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AML: improving the fight across Europe

Author: ICAEW Insights

Published: 12 Apr 2021

In response to EU proposals to strengthen anti-money laundering regulation, Accountancy Europe outlines how professions can strengthen their defences against money launderers.

Anti-money laundering (AML) is high on the EU’s agenda. The view on the continent is that the approach to AML across nations is inconsistent and disjointed, allowing money launderers to take advantage of gaps. As the Commission AML action plan states, defences are only as strong as the weakest link.

The European Commission has made several proposals to combat AML risk, including suggesting the introduction of a regulation, rather than a directive. This would impose standard rules and outline the approach all member states will need to take when it comes to AML. This would give a clearer starting point for the 27 member states.

The Commission is also discussing some form of unified supervision or regulation of money laundering, starting with the financial sector first. This would build upon the existing powers which the European Banking Authority has in respect of large financial institutions.

Potential regulator needs sufficient breadth and experience

Accountancy Europe, the organisation representing accountancy bodies from 37 European nations, support the move to a regulation and also to a more consistent regulatory regime. However, there are some concerns. The key concern is that whilst the professions are regarded as high risk from an AML perspective, the focus remains on financial services firms such as banks.

“It is a very different thing to regulate a bank compared to an accountancy firm, a two-person money service bureau, or a large gambling corporation,” says Angela Foyle, who sits on Accountancy Europe’s AML Working Group. “If the EU is moving to a single regulator, it needs to make sure that the regulator has sufficient breadth and experience across the sectors that it is dealing with.”

The model the EU will go for is likely ‘hub and spoke’, says Foyle, with the regulator at an EU level acting similarly to an overseer of the national supervisors. Accountancy Europe has engaged with the consultation process to ensure the accountancy sector is considered and will continue to do so.

Accountancy Europe is also interested in the rapid growth of new technologies - something the EU is also closely examining. In its last set of AML directives, it brought in cryptocurrency exchanges and wallet providers as part of the regulated sector but the concern is that regulators are playing catch-up, reacting to new technology rather than setting out characteristics of activities that are vulnerable to laundering and requiring those activities to be regulated, regardless of how they are delivered.

It matters for all members, beyond the 27 EU member states, Foyle explains, because of the close relationship the EU has with its neighbours. The non-EU European nations have good trading relationships with the EU. As it looks to take a harder stance on money laundering, the EU may well look to its close trading partners to follow suit. From Accountancy Europe’s perspective, it is also important to collaborate and share ideas to collectively tackle the issue.

How to improve AML provisions

Accountancy Europe’s AML working group is taking an in-depth look at the issues surrounding money laundering, and the possible solutions to improving AML provisions across the accountancy sector. For example, it considers how increased communication between the sector and law enforcement might improve understanding and detection. In the UK, that process has been progressing, says Foyle, and public-private partnerships offer the opportunity to increase understanding and share information on both sides.

“How do we channel that? We could put out something to everyone outlining common red flags, for example. It's talking about how we might get that level of collaboration to actually inform sectors better of their specific risk factors.”

One area of discussion at Accountancy Europe has been how different member countries approach AML, and what role, if any, accountants and auditors play within that. Part of the work is considering the approach to governance and how technology could be utilised to tackle money laundering.

“The working group aims to think about some of the issues we've seen within our sector. We've all got a common goal of trying to act effectively as gatekeepers. The group has engaged in the supra-national risk assessment process and expects to provide further input and ideas from the accountancy sector to the European Commission when their proposals on the AML Action Plan are published.”

This will include considering systems and controls and how they might be improved. “Do we need to look at the legislative framework? It's looking at all of those aspects,” says Foyle. “There is also the question of whether AML defences would be better with a single regulator? Would that regulator have sufficient sector-specific knowledge and understanding?”

The vast majority of accountants seek to ensure that they don't get involved with criminals, says Foyle. However, the profession needs to acknowledge that even with the best intentions, it does not always get things right, and should own up to its mistakes and address them head-on.

“We have to look at some of the criticisms that come towards us and see how we can constructively deal with them. Whether that is something we need to do through a standard or by working with the national associations to improve guidelines.”

It’s why Accountancy Europe is necessary; by collaborating between nations, contributions to these exercises are incredibly rich, due to the diversity of experience brought to the table.

“Criminals are completely blind to borders. They're just looking for the weakest spot. They'll exploit it absolutely and viciously once they find it. So understanding what our neighbours are doing is important.”

ICAEW & IFAC series AML – The Basics