This article was published first in FS Focus.
Tell me about your employment history?
I currently lead PA Consulting Group’s financial crime and tax evasion work. I have responsibility for all PA’s assignments in the space, both in the UK and internationally. I’m a career consultant, having worked in financial crime and tax evasion consulting across financial services, governments, regulators and law enforcement for 11 years.
What’s the latest on the new government legislation on tax evasion?
The Criminal Finances Act (CFA) introduces an entirely new offence into UK legislation relating to the failure to prevent the criminal facilitation of tax evasion – the corporate criminal offence, or CCO for short. For the first time, firms can be held responsible if an employee or agent of theirs facilitates tax evasion – whether in the UK or internationally. This has a significant impact on both the firms that offer financial services and those that offer tax advice.
What should financial service firms do?
The CCO is now in effect, with HMRC enforcing from October 1. Firms should be undertaking a rapid risk assessment to understand their regulatory risk under the CFA and moving to remediate any gaps. This framework should, as a minimum, consist of a standardised control framework document that details the various risks and the associated controls against each risk, as well as any residual risk.
Are Financial Crime frameworks enough?
Existing Financial Crime frameworks are a good starting point, particularly those that may have been built previously for the Anti-Money Laundering and Countering Financing of Terrorism Act, the Foreign Account Tax Compliance Act or the Common Standard on Reporting. But these will need to be reviewed and updated to ensure they reflect the complexities of the CCO.
Will this be harder for smaller businesses?
Not necessarily – whilst it’s always harder for smaller firms to respond to constant regulatory change, it’s more complex for larger firms to identify all the employees or agents who may have a risk of facilitating tax evasion.
Why will insurers be heavily affected?
Insurers are one of the sub-sectors more likely to be affected due to the nature of their distribution and business models, as many of their interactions with customers come through intermediaries such as independent financial advisers or brokers, and it’s complex to identify all of the agents who may be acting on the firm’s behalf and therefore introducing risk.
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Why should tax evasion be brought higher up FS firms’ agendas?
Recent tax evasion legislation has had relatively short implementation windows, meaning firms had to react quickly just to be compliant. Given that political pressure on tax evasion globally has been consistently increasing for the past 20 years or more, it’s imperative reputationally that firms get this right and have a sustainable approach to identifying and preventing tax evasion.
What are your top tips for firms?
Firms should ensure they’re using a consistent approach to the identification, mitigating and ongoing monitoring of risks. From a CCO perspective, firms should make sure they have a clear definition of who might be an agent working on behalf of the firm before commencing any risk assessment or remediation activity.
What role can consultants play in assisting firms?
Consultants have a strong role to play in assisting firms in this space – both in providing true tax evasion experts to expedite any risk assessment or delivery activity, and also to provide a view of industry best practice. This enables financial services organisations to take learnings from others that they might not otherwise have access to.
What advice would you give your 21 year old self?
The importance of networking can’t be stressed enough. People you meet early in your career can turn out to be your best clients or contacts in a decade’s time.
Richard Grint is a financial services expert at PA Consulting Group