Less than super-vision

I assume most of you know how I feel about the theory of OPBAS – i.e. that the solution to the fragmented and conflicting AML/CFT supervision arrangements in the UK is not to rationalise the number of supervisors but rather to insert another layer above them, creating a supervisor of supervisors.  (And in case you don’t know, I think it’s nutty.  OPBAS now oversees the 25 – yes, 25 – legal and accountancy professional body supervisors in the UK, while alongside them are the statutory supervisors like the FCA, HMRC and the Gambling Commission.  Told you.)  I work regularly in two other jurisdictions (Guernsey and Jersey) which, despite having sophisticated and varied financial sectors (albeit smaller than those in the UK), both manage perfectly well with one or two AML/CFT supervisory bodies.  But hey ho, OPBAS is what we have, and it’s been in place since January 2018 – so after 3½ years it should have licked the 25 PBSs into coherent shape.  Their latest report on “progress and themes” has just been published, so let’s have a look…

Modelling themselves on the FATF, OPBAS have adjusted their supervisory assessment of the 25 “and moved from looking at each PBS’s level of technical compliance with the MLRs to a greater focus on how effectively they were conducting their AML supervision”.  And – as did the FATF – OPBAS has found that theory is one thing and practice quite another: “when focusing on effectiveness… we found differing levels of achievement and some significant weaknesses”.  But even the theory is still lacking, right down to how the PSBs are structured: “A third of PBSs did not have an effective separation of their advocacy and regulatory functions, presenting a clear risk of conflict of interest.”  (In other words, they try both to protect/promote their members and keep them in line – with the almost-certain result that, given a choice, a professional will join the supervisory body that is least demanding, which means that the body that wants members and their fees must drop its standards.)  But more shocking is the revelation that “the vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach” – despite the fact that the OPBAS Sourcebook, issued right back at the beginning, states clearly that “the Money Laundering Regulations 2017 require anti-money laundering supervisors to adopt a risk-based approach [which] applies to the way professional body supervisors allocate their resources [and] act in a manner that supports the application of a risk-based approach by their membership”.  For those of us steeped in the world of AML, the risk-based approach is second nature, but steeping is rare in the PBSs: “Only a third of PBSs assessed were effective in recruiting and retaining staff with relevant experience and providing support through ongoing professional development [and] on occasion, staff in key AML roles lacked sufficient expertise and knowledge.”

But perhaps the most disappointing revelation is that the 25 are, for the most part, toothless tigers: “half of PBSs, particularly those in the accountancy sector, failed to ensure members took timely action to correct identified gaps [in AML controls]”, while “around two thirds of PBSs didn’t have effective enforcement frameworks [and] some PBSs could not explain their criteria for taking enforcement action and which tools would be used”.

The main aim of OPBAS is to “ensure a robust and consistently high standard of supervision by the professional body AML supervisors overseeing the legal and accountancy sectors”.  It has not achieved this, although – deludedly, as it contradicts even its own findings – it is still declaring that “if a PBS significantly fails to deliver its obligations under the MLRs, we will not hesitate to take robust enforcement action”.  This is patently not happening, even nearly four years down the line.