During the last decade the UK has become a global leader in financial technology (fintech), attracting a volume of investment that’s second only to the US.
Now a new report by an anti-corruption watchdog suggests that the UK’s hands-off policy may have backfired.
According to Transparency International, four in every ten electronic money (e-money) institutions, or ‘EMIs’, raise money laundering red flags.
What are EMIs?
EMIs, a key fintech sector, include firms like Revolut, which has a market value higher than NatWest bank.
EMIs provide many of the services offered by high-street banks, such as current accounts and money transfers.
But whereas banks lend money, EMIs don’t. And EMI clients are more at risk in a corporate collapse: it’s only banks that offer the state insurance of deposits.
Earlier this year, Revolut said it wanted to become a bank, leaving its EMI status behind.
Critical risks
In today’s report, Transparency International said it had found a number of critical money laundering risks in the EMI sector and called for an immediate tightening of the rules.
“Without tougher supervision, EMIs will become a route of choice for those seeking to funnel the proceeds of crime and corruption through Britain—if they are not already,” Transparency International said.
Last week, foreign policy think-tank Chatham House slammed the UK government’s record on illicit money flows, saying that London had become a home for kleptocrats, many from the former USSR.
Transparency International’s research into EMIs was conducted using open-source information, including reports from Companies House, leaked data like the Panama Papers and entries from LinkedIn.
Transparency International said that of the 261 EMIs authorised to operate in the UK by the Financial Conduct Authority, 100 raised money laundering red flags.
Theses included being named as having poor anti-money laundering controls or having processed criminal wealth.
“Without tougher supervision, EMIs will become a route of choice for those seeking to funnel the proceeds of crime and corruption through Britain”
Other red flags were having owners or senior managers that had been named in past money laundering investigations, or who had worked for institutions alleged or proven to have anti-money laundering failings.
EMIs sold with secrecy tools
According to Transparency International, there are practically no barriers to entry in the UK for someone wanting to buy an EMI.
These firms can be bought and sold off the shelf in countries with high money laundering risks, the watchdog said.
38 Russian- and Ukrainian-language corporate services websites sell British EMI accounts, Transparency International said.
On such sites, EMIs are offered for sale alongside secretive offshore companies for clients who want to hide their identities, it went on.
It was recently possible to buy a fully licensed UK EMI for between £600,000 and £1.5m, Transparency International said.
In its report, the watchdog issued nine recommendations to address money laundering risks in the EMI sector. These included the vetting of EMI owners’ families and associates and the introduction of proper checks for those setting up UK companies.
EMIs’ owners and senior managers should also face the same potential sanctions as bankers for bad behaviour, Transparency International said.
Under the FCA’s rules for top executives, bankers face prison for serious breaches of the rules.
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