Brexit would leave little time to comply with Anti-Money Laundering Directives

UK’s withdrawal from Europol might create new gaps for financial criminals to exploit, while no-deal Brexit would leave little time for Financial Institutions to comply with the EU’s 5th Anti-Money Laundering Directives (AMLD5)

Anti-Money Laundering Directives

Foto-Rabe / Pixabay

October 14, 2019. As the United Kingdom prepares to leave the European Union on October 31st, the financial sector is among those facing the most uncertainty. As a result over 275 UK-based Financial Institutions (FIs) have reportedly been already relocated to other EU countries or were in the process of doing so.

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Brexit and anti-money laundering directives

Among the many unknowns surrounding the UK’s post-Brexit financial sector is whether the FIs will manage to protect themselves from financial crime, and how will the process of compliance with the EU’s Anti-Money Laundering Directives (AMLDs) look like.

“One of the key questions regarding the future of co-operation between the EU and the UK in anti-money laundering is whether the post-Brexit UK will stay in Europol,” said Michel Farah, an Anti-Money Laundering (AML) expert, former Director of Compliance at VISA and currently the CEO of ComplyTech, an AML solutions provider.

Europol is maintaining a register of criminal information and intelligence called the Europol Information System (EIS). The register works as a central informational hub where European crime databases interconnect and are accessible by law enforcement agencies across the EU.

AMLDs

“After and when the UK leaves the EU, it is unlikely they will continue being members of Europol, which would restrict the country’s access to the EIS unless new bilateral agreements are reached with each of the EU’s member states,” added Mr Farah. “This could seriously hinder the ability of the UK’s officials to combat the flow of illegal money, since tracking the movement of such funds would become significantly harder.”

The UK governmental bodies wouldn’t be alone in this uphill battle against financial crime. Financial Institutions (FIs) in the UK, too, would become particularly vulnerable to financial crimes if the UK leaves Europol along with leaving the European Union.

“Financial Institutions - banks, FinTechs, among others - might face enormous challenges after Brexit,” commented Mr Farah. “For one, leaving Europol would provide criminals with new opportunities to launder money by investing in businesses in the UK. Informational gaps that would be present due to the absence of inter-European intelligence sharing will act as additional motivation for financial wrong-doings.”

The situation of FIs would become even more complicated if the UK crashes out of the EU without a withdrawal agreement. If the deal is reached, which is becoming more unlikely by the day, there would be a transition period that would include defining the nature of the EU-UK relationship regarding the existing Anti-Money Laundering Directives (AMLDs).

“A no-deal scenario would make the situation troublesome for both the FIs and the UK’s government. If the agreement is not reached before October 31st, the UK government will have only two months to implement the 5th AML Directive by January 10th, 2020, when it kicks in Europe-wide. If the agreement is reached, the transitional period will make the situation less challenging,” added Mr Farah.

Anti-money laundering directives

As for the financial institutions, they would be facing additional expenses and a brief time period to adjust their AML procedures. “The financial institutions would have to additionally invest in updating their anti-money laundering programs and policies to be compliant with the new set of laws. Time will be of the essence here, as the FIs will have to make it happen rather quickly to meet the regulation,” said Mr Farah.

Historically, the UK has been tougher on AML laws than the AMLDs have required. After Brexit, it would no longer be binding for the UK to follow those laws, and financial institutions in the country with parts of their business in the EU would have to comply with both sets of regulations.

“Post-Brexit, if the withdrawal agreement is reached, the UK will be obliged to implement  AMLDs during the transitional period. Afterwards, financial institutions would need to follow and comply with what the national law says,” finished Mr Farah. “In some aspects, AMLD5 will definitely be a burden. Especially the sharing of beneficial ownership, which would require the UK government to invest and develop the required infrastructure to make it happen.”


About ComplyTech

ComplyTech is a Regulatory Technology firm (RegTech), whose partnership model supports the financial institutions in meeting the evolving anti-money laundering regulatory requirements with regards to their client's KYC and due diligence obligations. ComplyTech provides analytics and risk assessment using technology and people so businesses can build safer and faster, while overcoming regulatory challenges.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver