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Money Service Businesses in the UK: Improving the Conditions for Effective Financial Crime Supervision and Investigations

Olivier Kraft
Occasional Papers, 11 January 2018
Centre for Financial Crime and Security Studies, AML/CTF, Organised Crime
This paper focuses on the measures that can be taken at the UK level to strengthen the money service business (MSB) sector’s anti-money laundering oversight, and specifically to address the risk of criminally owned or complicit MSBs or agents operating unhindered in the UK.

Money service businesses (MSBs) allow customers to remit money, to exchange currencies or to cash cheques without having to rely on a bank account. There are approximately 1,000 non-bank money remitters registered in the UK – more than four times the number registered in France, Germany, Italy, the Netherlands and Spain combined. Taken together with non-bank MSBs providing currency exchange or cheque-cashing services, the number of MSBs registered with HM Revenue and Customs (HMRC) – which are the focus of this paper – totals nearly 2,000. The significant size of the UK’s MSB sector is due to a range of factors, including the right of authorised payment institutions registered in the UK to offer services in any state that is a member of the EU or European Economic Area (EEA).

According to estimates of the National Crime Agency (NCA), at least £1.5 billion of criminal proceeds are laundered through MSB remittances from and to the UK each year. Repeated accounts of MSBs being used to launder several hundreds of millions of pounds confirm the NCA’s assessment that the actual figure is likely to be significantly higher. A country having a large MSB sector is not necessarily an indication of higher financial crime. However, when combined with other structural challenges to an effective supervision of the sector (such as a high fluidity and a low level of systematic transparency), a high number of MSBs can create an enabling environment for money laundering and terrorist financing.

The financial crime risks associated with the sector have been compounded by the fact that MSBs’ access to banking services has declined, and that MSBs therefore turn to alternative channels that lack statutory anti-money laundering/counterterrorist financing (AML/CTF) supervision, such as the freight transport of cash. In light of this fact, this paper seeks to support efforts to ensure the integration of legitimate MSB operations into the banking system, on the premise that such integration can succeed only if confidence in the sector is restored and the costs incurred by banks providing services to MSBs are reduced (actual risk mitigation costs, as well as potential reputational costs).

While acknowledging the international dimension of remittances, this paper focuses on the measures that can be taken at the UK level to strengthen the MSB sector’s AML oversight, and specifically to address the risk of criminally owned or complicit MSBs or agents operating unhindered in the UK. Based on a review of key challenges for the sector’s supervision, the paper identifies three key areas where improvements could be made:

  • Enforcement of existing rules: Relevant UK authorities should assess to what extent the human and technological resources available within HMRC for the supervision of MSBs are commensurate with the number and specific characteristics of the payment institutions registered in the UK. The assessment should consider whether available resources are sufficient to verify institutions’ actual compliance with their obligation to report suspicious transactions (as opposed to their merely having adequate written policies and procedures).
  • Information sharing: Consistent with broader trends in AML efforts, information sharing within and between the public and private sectors should be developed with respect to MSBs. Specifically, mechanisms should be considered to allow information on high-risk agents to be shared by MSBs with supervisors and/or within the sector. This would address the risk of the same agents moving from one MSB to another after having been found by their principal to be non-compliant. In addition, more detailed information about the supervision of the MSB sector should be made public and, in particular, shared with the banking sector in order to inform banks’ own risk assessments.
  • Transparency requirements: The transparency of MSBs and their operations should be enhanced in order to create the conditions for a more effective supervision of the MSB sector, and specifically to provide supervisors with a comprehensive and accurate understanding of the sector’s composition and activities. Specific measures could, for instance, include: a requirement to file monthly or quarterly reports on the total volume and number of transactions completed; a requirement to list affiliated companies (especially other MSBs or dormant companies); or additional controls to be conducted by cash transport companies.

Without significantly increasing the regulatory burden on the sector, the measures listed above will contribute to broader efforts to enhance the MSB sector’s integrity and the integration of remittances into the financial system. To be fully effective in reducing money laundering risks, however, these measures would need to be complemented by further measures designed to detect businesses offering financial services without the required registration, to address new money laundering methods (such as through virtual currencies or mobile money), and to increase international cooperation, which remains indispensable to investigations into controller-led money laundering networks.

Olivier Kraft
Associate Fellow

Olivier Kraft was until September 2020 a member of HSBC’s Financial Crime Threat Mitigation (... read more

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