Analysis of Banking and Financial Laws for Investor Protection

This report examines the roles of banking and financial laws and regulations in protecting investors from financial crimes, particularly money laundering. It analyzes several key pieces of legislation, including the Proceeds of Crime Act 2002, the Serious Crime Act 2007, the Terrorism Act 2000, the Money Laundering Regulation 2007, and the Financial Services and Markets Act 2000. The report discusses the advantages and disadvantages of each act and regulation, assessing their effectiveness in combating money laundering, disrupting criminal activities, and safeguarding investor assets. It highlights how these laws aim to deter offenders, recover assets, and ensure a safe environment for investments while also acknowledging limitations and areas where these regulations may fall short in their protective measures. The report concludes with an overview of the Financial Ombudsman Service and its role in resolving disputes, offering a comprehensive analysis of the legal and regulatory landscape for investor protection.

ROLES OF BANKING AND FINANCIAL LAWS AND REGULATIONS IN THE
PROTECTION OF INVESTORS
Name
Institution

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ROLES OF BANKING AND FINANCIAL LAWS AND REGULATIONS IN THE
PROTECTION OF INVESTORS
Introduction
Money Laundering is a vice that affects not only banking industry but other business and
the public at large. Efforts to mitigate this challenge have resulted in various Acts and
Regulation. This paper reviews these Acts and Regulation in regards to their effectiveness in
tackling this vice. The following discussions highlights some of these Acts and Regulations in
terms of pros and cons in their attempts to deal with money laundering in the banking industry.
This will help in analyzing the role of banking and financial laws and regulations in protecting
investors.
Proceeds of Crime Act 2002
On the benefits side, this is a piece of legislation which has the advantage to address
organized crime hence protecting the investors. For example, it provides officers with the power
of seizing cash as well as recovering assets which sends a warning to the criminals hence
guaranteeing protection to investors. Such assets may include cars alongside houses purchased
by criminals using the crime’s proceeds. 1 Another advantage of POCA is that it directly strikes
the major motive for crime thereby deterring offenders, disrupting organized crime as well as
showing the public the crime does not pay. This way, investors remain protected as their assets
and properties are guarded by disrupting organized crime. Moreover, it is also advantageous that
the money recovered and those made through the sale of criminals’ assets are put back into the
projects of the community as well as helping to fund additional investigations. In so doing,
1 Shleifer, A, Robert W. V, Porta, R, and Lopez, F. "Investor protection and corporate governance." Journal of
financial economics 58, no. 1-2 (2000): 3-27.

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investigations into criminal activities are conclusively concluded to ensure that investors are
compensated. The POCA is also advantageous because it enables the police to part criminals
from their respective money. This has been used by the Cheshire Police to make it even harder
for criminals to get their respective hands on their money as well as launder the proceeds of such
crimes. 2
This has successfully been done via confiscation orders and forfeiture orders. The POCA
has had various benefits: One of the benefits is the removal of the criminal assets from the
country which might be utilized to generate additional crime. Another benefit of POCA is that
crime is probably to decline as criminal stripped of their corresponding assets risk future
confiscations in case they return to their old manners hence protecting investors. Another benefit
is that POCA stifles criminal activities as well as sends precise messages to all including
criminals that crime does not reward. This has served to discourage criminals from criminal
activities hence protecting the investors. POCA also has the benefit of decreasing the iconic
status of the crime and criminals. It has also been used effectively by the financial investigators
as it allows the police as well as the law enforcement agencies to combat a vast array of
criminality like money laundering, terrorism and drug trafficking amongst others.
On the contrary, one of the cons is that the Act has not been able to detect much of the
money laundering activities which puts investors at high risks. This means that more proceeds
from the crimes have never been confiscated and hence have continued to support terrorism or
criminal activities.
The Serious Crime Act 2007
The first benefit of the Act is that it has made various radical alterations to English
criminal law thereby creating a novel scheme of orders to serious crime prevention which
2 Bryans, Danton. "Bitcoin and money laundering: mining for an effective solution." Ind. LJ 89 (2014): 441.

