Four lessons for Australia from the UK’s anti-money laundering regime

When the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) came into effect in the UK on 26 June 2017, the accountancy profession had already been operating under its predecessor for a decade. Tim Pinkney, Director of Professional Standards at the Institute of Financial Accountants, part of the Institute of Public Accountants Group, explores four lessons from the UK regime to help Australia as it prepares to tighten its own anti-money laundering regulatory system.

Lesson 1: Collaboration between regulators and industry boosts compliance culture

Pinkney believes regulators working in tandem with industry helps develop a springboard for effective compliance cultures.

He advises to “work with the regulated sectors to approve clear, consistent sectoral guidance that provides a structure for firms to become compliant”. “This provides a platform for firms to develop and maintain compliance cultures,” he says.

The burden placed on regulated firms is tangible, however it does not need to be as firms should develop a compliance culture that embeds AML processes into day-to-day work routines. 

“The regulations and sector approved guidance, as well as support provided by professional bodies should help this process so long as firms take a proactive approach rather than bury their heads in the sand,” Pinkney says.

Compliant firms tend to have a “positive compliance culture, can demonstrate their understanding of the regulations and how they fit together”. “The regulations should be seen as a friend as they help firms avoid regulatory non-compliance, support the war on economic crime and maintain reputations,” he says.

Lesson 2: share information between regulators, supervisors and law enforcement

The regulatory reporting requirements have been “problematic” because of the perception that accountancy firms underreport suspicious activity, according to Pinkney. Sharing information about money laundering risks would help regulated firms and supervisors better understand the complexity of potential issues they must safeguard against.

Pinkney advocates “robust information sharing channels between law enforcement, regulators and supervisors. “The use of meaningful case studies to demonstrate how risk manifests is a powerful learning tool,” he says. “In the UK this is still an area that is being looked at as law enforcement are often, quite rightly, cautious when sharing information.”

Supervisors have “a role to play even when cases are not taken forward to the Crown Prosecution Service as they can use regulatory powers and enforcement in relation to regulatory breaches”.

“Firms that engage with the IFA in workshops, AML reviews and via support channels tend to demonstrate higher degrees of compliance and we are starting to see fewer referrals to conduct committees for non-compliance post AML reviews,” he says. 

Lesson 3: Clear mechanism for reporting suspicious activity

A clear and simple mechanism to report suspicious activity on a “robust platform that meets sector needs” would help regulators assess threats, Pinkney says. As previously mentioned, the reporting requirements of the regulations have been problematic in that it is perceived that accountancy firms underreport suspicious activity.

In the UK, the original Suspicious Activity Report portal was “bank-centric and quite cumbersome for reporters in the accountancy sector”. Last year, it was replaced with a new system to allow the National Crime Agency (NCA) to analyse and report on threats “in a more thematic way”, according to Pinkney.

Lesson 4: No one-size-fits-all approach to AML risk

The main challenge for firms is to understand and embrace the regulations using a risk-based approach. Additionally, the requirement to conduct customer due diligence on often long-established clients has “regularly proved to be a sticking point, especially to those who have been in practice for many years”, Pinkney says.

“If applied appropriately, it can help not only identify and mitigate risks, but also reduce the administrative burden on firms as resources can be applied on a risk sensitive basis,” he says.

Taking a “gold-plated approach to compliance by conducting enhanced due diligence measures across all clients” regardless of their differing risk levels was unnecessary, Pinkney says. Clear guidance across sectors would help firms tailor risk according to their risk profiles.

While the UK’s AML regime was deemed effective when it was last reviewed by the Financial Action Task Force (FATF) in 2018, Pinkney says there is room for improvement.

The FATF review found “major improvements are needed to strengthen supervision and implementation of preventive measures and ensure that financial intelligence is fully exploited”. 

The UK then established the Office of Professional Body Supervision (OPBAS) to oversee legal and accountancy sector supervisors' approaches. Pinkney says it is “difficult to measure improvements in our sector” but there were positive signs. The UK “Financial Intelligence Unit’s SARs Annual Statistics” report showed the number of SARs submitted by the accountancy sector increased from 5,863 in 2021-22 to 6,053 in 2022-23. Pinkney believes this was too low given it represents 0.70% of the total SARs submitted in this period.

In 2023, the UK published the second version of the Economic Crime Plan covering 2023-2026. Pinkney says the second plan gives the UK the “opportunity to take a more comprehensive approach to improve the effectiveness of the money laundering regulations, refine the structure of our supervisory regime and strengthen the guidance regime”.

“Efforts to tackle economic crime can be supported by improved information sharing and wider structural reforms, including the new legal powers to transform Companies House into a proactive gatekeeper, and a clearer regulatory and fraud prevention framework for new private sector gatekeepers to the digital economy,” he says. “The plan sets out clear targets and will provide a platform to measure future effectiveness.”

Australia more AML exposed despite UK being the second most laundered country

Australia is currently more exposed than the UK, with the latest FATF report published in March 2024 revealing there was “work to do”. However, the UK ranks second in the world for the amount of money laundered, which the NCA estimates at a cost of more than £100 billion annually.

“The money launderers' end goal is to mask dirty money and make it appear as legitimate therefore the UK's wealth and prominence as a global provider of high-end financial and legal services lends these cleaned funds increased legitimacy,” Pinkney says.

“The relative economic and political stability of being a global major power means that it is a safe place to store wealth, e.g. London property is seen as a safe investment, hence the transparency legislation and Register of Overseas entities requirements recently introduced to counter exploitation.”

Pinkney reiterates the need for companies to develop a compliance culture that does not promote a “tick box approach” to compliance and build this into day-to-day processes. “The regulations are designed to disrupt criminality, and firms should not forget there is no such thing as a victimless crime.” 

Read more: IPA AML/CTF submission