AML supervision fees: efficient regulation?

Arguably the most fundamental of the better regulation principles is that of proportionality, which ensures that robust regulation can also be efficient and responsible regulation. At the end of July, HMRC published a policy paper, HMRC’s anti-money laundering (AML) supervision fees. HMRC’s process of inviting comments was undeniably efficient in that the period for comment was less than one month. However, whether HMRC is efficient in its AML supervision is another question.

The response submitted by Compliance for Accountants (here) argues that HMRC’s approach to setting AML supervision fees demonstrates unpredictability and a lack of transparency, and suggests HMRC’s supervisory procedures are inefficient. The points made in our response include the following:

• Application fees, annual supervision fees, and penalty ‘administration charges’ have changed erratically since 2017, with sharp increases again being proposed. Such volatility undermines predictability and makes it particularly difficult for small supervised firms to budget for compliance costs.

• HMRC has not provided a clear breakdown of supervisory costs and how they are allocated across different business sectors. This casts doubt over whether fees reflect the relevant supervisory costs of the accountancy sector, for example. It shows a lack of accountability.

• HMRC supervises more than 36,000 businesses, including 16,000 Accountancy Service Providers (ASPs). Yet its staffing and other costs of supervision appear disproportionately high compared to those of the Professional Body Supervisors. HMRC has a diverse supervisory portfolio, which may explain why it has failed to identify economies of scale, which would be expected to accrue to supervised ASPs in particular.

• A proposal to increase penalty administration charges (including for failure to register rising by 471%) lacks justification. These ‘administration charges’ serve as a blunt cost-recovery tool rather than a proportionate means of recovering costs. Unlike the Professional Body Supervisors, HMRC does not use independent committees to determine the appropriate level of financial sanction or cost recovery in each case, leaving lots of scope for bias.

Conclusion

Efficient regulation, including AML supervision, should include a fee structure that is transparent, predictable, proportionate, and demonstrably linked to the relevant costs. Although the policy paper states ‘We are not currently looking to restructure the way that we charge fees’, it is proposing to make very significant increases in certain areas. We hope HMRC will have the courage to abandon the current proposals and refocus its efforts on achieving a fee structure that reflects the costs incurred in the various areas of AML supervision, identifying and addressing inefficiencies along the way.