3
protects in investors from losing their investments. This has had the benefit of increasingly
frustrating crime in Northern Ireland and Wales and England which ensures safe environment for
investments to prosper. 3 Also, the Act has replaced the ineffective common law crime of the
incitement with an effective statutory offence of encouraging/assisting crime. Another advantage
is that the Act has effectively made a provision as to disclosure as well as info sharing thereby
preventing fraud. Investors can now have access to all information required before deciding
whether the project is viable. Also, the abolishment of Assets Recovery Agency has been an
advantage because it has created a novel regime for the proceeds of crime recovery. 4
However, the Act undertook radical changes to English Criminal law without first getting
to know what actually needs to be changed for its effectiveness thus failing to protect investors
from losing their money. For this reason, new scheme of orders to prevention of crime have been
established which do not necessarily assist in investors’ protection. Thus, instead of effectively
frustrating crime, money laundering have surged unnoticed. 5
The Terrorism Act 2000
The Act has the advantage because s.41 gives the police the power to arrest as well as
detain an individual without charge for up to forty-eight hours in case police suspects the person
to be a terrorists. This has the effect of protecting investors because it bars criminals from
3 Saunders, A, and Marcia M, C. “Financial institutions management: A risk management approach”.
Irwin/McGraw-Hill, 2003.
4 Cooper, Karen Anne. "A critical examination of the anti-money laundering legislative framework for the
prevention of terrorist finance with particular reference to the regulation of alternative remittance systems in the
UK." PhD diss., University of Leeds, 2014.
5 Serhan, Carole, Sandy Mikhael, and Silvana El Warrak. "Anti-Money Laundering Rules and the Future of Banking
Secrecy Laws: Evidence from Lebanon." International Finance and Banking 3, no. 2 (2016): 148.

4
interfering with the witnesses or investigations. Moreover, it further provides for extension of
this period to seven days in case the judge can be persuaded by the police that it remains
essential for additional probing. This means that a thorough probe will be undertaken and sends
in order that investors can get back their stolen assets. This is advantageous because it is a clear
break from the ordinary criminal law whereby the suspect had to be charged with twenty-four
hours of detention lest released. 6
The Act, on the contrary, has been ineffective in that it confers controversial powers to
the police. This has led to the remarkable instances of alleged abuses as well as legal challenges
in both European and British Courts. Thus instead of helping protect the investors, police have
abused their powers and focused on wrong criminals hence failing to recover the stolen assets.
Moreover, the Act has suffered a setback due to its illegal stop-and-search powers under s.44.
This is because the European Court of Human Rights has rule this section illegal. Moreover,
sections (2) (b) as well as (e) have suffered criticisms because they fall well beyond the scope of
what is often comprehended as the terrorism definition.
The Money Laundering Regulation 2007
The Regulation has the pros of effectively re-defining the money laundering as well as
money laundering offences. It has further effectively established mechanisms for probing as well
as recovering crime proceeds thus giving hope to investors. 7 It further has the advantage because
it revises as well as consolidates the requirement for people affected to report suspicion,
knowledge and reasonable grounds for suspecting money laundering thus improving the
6 Huang, Jimmy Yicheng. "Effectiveness of US anti-money laundering regulations and HSBC case study." Journal
of Money Laundering Control 18, no. 4 (2015): 525-532.
7 Usman Kemal, Muhammad. "Anti-money laundering regulations and its effectiveness." Journal of Money
Laundering Control 17, no. 4 (2014): 416-427.

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likelihood of timely crime detection before investors lose their money. This Regulation has
helped the business and banks as it has required many more of them to usher in procedures that
combat money laundering as well as criminal activities which underline them that protect
investors. The Regulation has improved combat of money laundering because it has kept pace
with the sophisticated ways used by money launders to disguise the funds’ sources. 8 The
Regulation has further ensured that more professions as well as business are brought into the
regulated sector who must comply with the requirement of the Act and 2007 regulations. In other
words, the 2007 Regulation has ensured that the investors affected introduce a range of
procedures that guarantee legal requirement responsibilities compliance. 9 The Regulation has
increasingly put off a stop to money laundering because it requires stakeholders in the regulated
sector to report all transactions which they are suspecting to guard investors. Moreover, through
this Regulation the government has emphasized that there is never de minimis boundaries within
legislation which imply that very trivial crime proceeds must be reported to the National Crime
Act.
Another pros of the Regulation is that is the enhanced due diligence. This is because the
Regulation requires that enhanced CDD as well as ongoing monitoring be upheld where the
client hasn’t been met face-to-face; is politically exposed individual; and there remains higher
risk to launder money or finance terrorist. Moreover, it is also advantageous because the
Regulation requires marginal procedures over and above such applied for ordinary due diligence
in such conditions. Moreover, the Regulation has integrated proceeds of any crime in the
8 Harvey, Jackie, and Simon Ashton. "Anti-money laundering policy: A response to the activity of criminals or of
agencies?." (2015): 283-307.
9 Pistor, K, Martin R, and Stanislaw G. "Law and finance in transition economies." Economics of transition8, no. 2
(2000): 325-368.

