U.K. creates new enforcement unit focused on AML, OCC chief touts benefits of global cooperation

By Brian Monroe
bmonroe@acfcs.org
March 16, 2017

In a move to boost bank oversight and ensure more timely and detailed intelligence to law enforcement, the United Kingdom has created a new watchdog agency specifically focused on financial crime compliance standards.

The new government organ, called the Office of Professional Body Anti-Money Laundering Supervision, or OPBAS for short, will strengthen the oversight of financial institutions subject to anti-money laundering (AML) duties, along with better connecting regulators and investigators to uncover problem banks and halt sophisticated criminal gangs.

The U.K.’s new unit is just one of the many ways the country is trying to improve its countermeasures in the fight against organized criminal groups and is informed by high-profile risks, like the Panama Papers scandal, terror attacks in Europe and more aggressive and devastating cyberattacks worldwide.

The announcement occurs roughly in tandem with statements by the U.S. Treasury’s Office of the Comptroller of the Currency (OCC) on the importance of global cooperation on banking supervision and enforcement, a message already taken to heart with a historic penalty agreement involving both nations last month.

As for the new agency in the U.K., it will work to further newly-updated draft AML rules, which would require “supervisors draw on common factors when developing their risk assessments, and maintain records of their investigations and decisions on disciplinary action.”

The new office, its own distinct unit housed in the same edifice as the country’s chief financial services regulator, the Financial Conduct Authority (FCA), is expected to start operating early next year.

The U.K. created the singularly focused unit in part because financial sectors are supervised by 25 organizations, “22 of which are accountancy and legal services providers’ professional bodies.”

Having too many supervising organizations, some with only token enforcement powers, and issuing different pieces of guidance “can lead to inconsistencies which criminals may look to exploit,” according to the U.K., adding that organized crime costs the country at least 24 billion pounds annually.

“This government has already done more than any previous government to tackle the threat of money laundering and terrorist financing,” said Simon Kirby, Economic Secretary to the Treasury, in a statement, noting the creation of the Panama Papers Task force and recovering a record £255 million from criminals in 2015/16.

The new regulations and office will bring the U.K.’s AML regime “into line with the latest international standards, and ensure consistently high standards of supervision across all sectors, sending a strong message that money laundering and terrorist financing should not and will not be tolerated,” Kirby said.

More domestic oversight, international cooperation

The pronouncements by the OCC and U.K. authorities come on the heels last month of a historic moment for U.K. financial crime enforcement.

In a coordinated enforcement action, the New York Department of Financial Services (NYDFS) and the U.K.’s Financial Conduct Authority (FCA) issued penalties of $425 million and $204 million respectively for widespread and longstanding anti-money laundering (AML) failings at Deutsche Bank, chiefly tied to the laundering of some $10 billion out of Russia through a simple yet brutally effective securities scheme called “mirror trades” between 2011 and 2015.

The penalty was the largest ever imposed by the FCA, or any predecessor agency. If not for a 30 percent discount for being forthright with the regulator and attempting an aggressive remediation plan, Deutsche Bank would have faced a fine of just under $287 million.

But those kinds of penalties and coordination are expected to increase when the new office comes online.

Overall, the new unit is part of a broad effort by the U.K. to bolster enforcement powers over entities subject to AML rules, strengthen forfeiture powers for law enforcement investigators and remove barriers to information sharing between the banks and other financial institutions.

In recent statements, the British Bankers Association (BBA) told parliament that existing legislation hampers banks working together on larger cases and comparing notes because in order to see the whole picture – schemes happening across different banks – institutions can only share details if the evidence has reached the threshold of a suspicious transaction report (STR).

The BBA stated that threshold is simply too high.

Anthony Browne, chief executive of the BBA, told lawmakers: “If there was activity just below the formal level of suspicion, if [banks] could at that stage share intelligence like two pieces of a jigsaw, they could find out that something happening in bank A is also happening in bank B. That could … enhance intelligence-sharing.”

Information sharing, global cooperation with the OCC

More cooperation and consideration of the many tensions at play in financial crime compliance, enforcement and investigations are all issues also on the mind of top officials in the United States. This week, OCC head Thomas Curry talked about the importance of global, interconnected and informed enforcement frameworks.

He noted the benefits and “importance of international collaboration and the value of effective supervision,” at an industry conference in Washington, D.C.

“In times of change and uncertainty, collaboration among domestic and international supervisors provides perhaps its greatest value, because it takes the best from each one of us to create something greater than any one of us individually.”

To buttress that point, he noted the collaboration between the Paris-based Financial Action Task Force (FATF), which creates global financial crime standards, the Basel Committee AML group, and OCC initiatives to teach, and learn from, other jurisdictions, about compliance paradigms.

“This collaboration promotes consistency in supervisory expectations across the many jurisdictions in which our banks operate and their customers do business,” Curry said.

But in an age of diverse criminal threats, banks and regulators must go beyond AML defenses alone, he said, harking back to prior calls for financial crime convergence, including the risks from the virtual world.

“Our international collaboration among supervisors also helps enhance cybersecurity of our international financial system and promote the resiliency of that system,” Curry said.

“Succeeding in the fight against cyber risks requires international collaboration, and open communication across our borders, so that our defenses are equally strong,” he said. “Fighting hackers and criminals requires that we do that job well, every day, whereas the hacker only has to be lucky once to succeed.”

Bank supervisors also must expand their thinking when examining large, international institutions and collaborate across borders, something the OCC does through the Senior Supervisors Group (SSG), which is made up of senior executives from the bank supervisory authorities of its 10 member countries.

“It has become a vehicle for sharing supervisory approaches to cybersecurity issues,” Curry said.