Key changes to financial regulations

New changes to financial regulations covering tax crime, fraud and risk are coming into force. AAT’s head of conduct and compliance, Tania Hayes, gives you the low-down

The Financial Action Task Force (FATF) created 40 recommendations on anti-money laundering. These were revised to become the 40+9 special recommendations after the terrorist attack on the US in 2001. The European Union incorporated the FATF’s recommendations into the third directive on money laundering, and the UK has introduced them in anti-money laundering legislation, including the Proceeds of Crime Act 2002 and Money Laundering Regulations 2007.

FATF announced revisions to its recommendations in February this year. These revisions have been welcomed by the UK government. We at AAT have looked at the changes, and the key ones to note are:

• Stronger requirements when dealing with politically exposed persons (PEPs)
• Expanding the scope of money laundering predicate offences by including tax crimes
• An enhanced risk-based approach that enables countries and the private sector to apply their resources more efficiently by focusing on higher-risk areas
• Better operational tools and a wider range of techniques and powers, both for the financial intelligence units and for law enforcement, to investigate and prosecute money laundering and terrorist financing

What do these mean in practice? Well, for the UK, little will change: it has taken a more robust approach to implementing the FATF recommendations than its peers. It adopted an ‘all crimes’ approach to predicate offences, so accountants are obliged to report money laundering suspicions where tax evasion is suspected. Therefore, the UK is already compliant with that aspect of the changes.

The change most welcomed by supervisors is likely to be the focus given to reflecting on feedback given by financial intelligence units and law enforcement on suspicious activity reporting and money laundering.

Accountants should welcome this amendment as it recognises that there has been divergence in the interpretation and understanding of risk, depending on who is assessing it. The proposal seeks to ensure flexibility in the approach, so resources are focused in higher-risk areas of business.

Due-diligence requirements have provided practitioners across the board with sleepless nights – how much diligence is enough? The most perplexing legacy of the former recommendations was the focus on foreign PEPs. While practitioners would obviously want to bar access to financial services to the likes of Colonel Gaddafi and President Bashar al-Assad, many domestic PEPs – for example the MPs Elliott Morley, Eric Illsley and David Chaytor after their convictions over the expenses scandal – show their risky nature with the benefit of hindsight.

The new recommendations will refer to domestic PEPs and will be extended again to include those with high-profile international roles that are not necessarily political – Sepp Blatter, president of FIFA, would fall into this category.

At the moment, there is nothing you need to do, other than be aware that changes are afoot and note that the Money Laundering Regulations 2007 incorporate global standards as set by the FATF. We’ll keep you posted as and when the UK regime changes.

Tania Hayes is AAT's Head of Professional Standards & Strategy.