A Detailed Overview and Study of the Finance Regulatory Bodies

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Question

1- Write a note on Banking and Finance Law in approx 3500 words with references to APA.

Answer

Introduction:

The United Kingdom is one of the biggest countries in the world in terms of finance and economy which has several bodies regulating all the financial aspects every now and then. It may sound huge and fascinating that they have titanic financial sector but the underlying issue is about controlling and regulating the sectors in a way that no money goes to waste. There are lots of money hungry people in the society roaming around and looking for opportunities to take out money from any where in the name of investment and waste it by unsuccessfully investing the same in misguided monetary schemes (Erbenova et al., 2016). This basically portrays the wealth a country possesses and in this case its UK which has a contributed wealth from multiple nations. Thus, various financial authorities including the law commission investigates at certain intervals and provide reports that helps in keeping a check regarding the financial misuse and condition in the country.

An overview of the UK’s finance regulatory bodies:

On 20th July 2018, the Law Commission published a report on money laundering and Suspicious Activity Report (SAR) regime. Money laundering has been a global problem and every big economy has seen some sight of the same. It basically allows criminals make profit out of their crimes and such an act of misusing the money costs 255 pound to every UK household in a year. The Proceeds of Crime Act 2002 gives a framework to organizations to report suspicious financial activity to law implementation offices. Be that as it may, there has been ongoing feedback of the SAR administration, following a lot of low-quality detailing and culprits having the capacity to evade location (Leong, 2016). Firms confront significant expenses therefore, with assessments of in any event £5 billion spent every year on financial crime consistence. There is additionally the thump on impact of financial misfortunes to organizations and people who can't exchange subsidizes when there is doubt of tax evasion. Clients that face these postponements additionally can't get an explanation behind the deferral from their bank due to the "tipping off" offense plot in the statute. 
After the introduction of Financial Service Act of 2012, an attempt was made to eliminate the economic service authority and introduce three new bodies for the purpose of effective regulation. The financial conduct authority (FCA), the prudential regulation authority (PRA), the financial policy committee (FPC), these three bodies were formed to look after and investigate all the financial schemes in the particular sector (King, 2018). 

Financial Conduct Authority (FCA):

The FCA’s principle has three operational objectives: 

  • Consumer protection: Obtaining a level of protection for consumers. 

  • Integrity: Defending and enhancing the veracity of the UK financial system. 

  • Competition: Helping active rivalry for the customers in markets for controlled financial services and services provided by investment exchange. 

  • Prudential Regulation Authority (PRA): The PRA is in charge of advancing the security and soundness of essential gatherings, including safety net providers, and guaranteeing policyholders are ensured in case of an association's disappointments. Its approach has three characteristics.

  • Judgement-based: Using judgement in defining whether economiccompanies are innocent and comprehensive. 

  • Forward-looking: Assisting firms not only against current risks, but also against those that can arise in at a later date. 

  • Focused: Evaluating firms against current dangers, as well as against those that could conceivably emerge later on.

Financial policy committee (FPC):

A board of trustees inside the Bank of England in charge of skyline examining for rising dangers to the money related framework all in all and giving key heading to the whole administrative administration. The FPC has the ability to utilize alleged "macro-prudential instruments" to check foundational hazard (Hopton, 2016). The devices could incorporate forcing influence restrains on banks or upholding specific capital necessities for given resource classes. The Bank of England is presently accountable for prudential control, over its current duties regarding money related arrangement, and therefore is quick getting to be one of the most ground-breaking national banks.
However, the best way to regulate financial framework within in a country in this modern age is to delegate these responsibilities to able bodies of the government. In this case, the abovementioned bodies worked as those bodies who systematically regulate the financial services and defend the whole system from frauds and crimes related to finance. One of the biggest frauds is money laundering. Money laundering is defined as turning profits obtained from illegal activities into ostensible legal assets (Hendrickson et al., 2016). For example, a business when does not pay whole tax and makes black money by evading tax and then investing the same into some venture where the money would turn into white legal money and no authorities can question the same. All the three bodies, that is, FCA, PRA and FPC gave framework to control money laundering and regulate the whole regime. As a part of their procedure, it created Firm Systematic Framework (FSF), which supervises conduct risks and considers the potential harms caused to consumers as well as the market itself. 

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There are other approaches that were taken by the authorised bodies, they are as follow:

Wholesale conduct supervision:

The FCA brings in procedure and approaches to supervise the risk caused to consumers by wholesale activities. In doing that, it looks after the conduct that has negative impact on consumers and concluded that the factors that apply to retailers are same for wholesales too. 
Banning Products:
When the FCA finds fault in products and its services it decides to ban the product to abolish the root causes which is detrimental to the whole market. 