6
definition of money laundering. Thus the stakeholders in the regulated sector must report
knowledge or suspicion of money laundering based on internal procedures.
Another pros of the regulation is that its scope and its application to business activity
remains highly risk-based. This is because the Regulation currently applies risk-based criterion
to a range of individual provisions. This remains applicable especially to the manner in which the
regulated sector undertakes CDD, ongoing monitoring as well as improved DD. Thus, in
principle, the risk-based criterion application to such procedures remains appropriate, even
where the implication remains that diligence checks in regards to larger instances shall
essentially engage more time as well as expense for the regulated sector. The Regulation is thus
effective because al entities, irrespective of size, must, inter alia, keep all records for a given
period as well as embrace policies alongside procedures on a range of particular matters. 10
Another pros is that CDD requirements established in the Regulations remain highly
proportionate response to money laundering threat. In principle, undertaking CDD procedures,
remains a reasonable precautions against the entity’s threat being utilized for money laundering.
This is because such procedures remain familiar to accountants alongside other classification of
professional adviser expected to undertake Know Your Client measures at the professional
relationship outset. Thus, where CDD procedures leads to accountants not taking on such clients
involved in criminal activities, it will automatically be fruitful.
Another advantage is that CDD procedures remains necessary for enabling practicing
accountants to offer a comprehensive as well as professional services to clients. Moreover, this
serves the AML interest by placing accountants in position in which they can identify normal as
well as usually trends of business behavior, and by extension unusual and abnormal behavior
10 Masciandaro, Donato, ed. Global financial crime: terrorism, money laundering and offshore centres. Taylor &
Francis, 2017.

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patterns alongside illegal acts. Thus, the CDD procedures undertaken by regulated businesses
denote a valuable as well as imperative precaution against the money laundering risk. Thus the
regulation has ensure a high level of compliance with CDD requirements.
The disadvantage of the Regulation is that whereas it requires that any suspicion for
money laundering be reported by those in the regulated sector, there is no guarantee that these
reports will be made. Where such reports are not made, the investors are the ones losing as their
investment are exposed to more risk. This is because the regulation lacks a clear procedure on
how to ensure non-disclosure of every transactions. 11 Another cons is that CDD compliance
attracts additional financial costs and in certain instances, where risk linked to relationship is
regarded higher, such cost might be substantial. This may make its implementation impossible
and hence fail to protect the investors. This is because it could be that such cost of undertaking
the CDD shall be so huge that it might surpass the prospective business relationship value
whereby the fact of having to carry out risk-based CDD, or improved DD, shall trigger the
underlying entity to take into account whether it actually wishes to undertake the work at all.
Another cons relates to the position of politically exposed persons (PEPs) as it has caused most
uncertainty. There is a need to carry out risk-based criterion during identification.
The Financial Service and Markets Act 2000
The first pros of this Act is that it effectively created the Financial Service Authority
(FSA). This has served to protect the investors from losing their investments. This is because the
authority has had the benefit of regulating insurance, investment business as well as banking thus
ensuring compliance which closes the loopholes for laundering money. Moreover, the Act has
also created the Financial Ombudsman Service that has effectively resolved disputes as a free
11 Mei, Dexiang, and Li Zhou. "Anti-Money Laundering Game between Banking Institutions and Employees in the
Progressing CNY Internationalization." Modern Economy 6, no. 04 (2015): 490.

8
courts’ alternatives. The FOS has ensured that disputes are solved in time so that investors can
proceed with their business unhampered. 12
However, the Act has not been able to fully regulate the investment business, banking
and insurance leading to higher cases of undetected money laundering hence a risk to investors.
Also, the Ombudsman has not been able to hasten the cases’ resolution in order that can serve as
examples of the offenders to send a warning that can bar money laundering. Where it takes more
time to resolve these cases, investors might lose due to the effect of time value of money.
The Corporate Sentencing Guideline
The Guideline has ten effective and 10 clear steps for sentencing which applies to each
organization sentenced irrespective of offence dated on or after 2014 October 1. It has helped the
Council to achieve a balance between desirability of offering a level of certainty for defendants
and prosecutors as to a probably sentence and the requirements for flexibility as offenders
mighty differ in size as well as the offences covered entail a vast array of behavior. It has led to
effective ways of dealing with offenders in the United Kingdom based on effective penalties
borrowed from the US system. 13 It has created incentives for corporate to institute efficient and
effective compliance as well as ethics programs thereby decreasing the culpability score of
organization in case it is established later that it involved in criminal conduct. It has led to a
narrowing of present gap between financial penalties that UK and US have imposed. It has
further reinforced the significance of proactive compliance as a mitigating factor where one
12 Porta, R, L, Florencio L, Andrei S, and Robert W. V. "Law and finance." Journal of political economy 106, no. 6
(1998): 1113-1155.
13 Helgesson, Karin Svedberg, and Ulrika Mörth. "Involuntary Public Policy‐making by For‐Profit Professionals:
European Lawyers on Anti‐Money Laundering and Terrorism Financing." JCMS: Journal of Common Market
Studies 54, no. 5 (2016): 1216-1232.

