Mess over Money-Laundering; City Comment

Article excerpt

Byline: ANTHONY HILTON

IT IS supposed to be a fundamental principle of financial regulation in this country that any proposed new measure from the Financial Services Authority be subject to a cost benefit analysis before it is imposed.

But as a result of new standards adopted at a conference in Berlin on Friday, many industrial countries will have to tighten up their moneylaundering laws.

The Financial Action Task Force, which is made up of the group of advanced countries that have been leading the drive, has decided these should be extended beyond the banking sector to include casinos, lawyers, accountants, estate agents and many others - some of whom are admittedly already within the net in this country. All will now be subject to much tighter rules on knowing their customers and will have to upgrade their recordkeeping significantly.

Whatever one thinks of the new measures, there does not seem to be any sign of cost-benefit analysis, any more than there was when the first blast of money-laundering regulations-came in a few years ago.

The fact is that these were politically-driven and politically inspired and imposed on the financial sector by politicians who had no real understanding of what they were asking.

The result, of course, is a massive increase in inconvenience, an alarming drop in service levels to customers and huge additional cost to the financial institutions. Suspect transactions by the thousand are referred to a police body for further investigation and the number grows all the time as every financial organisationseeks to cover its back rather than use its common sense over what should be referred - because being sensible but getting it wrong risks incurring draconian penalties.

Meanwhile, those whose job it is to look in detail at suspect transactions are so overwhelmed and underresourced that they actually investigate only a tiny fraction, and for the vast majority of referrals they do nothing. The vast amount of this extra work, together with the associated cost, inefficiency and inconvenience is completely pointless. …