Examining the implications for anti-money laundering, anti-bribery & anti-corruption, and sanctions compliance following the UK’s decision to leave the EU.
Some argue it’s like jumping off a cliff and packing your parachute on the way down. Others maintain the United Kingdom is better to break free of its European Union ties. All we know for certain at this stage is that Brexit has been and gone. The UK has voted to leave the EU.
The media—social media in particular—is in meltdown at this landmark decision and its implications. We don’t know what Brexit means yet for the free movement of people; for trade; for the destiny of other countries. Only time will tell.
However, there’s one area that we can comfortably make some assumptions. And that’s Brexit’s impact on financial crime. By which I mean anti-money laundering (AML), anti-bribery and anti-corruption (ABAC) and sanctions compliance.
So let’s take a look at each of these in turn to study the impact of Brexit.
No change is anticipated here. The UK is spearheading anti-bribery and anti-corruption measures though the UK Bribery Act. The Act is not dependent on EU regulations, so will not be impacted by Brexit. However, during the anti-corruption summit in London during May 2016, Prime Minister Cameron introduced anti-corruption initiatives. Following his resignation, it is uncertain whether offshore territories will still be subjected to the stricter controls.
ABAC/terrorist financing/AML international conventions
The UK follows international conventions, so as a signatory to the global conventions, no change is expected with regard to ABAC, terrorist financing, or AML international conventions.
This area of compliance regulations will largely depend on the outcome of exit negotiations with the EU. The Financial Conduct Authority (FCA) has stated, “Much financial regulation currently applicable in the UK derives from EU legislation. This regulation will remain applicable until any changes are made, which will be a matter for government and Parliament. Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.” So no knee-jerk reaction in the short term is anticipated.
The FCA also noted that longer term impacts of Brexit would depend on the relationship the UK will have with the EU. Membership in the European Economic Area (EEA) and World Trade Organization (WTO) requires compliance with EU regulations. Membership in the European Free Trade Association (EFTA) requires compliance with sector-specific EU regulations. However, Brexit may result in a de-harmonization of EU regulations and its interpretations of the Financial Action Task Force (FATF) standards. Furthermore, the UK will not have the same influence over EU regulations and sanctions.
Since the 4th EU AML Directive resulted from the FATF recommendations, the UK—being a member of FATF—would at least maintain the same level of regulation and may voluntarily remain committed to the Directive. However, the UK has made exemptions for politically exposed persons (PEPs): the Financial Services Bill, for example, excluding domestic PEPs from money laundering enhanced due diligence. As a result, there could be an impact on full adherence to the Directive’s PEP requirements unless Brexit negotiations dictate otherwise.
Since the UK with the FCA and Prudential Regulation Authority (PRA) were involved in the Solvency II and MiFID to favor the UK firms, no impact is expected. However, Brexit could trigger additional regulatory changes that favor other European financial centers. The UK must maintain the same level of regulation as the EU in order to maintain access to the single market in financial services.
If the UK banking sector is negatively impacted, there will be a push for relaxation of regulations in this sector. Nonetheless, the UK’s adherence to FATF, Egmont, Wolfsberg, OECD, G20, and other standards (including the Financial Conduct Authority regime) is expected to withstand the Brexit.
One additional area of uncertainty surrounds the “passporting” rules. Further analysis of these rules is required before their impact on post-Brexit compliance changes can be measured.
It is expected that Brexit may give the UK greater authority and independence to impose sanctions differently to the EU. Whether that change would mirror the stricter US sanction regime is unknown at this time.
EU data privacy regulations
The flow of personally identifiable information from the EU to the UK may be impacted depending on negotiations.
Information sharing between governments is expected to continue, since there is no benefit to anyone from blocking the sharing of this type of data.
Customers need to determine how their operations in the UK are impacted. This includes analyzing changes that occur in the UK as well as the EU resulting from the dissolution. Global compliance strategies will be impacted. And data privacy changes will need to be monitored to ensure compliant flows of data from the EU to the UK.
The post-Brexit relationship between the UK and Europe—indeed the rest of the world—is fluid and uncertain. However, from an AML, ABAC and sanctions compliance perspective, it is clear that governments will strive to support ethical business growth and simultaneously fight the rise of fraud—whether those governments are inside or outside the EU.