Just three months ago HM Treasury released a report looking at the efficacy of the current anti-money laundering and countering the financing of terrorism (AML/CFT) regulatory framework in the UK.

The results paint an interesting picture of how regulated firms across industries are dealing with the regulatory and supervisory regimes.

DIRTY MONEY

Property purchases can be an attractive and effective way for criminals to hide dirty money as this allows its source to be disguised and prevent detection by authorities. They tend to involve large sums of money changing hands, complex transactions and little oversight – ideal conditions for money laundering.

As such, it’s important for estate agents to have a solid grasp and understanding how the way money laundering works in property and the regulatory frameworks that they must adhere to.

DISCONNECT

Loose government regulation is a real risk for both residential and commercial firms so why the disconnect? Regulations are one thing but the nuts and bolts of actually supervising firms are another.

Money laundering compliance has seen a fluctuation between prescriptive requirements versus a flexible risk-based approach that allows estate agents to modify their processes based on the level of perceived risk.

It’s a balancing act with different firms wanting different things – for instance, smaller firms may want prescriptive requirements or concrete examples to give clarity because they don’t have the resources to undertake a more nuanced approach. Meanwhile, others may feel like the existing requirements are already too onerous and prescriptive and want to have the freedom to make a risk-based decision to proceed without needing to meet what they see as essentially a box-ticking exercise.

ENFORCEMENT

What’s more, enforcement of the regulations can be different across different sectors, with banking and financial institutions receiving the harshest fines – global banks were hit with $10.4 billion (USD) worth of fines last year for money laundering violations. There have also been severe cases within the UK – last year one estate agent firm was fined £23 million over AML breaches.

The Treasury report made clear that it was the responsibility of supervisors and policymakers to provide greater leadership and to set clear expectations to support firms and real estate businesses.

The government wants firms to be using more tech to manage compliance, but hesitation remains.”

One key Treasury observation as to why uptake wasn’t higher was that respondents wanted more certainty as to whether the technology platforms being marketed would be sufficient to meet their obligations under the regulations.

Although government was reluctant to explore an accreditation scheme we agree that some kind of ‘stamp of approval’ (such as an ISO accreditation or similar standard) would help firms consider and evaluate different providers and may work to overcome barriers of adoption.

PROTECTION

Even with a good understanding of the current anti-money laundering rules, it can be difficult to keep up with compliance.

The takeaway for estate agents and compliance officers who want to keep their eye on the horizon for new developments should be that many of their peers are sharing the same issues around how to move forward. And, most importantly, how best to work with regulators to protect the UK against money laundering in the future.