HMRC and other public body supervisors, it is essential that government establishes a clear mechanism to ensure that all supervisors comply with all ML Regulations, FATF s immediate outcomes and the FCA sourcebook - particularly where public sector bodies are supervising firms in the same sectors as the PBSs. In particular, OPBAS should be given a clear monitoring role to check if public sector supervisors are complying with these requirements, and clear reporting line into government to advise whether any non-compliance is appropriate. Government will then be able to use this information to require appropriate action to achieve compliance and consistency of approach. 4. We don t agree with the impact assessment accompanying the OPBAS consultation which incorrectly concludes that the implementation doesn t go beyond minimum EU requirements. There is no requirement for an oversight body within the Fourth Directive. We haven t been told the specific failings that the regulations are trying to address 5. The question implies that PBSs aren t currently complying with their obligations under the MLRs. We strongly reject this, particularly because the feedback we received from HM Treasury (HMT) in 2015 did not any areas where ICAEW was failing to deliver effective AML regulation (but merely asked us to provide more information to show how we were meeting FATF s immediate outcomes). 6. In the Call for Information (16 March 2017), we were told that government was looking to address the inconsistencies in the supervisory regime and the risk that conflicts of interest could compromise professional body supervision as these bodies represent and are funded by 3

4 the firms they supervise. We haven t been provided with any evidence of inconsistencies between PBSs, although we are aware they exist with public sector bodies, nor any evidence to show where conflicts of interest have arisen. So, we are cannot conclude that the draft regulations will deliver the government s intention in respect of these two areas. In our view the most significant inconsistencies arise in how, within the accountancy sector, HMRC delivers AML regulation due to traditional, constitutional and legislative impediments but OPBAS has been given any role to help address these inconsistencies. The regulations don t address how OPBAS can help PBSs comply with their obligations 7. The regulations largely deal with censure and discipline and do not describe how OPBAS will help PBSs comply with their obligations within the MLRs. We are disappointed that they don t recognise the type of professional, co-operative and supportive relationships that already exist among the supervisors and that we hope to develop with OPBAS. 8. There is no obligation of OPBAS to provide feedback and guidance to the PBSs on how they could perform their duties in a more efficient or effective manner. The regulations don t place any requirement on OPBAS to keep the sourcebook updated and fit-for-purpose. There is also no requirement on OPBAS to consult the PBSs if it decides to make any amendments to the sourcebook, which we believe is essential. 9. There is no obligation on OPBAS to provide oversight to ensure that the PBS and the public sector supervisors share best practice information, which would help to ensure consistency across the entire supervised population (particularly for ASPs and TCSPs where both PBSs and HMRC supervise). Requirement to share data between supervisors 10. In the consultation paper, HMT has explained that data is not yet shared between supervisors freely or frequently enough. We disagree with the statement and we believe that we have made significant progress in sharing information relating to gaps and overlaps, or where there are issues with a relevant person that is moving between supervisory bodies (and we have presented evidence to support this). However, here again, there have been considerable barriers preventing public sector supervisors and the various agencies of law enforcement sharing useful data and intelligence with PBSs. This is clearly not in the public interest to optimise the combined efforts of all those operating the AML regime but these issues appear to have been overlooked. 11. There is currently no regulation requiring all supervisors to share information freely or to create an expectation that others in the regime will share information with supervisors. Application for removal from Schedule 1 to the MLR 12. The regulations don t explain how a PBS can apply for removal from Schedule 1 to the MLR, or how the impact of that application would be managed. Regulation 5 Determination of applications 13. There is currently no comprehensive right of appeal against a decision taken by FCA. The appeals provisions in regulation 23 only apply to public censure (regulation 16). Regulation 7 Power to require information 14. There is no right to refuse to provide information and there is a risk of public censure if a PBS fails to comply. We believe there may be valid reasons why information can t be provided in certain situations and this regulation should be amended to recognise this. 15. There is a reasonableness qualification in 7 (2) (a), which should also apply to 7 (2) (b). 4

