AML ambiguity and more work for business? Welcome to the EU-UK trade agreement

The wording in the EU-UK trade agreement agreed a couple of weeks ago is just a fleshing out of what was in the political declaration. Yes, we will both agree to meet with FATF standards in general and seek to both do better than FATF on beneficial ownership transparency.

This suggests to me the discussion hardly touched upon AML/CFT issues, as there is so much that needs to be said that is left unsaid.

I seriously wonder if there were many specialists negotiators involved – it really is thin.
There are very practical realities that firms in the UK and the EU face now that are, to my mind, slightly ridiculous.

The UK is a Third Country to the EU, and EU member states third countries to the UK.

As I read it, with the end of financial services passporting and no explicit recognition of equivalence in AML/CFT, UK businesses will not only need to meet their own legal requirements when operating in the EU, but the specific laws and regulations of the jurisdictions they are operating in, which, given the variability of how EU member states apply the AMLDs, could be quite different (and possibly more stringent).

“My guess is that we will end up with the status quo for a while yet, while the financial services sectors starts getting their act together with regard to lobbying for closer alignment on AML/CFT”

So this will mean more work for businesses. Luckily though, no one seems to be treating anyone else as a ‘high risk’ third party jurisdiction with strategic AML/CFT deficiencies. Yet. No one will be satisfied with this situation in the medium term, and I expect they will have address it more clearly in the financial services Memorandum of Understanding due in March.

Hence, for instance, why the Greens in the European Parliament are already saying that any ‘licenses’ agreed for specific UK firms to passport into the EU financial markets should be linked to the UK agreeing to tighter alignment on AML/CFT than what’s in the agreement.

I’m not sure the UK government will go for that, because it will impinge on our sovereign right to do something we might do (but are unlikely to do) in the future.

So my current guess is that we will end up with the status quo for a while yet, while the financial services sectors starts getting their act together with regard to lobbying for closer alignment on AML/CFT. This is just an additional cost for them which brings no competitive advantage on either side.

I am sure the EU has factored in the ambiguity of its own situation, given that it is reforming its AML/CFT framework in 2021. We might see a single regulation for the whole EU emerging after that, rather than a patchwork of national laws following on from the AML directive.

By Matthew Redhead, financial crime researcher and writer