Reasons for failure to control money laundering:

The FCA can take actions against misleading promotions that causes consumers to fall for those schemes resulting to market risks. When a firm engages in new ventures that looks fishy or which looks risky, it warns the firms from engaging in such activities (Burton & Michel, 2016).
Now, the FCA cannot look after all the elements of anti-money laundering activities and thus, it is up to the government of UK to change and control the degree of money laundering. With the introduction and sanction of anti-money laundering bill on 6th March 2018, there are various situations and circumstances that can be termed as money laundering activity. Under section 327 of Proceeds of Crime Act 2002 there are various activities that has been termed as activities that facilitate money laundering activities. According to the act, concealing, converting, transferring or even removing criminal property are termed as illegal (Burton & Michel, 2016). 
In this context, both the FCA and the governments of UK found several reasons for the failure to control and prevent money laundering in the country.

Some of the most notable reasons are discussed below:

  1. The problem with the existing system makes the whole regime to fail in controlling money laundering activities. According to certain reports from FCA, it was found that, there are some significant weaknesses in the system of governance. A considerable number of the individuals who examine around there find that rules are discontinuously authorized, punishments are low and senior administrators confront couple of individuals, money related or reputational results. It is helpful to analyse a portion of the punishments that have been exacted in the UK with those imposed in the US (Chong & Lopez?De?Silanes, 2015).

  2. It was found that, the financial institutions are not capable of developing an effective system in the current regime that will assist in controlling the money laundering in the countries of UK. There are significant disabilities on the part of the banks to monitor the money laundering activities. Without proper monitoring of some activity, its status and legality cannot be judged at first sight (Cooper & Walker, 2016). 

  3. The Serious Fraud Office planned to implement a broader scheme that would cover the failure to prevent money laundering. The Bribery Act 2010 created a new offence of corporate failure to prevent money laundering. This act was introduced because of the consistent criticism of UK regime and legislations to control money laundering activities. That is why, failure to prevent is also recognised as an offence under Criminal Finances Act 2017. 

  4. Non-compliance by directors can also be a reason for the failure to prevent such activities. The purpose is to make the directors responsible for the occurrence of money laundering activities and legal sanctions in an event of failure to prevent it (Gamble, 2017). 

  5. Another reason for such a failure is wrong implementation of money laundering directives in UK. The first directive stated it is essential for financial institutions to maintain a record and verify the identities of its customers and staffs to be trained to identify and fight money laundering activities. In an event, this whole idea fails to suffice the purpose, results to failure to prevent money laundering (Gelb, 2016). 

  6. The policies of FCA and FSA are the vital reason for the changes in the banking and financial sector. Banks are the key sources to identify criminal activities related to money laundering. The ignorance by several bodies of FCA rules and anti-money laundering regulations is another significant reason to fail in securing a legitimate monetary transaction (Gelb, 2016). 

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Regulation to prevent Money Laundering:  

Each business secured by the controls must be observed by a supervisory specialist. Your business may as of now be directed, for instance, since you're approved by the Financial Conduct Authority (FCA) or have a place with an expert body like the Law Society. The money laundering schemes set authoritative necessities for the anti-money laundering (AML) administration in the controlled area which are expected to be less unbendingly prescriptive and plot a more factor scope for client due perseverance, leaving firms to evaluate money laundering hazard for themselves in specific conditions and shift their consistence levels as per the hazard apparent for each situation. 
The new regulations don't adjust the money laundering offenses in section 7 of the Proceeds of Crime Act 2002, including the offense of neglecting to report when a man working in the controlled segment knows or suspects that someone else is engaged with money laundering. 
Notwithstanding, the improved client due industriousness necessities, where they apply, will expect firms to lead more examination and examination of their clients and may along these lines imply that there will be more events when reports are made, particularly in light of the fact that the standard of obligation for neglecting to report is a goal one. At the end of the day, it doesn't make a difference if the individual who neglects to report really does not know or suspect that someone else is associated with money laundering if a speculative individual possessing similar actualities would have achieved that end section 330(2)(b), Proceeds of Crime Act 2002 (Gilmour, 2016). 
A hazard-based administration has clear legitimacy and will convey cost investment funds insofar as firms are set up to receive a reasonable way to deal with hazard appraisal. In any case, organizations going out on a limb opposed line are probably going to see their managerial weight increment (Gilmour, 2016).

