Oversight of accountancy firms is not sufficient to prevent abuse of the anti money laundering (AML) rules while fines are too low to act as a serious deterrent
The number of fines issued has fallen with only 278 accountancy firms and tax advisers receiving a penalty with £550,000 worth of penalties issued in 2021-22, up significantly on the previous year’s £160,000, with an average fine of £1,800, showed the latest report from the Financial Conduct Authority’s (FCA) Office for Professional Body Anti-Money Laundering Supervision (OPBAS). Fines for law firm breaches were much higher on average at £8,000.
Only two accountancy and tax member firms were suspended, down from the previous year’s 15.
ICAEW sanctioned 53 member firms over AML weaknesses and issued penalties ranging from £350 to £24,500.
Although professional body supervisors (PBSs) had improved in some areas, such as enforcement action where the value of fines has almost doubled since 2019, many still fall short of the regulator’s expectations.
For example, too many PBSs still failed to share relevant information and intelligence proactively with regulators and law enforcement, and that action taken against firms who break the rules has been too slow in some cases.
In many cases the process for assessing risk was based on fixed and extended supervisory cycles, without sufficient touchpoints to allow identification of emerging risks.
There was also criticism of one accountancy body which took too long to complete investigations. It had a wide range of enforcement tools in place but had ‘not used them effectively to take timely, proportionate and dissuasive action to correct identified weaknesses of its supervised population. The PBS initiated enforcement action in several cases but did not meet its internal recommended timeframes for progressing cases and did not provide valid reasons for the delays’, OPBAS said.
OPBAS said that most institutes were ‘only partially effective in taking timely and adequate corrective actions’ and many gave their members too long to rectify their AML failings.
None of the bodies maintained fully effective intelligence and information sharing arrangements. However, those with larger memberships tended to be more effective in implementing a risk-based approach.
In 2021-22, accountancy bodies, which oversaw 33,911 firms, were still affected by the covid lockdowns which meant that the number of site visits was limited to 1,015, significantly lower than pre-pandemic when there were around 1,700 physical inspections a year. The number of desk based reviews was 1,410, down from 1,966 at the height of the pandemic. Formal action was taken in 18% of cases after a site visit, while nearly a third (29%) of desk-based reviews resulted in follow-up action, highlighting the risk of money laundering in the accountancy sector. The level of post inspection action was higher than in the legal sector.
The number of NCA’s Suspicious Activity Reports (SARs) submitted by accountants and tax advisers also increased to nearly 6,000 instances in 2021-22.
OPBAS will continue to use all the regulatory tools and powers available within the current anti-money laundering (AML) framework to hold them accountable. However, the lack of consistent effectiveness across PBSs is an indication that reform is needed to improve standards of supervision.
Emad Aladhal, director of specialists at the FCA, said: ‘The FCA is fully committed to playing a strong role in reducing and preventing financial crime, and, through OPBAS, we are able to have a broader reach into the legal and accountancy sectors as well as across financial services.
‘Professional bodies are continuing to improve their oversight, but they need to be more ambitious and accelerate their efforts so that we can tackle money laundering more effectively.
‘Over the next year, we will be looking to make greater use of all our regulatory tools, including enforcement action where appropriate, to make sure PBSs continue to improve and fulfil their obligations.’
The government’s plans to consult on proposals for AML supervisory reform with options ranging from expanding OPBAS’s powers and remit to the creation of a single AML supervisor across all regulated sectors.