Business secretary Sajid Javid promises to reduce bureaucratism on money laundering

Cumbersome rules that cost customers and banks time and money but do not actually stop money launderers and terrorists could be axed, business secretary Sajid Javid says, under a new assault on red tape in the finance sector.
Rules to stop the transfer of ill-gotten gains have tightened in recent years following a spate of high-profile scandals such as HSBC’s failure to stop laundering by Mexican drug dealers using its accounts.
However, those tighter rules have also harmed some innocent customers. Some have found themselves cut off from bank accounts or payment services because they are associated with unstable countries such as Somalia, while others have had to pay fees to prove their identity to their bank or investment firm.
“We are committed to saving businesses a further £10bn in red tape to help create more jobs for working people, boost productivity and keep our economy growing,” said Mr Javid, who is himself a former financier and used to work at Deutsche Bank.
“This new review is about making sure the rules we have to protect our strong financial services industry from abuse are not unintentionally holding back new and existing British business. I want firms to come forward and tell us where regulation is unclear or its enforcement ineffective.”
The call for evidence from the Department for Business, Innovation and Skills is open until October 23, and seeks to hear from banks and their customers if there are cases of the rules being disproportionate and heavy handed. Ministers also want to see any examples of better systems from around the world.
Banks hope that the threat of enormous fines will be reduced in instances where lenders can show they worked hard to meet competing goals of stopping illegal activity while also serving the vulnerable customers who the government wants to help.
A particular concern is incoming rules on politically exposed persons, shortened to PEPs in the sector’s jargon.
While this traditionally covered politicians in countries with high levels of corruption, new EU rules could expand this to all politicians in the UK and their families.
“This sometimes runs a little contrary to common sense,” said Chrisol Correia, director of global anti-money laundering at LexisNexis Risk Solutions.
“For example, this will mean that at the point of entry to a bank, the son or daughter of an MP will initially have the same risk weighting as the governor of an oil rich province from an unstable emerging economy – the bank will have to treat them initially the same way, when they clearly pose different levels of risk,” he said.
“That will be quite demanding on customers, and it is a large population, covering elected officials, civil servants, senior members of the judiciary and military, and also their family members.”
Those customers and their banks will all have to spend far greater amounts of time applying for accounts, which means resources will not be free to allocate to the riskiest customers, he said, and could result in higher costs for ordinary customers across the bank.
One problem for the government is that the British authorities may not easily be able to adjust rules and guidelines which are set at a global or European level. In addition, UK banks must abide by differing rules on the ground in the different countries in which they operate - particularly the US, which enforces its finance rules rigorously, covering anyone who settles dollar transactions through the US even when the parties involved in the tranfer of funds are based in other countries.

Expert says: ‘Senior managers' regulations will escalate contradictions between anti-money laundering and data protection rules’

New rules aimed at increasing the accountability of senior managers at financial institutions in the UK "will exacerbate the conflict" that already exists between anti-money laundering duties and compliance with data privacy rules, an expert has said.
Senior staff at banks, building societies and regulated investment companies could face fines, disqualifications and potentially, jail time, for failing to perform their duties properly under the Senior Managers and Certification Regime (SM&CR) that will apply from 7 March 2016. A separate Senior Insurance Managers' Regime (SIMR) will come into force on 1 January next year.
Financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said he echoed concerns expressed by US academic Dr Michelle Frasher last month about the discord that can exist between compliance with US and EU anti-money laundering (AML) rules and the EU's data protection regime.
In an article published by American Banker, Dr Michelle said "an experienced AML officer" had admitted at a conference in London earlier this year that they would risk their employer being fined up to 5% of their global turnover, as is proposed under new EU data protection rules being negotiated, by "using data that might violate data privacy and protection rules" to meet their AML responsibilities. He said he would do that so as not to put themselves "in jeopardy", she said. The academic said most other AML officers would also adopt that view.
"This is clearly an issue financial institutions and money laundering reporting and compliance officers are currently considering very carefully," Ruck said. "The potential conflict between the interests of the firm and the individual compliance officer may be inherent in the role, and has been for some time, but will be exacerbated by the senior managers' regime being introduced for banks and insurers in the UK."
"The banking regime reverses the burden of proof onto an individual who has responsibility for an area of the bank in which a breach of the regulatory regime occurs, making individual accountability an extremely hot topic. This may reflect the approach of the AML officer referenced in Dr Michelle Frasher's article," he said.
Ruck said that banks must take steps to "fully understand" how AML and data protection rules apply to them, both in the UK and internationally. They should also "ensure their staff understand the regimes, put in place senior management responsibility for compliance and, in circumstances where the two regimes may appear to be at odds, seek advice on how to address this conflict".
"There is some provision for any such conflict to be resolved in the EU's new Anti-Money Laundering Directive but with the various international regimes and international regulatory bodies often involved, these conflicts will continue to arise," Ruck said.