One of the most important bodies that regulate money laundering and prevent misuse of country’s wealth is the Suspicious Activity Reports (SAR). SAR gave some recommendation to deal with the current issue at hand. The following recommendations are given:

  1. Improving quality of SAR and information sharing: The word suspicious is frequently misconstrued and adds to low quality divulgences. It was discovered that a critical number of SARs did not understandable the reason for doubt unmistakably. The interview needs to investigate how to decrease low-quality reports and spotlight on records in which there are sensible grounds to speculate property is criminal property. The report likewise needs to investigate sees on the degree to which data is shared among the private part when doubt emerges

  2. Statutory guidance for SARs: The Law Commission recommends that statutory direction on 'what to pay special mind to' ought to be issued by the Government. A rundown of components that show doubt and a proposed set organization for submitting SARs are contained inside the report. The Law Commission likewise proposed a choice be made on the narrowing of the meaning of the expression "suspicious".

  3. Enhancing the consent regime and exploring alternative approaches: The consent regime is the procedure by which people request that consent finish an exchange where they have a doubt that they are managing the returns of wrongdoing. Be that as it may, by far most of assent SARs don't result in restriction or seizure of advantages. Elective methodologies are proposed, for example, US-style Geographic Targeting Orders and topical detailing (Gilmour, 2016).

  4. Criminal property and mixed funds: A test frequently experienced by banks is the blend of authentic and ill-conceived assets in a record. A few records just have a little measure of unlawful finances leaving the main answer for stop all assets. A few firms ring-fenced assets under the present demonstration, yet felt they were as yet presented to lawful activity. The conference proposes a strategy for ring-fencing supports dependent on pre-interview exchanges with partners.

  5. Taking “ALL CRIMES” approach: An advantage of the "all crimes" approach is that it eases the prerequisite of managed firms to comprehend the full degree of criminal movement behind the assets. Notwithstanding, the "all crimes" approach has prompted some unintended results, with specialized ruptures presenting a few callings to money laundering dangers, e.g. legitimate callings. The counsel proposes an option, focussing on a grave crimes approach and talks about the points of interest and burdens of moving far from the present enactment (Gilmour, 2016).       

  6. Defence for not making SAR:  There is a thought for statutory direction that will give a point by point rundown of elements that would add up to a barrier, or a 'reasonable excuse', for not making a suspicious action report, for instance, a 'reasonable excuse' safeguard for non-genuine wrongdoings.

  7. Corporate Liability: There is a recommendation in the paper that there ought to be an attention on corporate criminal liability where people neglect to report money laundering because of a business advantage. The discussion takes note of a best technique for forcing liability on organizations that neglect to keep a partner from submitting a revealing offense (Gilmour, 2016).

Good economy of a country results to fewer financial crimes and complications and in order to maintain the well-being of economy prevention of certain crimes has to be prohibited and is dependent on regulatory bodies. The positive aspects of UK’s financial growth are given below: 

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Economic Indicators to detect Money Laundering activities:

  • GDP Per Capita- The estimation of products and ventures delivered inside the UK economy, isolated by the quantity of individuals, this evacuates the impacts a developing populace has on in general development figures

  • Net Pational Disposable Income Per Capita-This measure is like GDP yet it considers the deterioration of advantages –, for example, the everyday wear and tear on vehicles and hardware – and the pay produced by outside claimed organizations in the UK, yet incorporates the money made by UK organizations situated in different nations.

  • Real Household Disposable Income Per Capita- The aggregate sum of money that families need to spend on utilization, or to spare and contribute, after assessments, National Insurance, annuity commitments and premium have been paid, partitioned by the quantity of individuals.

  • Household Final Consumption Cost Per Capita- The aggregate amount of expense by household divided by total number of persons. 

  • Whole Economy Net Wealth- This denotes the market estimation of financial and non-financial resources in the UK used to create yield, giving a sign of the supportability of current levels of generation and relating wage flows.

  • Household Net Worth- Value of financial and non-financial assets of the household sector in the market.

  • Unemployment Rate- The extent of those out of work who are effectively searching for a vocation as an offer of each one of those working or searching for an occupation.

  • Inflation- Change in costs of products and enterprises bought by UK consumers and this is estimated utilizing our most far reaching expansion list, Consumer Prices Index

(CPI) including proprietor occupiers' lodging costs.

