The implications of Brexit for UK anti-money laundering regulations

Purpose - The purpose of this paper is to explore the law relating to European Union (EU) Anti-Money Laundering (AML) Directives and the effect of Brexit on money laundering regulation in the UK and the EU. The first part of the paper involves a review of AML Directives and how they are transposed into the UK. The question whether the fourth AML directive or other directives due to become law in the UK will be implemented or culled will largely depend on the relationship between the UK and the EU going forward. The UK will have the full autonomy in terms of making decisions as to which laws to implement or which laws to scrap or to cull, as it sees fit. The UK having relinquished its membership of the EU notwithstanding could still be bound by EU anti-money directives particularly if it chooses to remain in the EU single market. The UK could also forge alliances with EU member states and in which case it will be expected to apply the same EU market rules as its other EU counterparts. The fourth AML directive that was due to become law in all EU member countries in June 2017. This directive was introduced to streamline the third AML directive (2005/60/EC) largely with regard to beneficial ownership of nominee accounts and politically exposed persons (PEPs). The paper scoped current EU AML directives, and how they have been used in the fight against money laundering both in the UK and beyond. Brexit is likely to have far-reaching implications on many regulatory areas, including in prevention of money laundering and its predicate offences in the UK and the EU. The fourth AML directive was due to become law in the UK on 26 June 2017, and whether the UK Government will go ahead and implement it or bin remains to be seen. Design/methodology/approach - The paper has evaluated the potential effect of BREXIT on EU AML Directives in the UK, drawing examples in non-EU countries. It articulates the raft of EU AML Directives to assess whether the fourth AML directive (which was due to become law in June 2017) will become law in the UK or be culled. It draws on experiences of non-EU countries like Switzerland and Norway, which despite not being members of the EU, have full access to the EU single market. The first part of the paper provides a review of AML Directives in Europe and how they are internalised into member countries. Data were evaluated often alluding to existing mechanisms for harnessing EU AML Directives in member countries. The last part of the paper proposes the measures that are ought to be done to minimise or forestall the threat of money laundering and its predicate offences in the post-Brexit regulatory environment. Findings - The BREXIT has already unravelled markets both in the UK and in the EU with far-reaching implications on money laundering regulation in multiple ways. The paper has articulated the mechanisms for internalisation of EU AML directives in all Member countries and countries that want to exit the EU. It is now clear that, as the UK voted to relinquish its membership of the EU, it will not be under any obligations to apply EU AML regimes or any other EU laws for that matter. The findings of the paper were not conclusive, as the UK government has not yet triggered Article 50 of Treaty of Lisbon on the functioning of the EU. The fourth AML directive, which was due to become law in the UK on 26 June 2016, could still be adopted or culled depending on the model the UK decides to adopt in its relationship with the EU going forward. There is a possibility for the UK to remain a member of the EU single market and to retain some of the regulatory rules it has operated in relation to money laundering regulation and its predicate offences. It could adopt the Norway, Switzerland or the Canadian model, each of which will have different implications for the UK and the EU in terms of their varied AML obligations. It will be in the commercial interests of the UK Government to not cull the fourth AML directive (which was due to become law in June 2017) but to transpose it into law. Research limitations/implications - There were not so many papers written on the issue of Brexit in the context of this topic. It was therefore not possible to carry out a comparative review of Brexit and its effect on money laundering regulation in the UK, drawing on experiences of other countries that have exited. Practical implications - Brexit is likely to have far-reaching implications on many regulatory areas, including prevention of money laundering and its predicate offences in the UK and the EU. Social implications - The Brexit has elicited debates and policy discussions on many regulatory issues and not the least money laundering counter-measures in the post-Brexit environment. Brexit will have far-reaching implications for markets, people and national governments both in the EU and beyond. It has already unravelled social and economic life both in the UK and in the EU. The significance of paper is that it could enhance future research studies on money laundering regulation within countries delinking from regional market initiatives to address attendant changes. Originality/value - This paper proffers insights into the Brexit and its implication on AML regulation in the UK and the EU during and post-Brexit era. To curtail the social-economic effect of Brexit on financial markets regulation, the UK should remain a member of the European single market not only to minimise the potential of losing more ground and leverage as a financial capital of the world but also to protect financial markets tumbling downhill!