Financial institutions across London are plagued with a dirty money problem. The financial district of the capital – known as the ‘City’ – is well overdue a review (a ‘spring clean’, so to speak) of its anti-money laundering (AML) practice. The distraction of Brexit has meant one has yet to see truly meaningful changes. It is time to rethink the approach.
The Financial Conduct Authority is being inundated with whistle-blowers reporting AML control failures. More than 140 City staffers have reported poor AML practices since 2017, a damning picture for a city trying to change its perception as a hub for dirty money.
There have been some tangible improvements across City firms, a result of fines that have alarmed financial institutions into bolstering their AML controls and ensuring adequate due diligence is performed on clients. Sanctions on individuals have also been placed from time to time and some oligarchies have been investigated.
One such high-profile case is of Roman Abramovich the former Russian owner of Chelsea Football club. His £2.3bn proceeds from the sale of Chelsea more than a year ago remains in a frozen UK bank account belonging to Fordstam, a company controlled by Abramovich, with the Foreign Office yet to give permission for the money to be transferred.
While some argue that financial penalties are merely a drop in the ocean, it is more like a drop in a pond for UK firms, which don’t employ the same liquidity as their US counterparts. Research shows UK fines fell by 72pc in 2022 compared with 2021.
While things are going in the right direction, the same research revealed that the UK is still the epicentre of financial crime in comparison to other regions – an eye-watering £155m in enforcement actions in 2022 is not one for the City’s trophy cabinet.
While there is no denying the City has a serious money-laundering problem, it is only through a global lens that London can work to weed out bad actors. AML is no longer a domestic issue and it must not be treated a such. The globalised nature of finance in recent years has highlighted that money laundering transcends borders and it just happens that the City’s lax regulation of late has made it an ideal place to rinse stained money.
As Stella Fau Clarke, chief strategy officer at compliance software firm Fenergo says: to be successful, City regulators must consider a cross border, collaborative approach. If anything is learned from the past year, it is that governments, law enforcement businesses and financial institutions must work together.
This collaborative approach, using and keeping with technology and standardised data that informs and can be acted upon, will create a solid foundation for detecting and, crucially, preventing financial crime industry-wide. Without collaboration and standardisation, the regulatory landscape in London could become more complex and delay meaningful progress towards creating a framework to protect consumers and inventors.
This is particularly true for organised crime that continues to exploit weak AML regimes in the digital asset space. The rapid rise of cryptocurrency is creating a new breeding ground for criminals in a largely unregulated market. The relative anonymity and somewhat hidden reputation of crypto is naturally an attractive destination for organised criminals looking to hide their illicit wealth.
What’s more, with the capital opening its doors to crypto, its more important than ever that regulators protect the wider industry from illicit activity. Calls for data privacy globally are increasing, meaning that it will become increasingly difficult for City regulators to share information.
Regulatory supervision and enforcement action has forced most financial institutions in the City to change when it comes to AML, and the automation of processes. But getting rid of the UK capital’s tag ‘Londongrad’ will not happen overnight. City regulators and financial institutions must make the necessary changes.
(The writer is our foreign correspondent based in the UK)
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