Therefore, the above mentioned indicators help in detecting money laundering activities. It is important to determine whether there was actual event of money laundering and money that is financing terrorist activities are traced. Therefore, regardless of amount all business transactions has to be checked to ensure any criminal event and trace such exact amount resulting to such events. In order to do this, all the businesses are required to reveal names of customers and their details as they are all separate legal entities. Information about accounts to nature of transaction has to be detailed in a report of authorised bodies so that key events of such crimes are identified. Most important step being due diligence from individuals which involves obtaining information of specific details of legal domicile, telephone number to cross check the relevance and truthfulness of such customers because it is often found that, companies provide details of customers that does not actually exists. Another step involves due diligence from legal and corporate entities. Bank specialists are obliged to assess all trades and proposed trades at whatever point there is an uncertainty of illegal tax avoidance or mental aggressor financing and reply to the police any trades where this has every one of the reserves of being the circumstance. This applies particularly to trades that are remarkable, greatly wide or jumbled, having admiration to the customer's run of the mill activities, or which don't appear to have a money related or legitimate reason. Information given to the police in consistence with common fairness according to establishment on tax evasion won't be seen as an encroachment of grouping as described by laws on monetary endeavours. Such information course of action will neither make the bank or its labourer’s concerned subjects to criminal consents nor committed for mischief (Hopkins and Shelton, 2018).

There are significant methods and plans to counter the crime of money laundering given by the Prime Minister of UK in global anti-corruption summit. The plan gives three prioritised ways as follows:

  • An upgraded law results to the country confronts - that suggests constructing new capacities of our law sanction agencies and making extreme new legal entities to empower the tireless disturbance of criminals and psychological militants.

  • Change of the supervisory organization to ensure that it is solid, fruitful and brings those couple of associations who support or engage illegal tax avoidance to undertaking. 

  • Increment the all-inclusive reach of law execution associations and overall information sharing to deal with illegal tax avoidance and mental oppressor financing risks (Hopkins and Shelton, 2018).

Conclusion:

The current anti-money laundering schemes in UK does not object to prevent money laundering rather its object is to prevent the criminals from using those profits at their benefit. The anti-money laundering schemes in UK can be divided into two parts: The Administrative requirements and the substantive offences. The administrative requirement is given in the Money laundering regulation of 2007 and apply only to regulated sector firms and must comply to FSA’s high-level strategies from anti-money laundering. In case of substantive offences, which applies to other than the regulated sector is given in section 7 of Proceeds of Crime Act 2002 (POCA 2002). In practice the UK government uses these systems of preventive measures to ensure that the whole economy is not harmed in any way and so that the firms doing business in a clean and effective manner does not fall prey to the money-laundering schemes that are usually misleading in nature and effects the countries financial well-being. However, no country in the world would have a positive feeling about money laundering and specially big countries like UK and US are more susceptible to these crimes because of the presence of huge wealth within the country. 

Reference

  • Burton, D., & Michel, N. J. (2016). Financial Privacy in a Free Society.

  • Chhina, R. K. (2016). Managing money laundering risks in commercial letters of credit: Are banks in danger of non-compliance? A case study of the United Kingdom. Journal of Money Laundering Control, 19(2), 158-168.

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  • Cobham, A., Janský, P., &Meinzer, M. (2015). The financial secrecy index: Shedding new light on the geography of secrecy. Economic geography, 91(3), 281-303.

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  • Gamble, C. (2017). The legality and regulatory challenges of decentralised crypto-currency: a western perspective. Int'l Trade & Bus. L. Rev., 20, 346.

  • Gelb, A. (2016). Balancing Financial Integrity with Financial Inclusion: The Risk-Based Approach to «Know Your Customer». CGD Policy Paper, 74, 1-24.

  • Gilmour, N. (2016). Preventing money laundering: a test of situational crime prevention theory. Journal of Money Laundering Control, 19(4), 376-396.

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  • Hendrickson, J. R., Hogan, T. L., & Luther, W. J. (2016). The political economy of bitcoin. Economic Inquiry, 54(2), 925-939.

  • Hopkins, M. and Shelton, N., 2018. Identifying Money Laundering Risk in the United Kingdom: Observations from National Risk Assessments and a Proposed Alternative Methodology. European Journal on Criminal Policy and Research, pp.1-20.

  • Hopton, D. (2016). Money laundering: A concise guide for all business. Gower.

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  • Lee, E. (2016). Will the FIFA bribery scandal spur money laundering law reform in Hong Kong? Comparing Hong Kong’s Anti-Money Laundering Regime with Financial Action Task Force Recommendations. Peking University Law Journal, 4(1), 143-176.

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  • Mugarura, N. (2016). The global anti-money laundering regulatory landscape in less developed countries. Routledge.

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