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Cartography of Compliance

The Cartography of Compliance

Inês Sofia de Oliveira, David Artingstall and Florence Keen, with Matt Russell and Ben Luddington
Occasional Papers, 11 January 2017
Centre for Financial Crime and Security Studies, AML/CTF, UK
The UK has one of the most advanced anti-money laundering (AML) legal and regulatory frameworks in the world. This paper, researched with the help of PwC, is a collection of perceptions expressed by the private sector – in particular banks – on the field of AML and its implementation in the UK. With a staggering number of suspicious activity reports received by the National Crime Agency every year and London’s infamous (although perhaps not entirely justified) reputation as the money laundering capital of the world, there is an urgent need to address any remaining inefficiencies in AML provisions in order to keep critics, as well as criminals, at bay.

This paper’s objective is to suggest ways through which banks’ core business may be made more compatible with the regulatory requirements imposed on them. It identifies the specific obstacles to effective AML provisions in the UK, as well as innovative best practices that could help overcome them.

Regulatory requirements at the national and international level have led to a growing ‘compliance industry’. This paper describes the main challenges around the implementation and interpretation of laws as seen by practitioners and corroborated by relevant policymakers. The research has been developed with the aim of increasing knowledge about the context in which UK AML actors operate, their strategies and resources, and expectations and outcomes.

The paper finds that, while challenges to a more effective AML framework continue to be significant, practitioners believe that a few simple adjustments and an overall increased commitment to AML could lead to radical improvements in levels of effectiveness. The paper makes the following recommendations:

People

  • Leadership (supported by highest-level management) is crucial to the setting up and management of effective AML practices. Strong leadership would encourage the proper implementation of the risk-based approach. Financial institutions should have a leadership that is able to balance business priorities with compliance requirements. This in part is being addressed by the introduction of the Senior Managers Regime. 
  • Companies should encourage investment in knowledgeable, expert and motivated compliance professionals. Expertise should be supported through training and innovation. Hiring, training and retaining efficient compliance staff is key to building the ‘culture of compliance’ and greater effectiveness. 
  • Companies should nurture business awareness at all staff levels in order to implement well-rounded operations that consider the business context, specific risks and impact, along with legal imperatives. 
  • Companies should try to reduce the high turnover levels of staff experienced as a result of the high demand for specialised and expert compliance officers. Staff satisfaction should be improved in order to retain the right expertise and ensure that it is kept in-house. Companies should maximise levels of investment in training. 
  • Companies must promote a culture of compliance. Desired behaviours should be set and role modelled from the top, then ‘cascaded’ through all tiers of management. This allows employees to understand what is expected of them and why. This needs to be underpinned with support and guidance on emerging good practices, how these practices apply to specific institutions and the ways in which it is important to manage risk as a core part of business dealings. 


Resources

  • The UK government, regulators and law enforcement agencies should upgrade mechanisms and practices to respond appropriately to the efforts of financial institutions. Investment in AML generated by the private sector should be mirrored by equivalent capabilities within law enforcement investigation units and competent authorities. Financial institutions need responsiveness, greater guidance, feedback and interaction to be able to comply with standards in a way that leads to real and effective results. 
  • Companies should build internal risk and opportunities awareness through targeted investment. The burden of compliance can be mitigated if financial institutions focus investment on understanding their own individual risk matrix and on the right expertise, tools and resources to manage it. These efforts should be supported by clearer guidance from regulators and law enforcement. The introduction of financial intelligence units by organisations is a positive step in targeting investment. 


Mission

  • Regulators need to achieve greater clarity for monitoring, evaluation and enforcement regimes. Regulation – in particular the risk-based approach – is difficult to comply with due to the perception that there are moving goalposts in terms of what regulators are ‘happy with’ and penalties can be enforced ad hoc. Overall, regulatory and supervisory authorities should become more sympathetic to the ‘results-driven’ rather than formulaic nature of AML. 
  • Improve coordination and collaboration between actors. Platforms similar to the Joint Money Laundering Intelligence Taskforce (JMLIT) should be encouraged, supported and refined. It is important to foster these relationships from planning and strategic to operational and investigative levels in order to have an inclusive stakeholder approach. 
  • Implement AML standards with a view to maintaining the integrity of the financial system and simultaneously contributing to the disruption of crime. To increase the overall effectiveness of AML, the financial services industry must be able to operate within an independent and expert-based environment, free from political, resource or perception-related constraints. 

Author

Inês Sofia de Oliveira
Associate Fellow, Centre for Financial Crime and Security Studies

Inês is a researcher and analyst on financial crime. As a RUSI Associate Fellow Inês contributes to the work of the Centre for Financial... read more

David Artingstall
Associate Fellow

David Artingstall is an independent consultant specialising in AML/CFT and regulatory risk issues. His roles as a consultant over recent... read more

Florence Keen
Research Analyst

Florence is a Research Analyst at RUSI within the Centre for Financial Crime and Security Studies. She joined RUSI in October 2015 after... read more

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