AML Compliance Costs UK Banks £34bn Annually

Complying with anti-money laundering (AML) regulations is costing UK banks £34bn every year, a new report from the Institute of Economic Affairs has found.

However, despite the figure being almost double the total budget for policing across the United Kingdom, there is no evidence that the rules reduce crime, says the study.

Instead, the UK’s increasingly stringent anti-money laundering (AML) regulations are forcing banks to close accounts of innocent customers, according to the report’s author and IEA senior research fellow Dr Jamie Whyte.

“Certain kinds of customers present a relatively high prima facie risk of being involved in money laundering,” Whyte writes in Debanked: The Economic and Social Consequences of Anti-Money Laundering Regulation.

“But the cost of discovering whether they really are criminals would exceed the value of their business. So, banks close their accounts – even though most of those people are innocent.”

In 2016–2017, UK banks closed 45,000 customer accounts. However, following the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) in 2017 which introduced more stringent AML rules, the number of bank accounts closed increased dramatically.

In 2021–2022, UK banks closed 343,000 accounts. Of those, 170,000 accounts were closed because banks could not prove that customers were not involved in money laundering or other financial crimes.

“The UK’s overly stringent anti-money laundering regime, which threatens banks with massive fines, is forcing them to close the accounts of tens of thousands of innocent customers. People are losing access to their bank accounts simply because the cost of proving their innocence is too high for banks given the relatively small profit made from a typical account,” said Whyte. AML rules require banks to conduct extensive due diligence on their customers, with non-compliance resulting in huge fines. The report uses its findings to call for AML regulations to be scaled back. “The government should repeal the 2017 regulations,” says Whyte.

“Private businesses like banks should not be forced to act as an unpaid police force, doling out penalties in the form of account closures without needing to meet the evidential standards applied in criminal trials.”

However, Whyte does not believe the government will listen. “That is unlikely to happen given politicians’ enthusiasm for regulation and reluctance to admit error.

“In that case they should compensate banks for the compliance cost. This would remove the injustice of forcing bank customers to bear the cost of fighting crime. And it would make the extraordinary cost of AML regulations politically visible,” he said. Last year, UK Chancellor Jeremy Hunt backed calls to relax money-laundering rules for those with a career in public life after revealing he was refused a bank account with online provider Monzo due to being classified as a Politically Exposed Person (PEP).

Former Chancellor Kenneth Clarke has also been ‘debanked’ in what politicians believe to be an overzealous application of the Financial Conduct Authority’s (FCA) rules for money laundering. To read the IEA’s full report, click here.

AML Solutions for Regulated Services

We can help organisations of all shapes and sizes from across different sectors undertake a review of their policies, controls, and procedures to ensure that they are compliant with AML regulations and, therefore, avoid any breaches.

A review of this nature provides valuable insight into a business when performed correctly. Along with an overview of risk, these crucial assessments also highlight issues within the business, so it is essential to undertake a proper review. All of a company’s building blocks must be considered, including its staff, clients, operations, and finances.

By working with AML & Compliance, a business can be assured that we will bring the required level of knowledge and expertise needed to perform the review, which adds value to the business and is not simply a box-ticking exercise. Our team can also provide a full range of services that include:

· Consultancy.

· Compliance Policies.

· Training.

· Handbooks.

· Auditing.

Our services focus on businesses’ Anti-Money Laundering and Regulatory requirements through the implementation of effective policies, procedures, training, and consultancy. We also provide continued monitoring of staff and ongoing training to ensure that everyone within a business is aware of the latest requirements and complies with their responsibilities.

We offer a full range of services focused on ensuring businesses across all regulated sectors create, maintain and evidence their compliance with the requirements of their regulators and legislation. We work with businesses of all sizes, from the smaller high street or niche businesses to the large multi-office and multinationals.

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