News on risc in March 2006
Third EU Directive – latest
On the Third EU Directive (3MLD), she said that part of the aim was to ensure that terrorist financing is criminalised across the European Community.There is uncertainty around the risk-based approach, which the Treasury fought hard to embed in the Directive - Makinson accepted that achievement of equivalent practice on the ground by the various member state regimes remains a challenge. The tagline for a leading management consultancy’s current advertisement, in which golfer Tiger Woods approaches a difficult shot, comes to mind: it reads, “There’s no such thing as a level playing field.” Makinson said the UK had pushed the idea of industry guidance and that differences between jurisdictions could be mitigated by sharing best practice.
Knowledge even of good practice, however, is currently at a premium for firms in the UK wrestling with the risk-based concept. A consultant at one of the large accounting firms told MLB that her clients were commissioning benchmarking studies to determine what constitutes normal practice amongst their peers. None wishes to be an outlier, she noted, neither do they wish to stray too far from the middle of the pack. In the ‘good old’ days of the Financial Services Authority’s ‘ML’ sourcebook (which will cease to apply at the end of August in favour of the higher level SYSC [senior management arrangements, systems and controls] requirements for senior management to ensure that the firm operates an effective AML framework - between 1 March 2006 and 31 August 2006 firms may follow either ‘ML’ or new SYSC) and the earlier versions of the Joint Money Laundering Steering Group (JMLSG) Guidance, combating money laundering seemed to be a far simpler affair. There were accepted, if onerous, rules to follow on know your customer (KYC) documentation and not too much focus on monitoring. AML was not generally perceived to be a competitive issue but the risk-based approach has created a form of moral hazard as firms worry that even nuanced distinctions in classification of risk may lead to loss of existing or foregone potential business. They are likely to be listening intently to any words from the FSA, whether delivered during their own supervisory visits, garnered from the industry grapevine, or contained in more open pronouncements – ‘Dear CEO’ letters, speeches, guidance. Lucy Makinson though referred to the alternative in which firms “overestimate risk to be sure of their position” for a gold-plated approach.
The implementation deadline for the Third Directive is November 2007.The Government aimed to learn the lessons from its experience with the Second Directive and work harder this time to “get the message out to smaller firms,” said Makinson.The Treasury consultation on 3MLD should appear in March or April 2006. It will include various options for the supervision of estate agents and trust and company service providers. Draft revised Money Laundering Regulations are expected towards the end of 2006 / early 2007.
