Majority of regulated UK firms breaching fifth money laundering directive, study finds

The majority of regulated firms are facing penalties for non-compliance with the Fifth Money Laundering Directive (5MLD) according to new research from LexisNexis Risk Solutions.

The research reveals that on average, those in the banking, lending, wealth management and estate agents sectors are only 55% of the way through their Fifth Money Laundering (5MLD) implementation plans, and therefore are facing fines from the regulator, the Financial Conduct Authority (FCA), for not fully complying with The Directive.

5MLD legislation came into force on 10 January 2020 as part of UK’s plans to help combat the growing money laundering problem facing the country. However, it seems that the COVID-19 pandemic and national lockdown resulting in millions working from home is not behind firms’ lack of progress.

Of the 500 UK compliance professionals across banking, lending, wealth management and estate agent sectors surveyed, almost two thirds (64%) said COVID-19 had sped up their 5MLD implementation plans, rising to 70% of banks. 

Equally worrying is that there seems to be widespread confusion amongst financial professionals as to the aims of 5MLD legislation. Fewer than half of respondents were able to correctly identify either that 5MLD was brought in to prevent the financial system being used for the funding of criminals (47%) or that its purpose is to strengthen transparency rules to prevent large-scale concealment of funds (43%).

This fell to 39% amongst banking sector professionals specifically – the sector with arguably the biggest role to play in keeping illicit funds out of the system. This is particularly poignant given the recent FinCEN files leaks which revealed 2,000 suspicious activity reports outlining how some of the world’s biggest banks have allowed criminals to move $2 trillion of dirty money around the world. 

“It’s no big surprise that firms aren’t yet fully compliant with 5MLD, but it is slightly disappointing that so many are so far behind and that firms appear not to be prioritising this important legislation, given the positive impact it can have on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing,” said Michael Harris, Lexis Nexis’ Director of Financial Crime Compliance

“The fifth money laundering directive is an important amendment that will strengthen transparency and the existing preventative framework. It’s been part of the UK’s AML regulations since January, so firms really need to get on with implementing it as quickly as possible, especially as further regulatory changes are likely to follow later this year.”