5 Regulation 8 seized material 16. We believe the reference to seized material is misleading and is not in line with the nature of this regulation. It would be better to use the term required information as it relates to information obtained under regulation 7. Regulation 14 Directions 17. There is currently no right of appeal against a direction given by FCA. The appeals provisions in regulation 23 only apply to public censure (regulation 16). Section 2 questions applicable to regulated businesses only 18. Although there is no requirement for PSBs to address questions 2 to 5, we would like to make the following observations: - ICAEW member firms and most ASPs are required to follow only one source of guidance that issued by the CCAB. This guidance was originally issued in 2008 and so firms operating in the accountancy sector will have well established policies and procedures accordingly. We don t understand why Q2 refers to different pieces of AML guidance. - Under MLR07, all regulated businesses were required to provide their staff with regular training and to perform regular compliance reviews. It is possible that regulated businesses may employ consultants to discharge these responsibilities but we would suggest this is a resource management matter and it is not driven by complex guidance. It is important for government to consider this when reviewing firm s responses. - We have encouraged our firms to reply to these questions but, due to the tight timescales for responses, it is likely that these responses won t be representative and they should be considered carefully, bearing in mind context, and not extrapolated to reach potentially inappropriate conclusions for the sectors involved. Section 3 questions applicable to PBSs only Q6: Do you expect to increase or decrease resources in your supervisory team to support engagement with OPBAS going forward? If so, please provide estimated average annual costs or savings. Please round you answer to the closest 100. Q7: Do you expect to invest more, less or the same in your supervisory team to align your approach with OPBAS s guidance going forward? If so, please provide the estimated annual additional cost or saving. Please round your answer to the closest 100. Q8: In addition to the areas identified above, are there any other costs or benefits associated with complying with OPBAS or simplified AML guidance for businesses you would like the government to take into account? If yes please outline these and provide estimated costs or savings. Please round your answer to the closest At this stage, it is impossible for us to answer questions 6 to 7. HM Treasury has set a very short consultation period that doesn t allow sufficient time to assess the impact of these regulations and the requirements set out in the sourcebook and how this could affect our resource requirements and associated costs. This has been exacerbated by the FCA not setting out exactly how it will help PSBs, how criminality checks (under the new regulations) might be conducted efficiently and how the proposed funding structure of OPBAS will operate. 20. It is expected that there will be additional costs to ICAEW arising from greater liaison with OPBAS compared to HM Treasury and in respect of greater scrutiny from the large number of staff that we are told will be employed by the FCA for this work and onsite visits. We also expect we will need to conduct a formal review of our policies, procedures and regulatory 5

6 programmes to ensure that they are in line with the FCA sourcebook, although we expect that we will be fully compliant based on HM Treasury feedback. 21. We don t understand the reference to simplified AML guidance for businesses in Q8. As noted in our paragraph 18 above, ICAEW firms are still required to follow the CCAB guidance and so there is no change for our firms apart from those changes driven by MLR We remain very concerned about the funding model. It seems that government has designed an oversight function with significant resources without any real explanation of what those resources will do. ICAEW regulates approximately 13,000 firms across several disciplines with a ration of less than 1% of regulatory staff to regulated firms. We would expect a ratio greater than 5% (ie. an oversight team greater than 1.5 FTEs) to be clearly justified. 23. We strongly urge government to implement an oversight regime that operates on a low-cost model, where supervisors will be expected to demonstrate and evidence compliance with MLR17. And, if OPBAS assesses that a supervisor is not meeting its requirements, any costs incurred from follow-up procedures, disciplinary action or ongoing monitoring should be funded by the relevant supervisor. If the supervisor is unable or unwilling to fund such extra costs, their supervisory status should be revoked. 24. It is extremely important that government is transparent about what costs OPBAS is likely to include and how these costs will be allocated to the PBSs. In particular, OPBAS must explain what will happen if a PBS applies for removal from Schedule 1 of the MLR17 and how the operational costs will be managed (although we presume that a reduction in PBSs will result in a proportionate reduction in OPBAS resources/costs). 25. We note that the impact assessment (analysis and evidence section) incorrectly concludes that OPBAS is cost neutral and the fee on PBSs is a transfer within the system. There is no explanation for this assessment nor, in our view, any ascertainable rationale to support it. As the OPBAS fee would be a new fee for a new body - we fundamentally disagree that OPBAS is cost neutral to the public. The funding charge and the increased costs predictably emanating from increased oversight activity, will be passed on to our member firms, who will pass the charges on to their clients (the general public) while the high risk groups supervised by public bodies, falling outside the scope of OPBAS, will bear no costs at all. 26. In recent discussions, it has been suggested that OPBAS is being created for the benefit of the professional bodies and the professions as a whole. This is clearly misguided. The function and purpose of the AML regime is effectively an extension of the UK s law enforcement activity - to deter and detect those wishing to launder the proceeds of crime - and is therefore clearly and demonstrably for the public benefit. No additional income, business or profit emanates from the colossal overhead created by this system but all those involved support the regime created by the 2007 regulations as operating in the public interest. Adding an oversight function can only be justified as it should provide further confidence to government, law enforcement and the public that this extended policing function is operating efficiently, effectively and consistently. We can see no actual or perceived benefit accruing to the PSBs or their members. 27. Unfortunately, the current solution, which excludes public sector supervisors (and therefore the generally recognised highest risk sectors of banking, gambling, MSBs, HVDs, and estate agents), fails to address the essential problems it was ostensibly designed for. 6