Over half (55%) of regulated firms are facing penalties for non-compliance with the Fifth Money Laundering Directive (5MLD) that was introduced in January 2020, according to a recent survey of UK sectors that fall under the new regulations. The research reveals that on average, firms in the banking, lending, wealth management and estate agents sectors are slightly over halfway through the process of getting their businesses compliance-ready for the latest iteration of the money laundering regulations to come into force. Non-compliance can lead to hefty fines from the regulator, the Financial Conduct Authority (FCA).
5MLD legislation came into force on 10th January 2020 as part of UK’s plans to help combat the growing money laundering problem facing the country. Despite there being little foresight provided as to what the regulations would entail, no grace period to allow for implementation, was set. Instead firms were expected to comply immediately with the regulations.
Whilst in practice, there’s been no public examples of regulatory fines for non-compliance with 5MLD to date, 9 months on, there’s increasing risk that will start to change.
You could be forgiven for thinking that the COVID-19 pandemic and national lockdown has had some bearing on the apparent lack of progress, but you’d be wrong. Of the 500 UK compliance professionals across banking, lending, wealth management and estate agent sectors surveyed, almost two thirds (64%) said COVID-19 had sped up their 5MLD implementation plans, rising to 70% of banks. One wonders therefore what might have happened, had the crisis had not occurred?
Equally worrying is that there seems to be widespread confusion amongst financial professionals as to the actual purpose of 5MLD legislation. Fewer than half of respondents were aware that 5MLD’s purpose was to prevent the financial system being used for the funding of criminals (47%), or that its purpose is to strengthen transparency rules to prevent large-scale concealment of funds (43%). More worryingly, banking sector professionals – the sector with arguably the biggest role to play in keeping illicit funds out of the system – appeared to be least well informed. This is particularly poignant given the recent FinCEN files leaks which revealed 2,000 suspicious activity reports outlining how some of the world’s biggest banks have allowed criminals to move $2 trillion of dirty money around the world. Therefore, it’s clear that more needs to be done by all stakeholders to educate them on how illicit funds are infiltrating the system, and how to crack down on the problem.
Looking at the situation as a whole, it’s no big surprise that firms aren’t yet fully compliant with 5MLD, but it is slightly disappointing that so many are so far behind and that firms appear not to be prioritising this important legislation, given the positive impact it can have on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing.
While the recent FinCEN files did a lot to highlight the myriad issues with the UK Anti-money laundering (AML) system, there’s much to be optimistic about with regard to the fifth money laundering directive (5MLD) – an important amendment that promises to strengthen transparency and the existing preventative framework.
But the regulations have already been in place since January 2020, and despite the challenges we’ve all faced since then, firms really need to get on with implementing 5MLD as quickly as possible, to ensure the amendment has the greatest possible impact on the UK’s fight against the rising tide of money-laundering.
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