9
assess culpability and considered when adjusting a sentence. Companies alongside advisers
currently have clarity on potential exposure to penalties/fines, compensation as well as
confiscations orders alongside precise guidance on the manner cooperation impacts penalties’
quantum.
The cons is that the Guideline has not got rid of criticisms leveled against the UK in
certain quarters for its corporate offenders sentencing records as opposed to massive penalties
which have been imposed lately in the United States. It remains unlikely that the breathtaking
multi-billion dollar fines/penalties shall in the US shall be emulated in the UK in few coming
years. This will not bar criminal activities in any near future hence leaving investors exposed to
crime.
Markets in Financial Instruments Directive II
On the positive side, the MiFID II is an effective EU legislation which has regulated
firms that provide services to respective clients connected to financial instruments alongside
venues for trading such instruments. It has the advantage of improving the functioning of the
financial markets with respect to financial crisis as well as strengthening the protection of the
investor. Moreover, the MiFID II has extended the requirements of the MiFID in such areas as
novel market structure requirements and novel rules on inducement and research. It has
transformed the financial industry of Europe by offering greater protection for investors as well
as injecting additional transparency into each class of asset. 14
The new rules have further captured virtually each aspect of trading with the European
Union hence reaching across financial services industry. It has also led to better audit as well as
surveillance trails as the MiFID has a regulatory desire of pushing additional trading away from
14 Colladon, Andrea Fronzetti, and Elisa Remondi. "Using social network analysis to prevent money
laundering." Expert Systems with Applications 67 (2017): 49-58.

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phone and on to electronic venues. Thus the wave of data is measurable in petabytes which will
make institutions to report more info regarding most trades instantly alongside volume and price.
It has the advantage of unbundling where firm managers will have to separately budget for
trading cost and research. Also, long-term investors now have additional evidence to grill their
brokers they do business with hence encouraging fund managers to seek alternative means in
market to undertake trades as much as they turned to equity dark pools following initial MiFID.
15
Conversely, one of the major cons of MiFID is that it will require a range of changes in
the way business are operated and ran. Thus, some business may find this costly and hence fail to
effectively implement it thereby failing to protect investors. This will have a likelihood of
inevitable change resistance which may be harmful to the business.
Conclusion
Based on the discussion of the roles of banking and financial laws and regulations in the
protection of investors, it is apparent that these laws and regulation are never obstacles to
efficient financial markets. These laws and regulations have served to protect many investors
from losing their investments to money laundering. In so doing, the efficiency in the financial
markets have surged as investors increasingly feel protected and hence investment in the banking
sector.
15 La P,R, Florencio L, Andrei S, and Robert Vishny. "Investor protection and corporate governance." Journal of
financial economics 58, no. 1 (2000): 3-27.

11
References
Bryans, D. "Bitcoin and money laundering: mining for an effective solution." Ind. LJ 89 (2014):
441.
Colladon, A, F. and Elisa R. "Using social network analysis to prevent money
laundering." Expert Systems with Applications 67 (2017): 49-58.
Cooper, K, A. "A critical examination of the anti-money laundering legislative framework for
the prevention of terrorist finance with particular reference to the regulation of alternative
remittance systems in the UK." PhD diss., University of Leeds, 2014.
Harvey, J and Simon A. "Anti-money laundering policy: A response to the activity of criminals
or of agencies?." (2015): 283-307.

12
Helgesson, K, S. and Ulrika M. "Involuntary Public Policy‐making by For‐Profit Professionals:
European Lawyers on Anti‐Money Laundering and Terrorism Financing." JCMS: Journal of
Common Market Studies 54, no. 5 (2016): 1216-1232.
Huang, J, Y. "Effectiveness of US anti-money laundering regulations and HSBC case
study." Journal of Money Laundering Control 18, no. 4 (2015): 525-532.
La P,R, Florencio L, Andrei S, and Robert Vishny. "Investor protection and corporate governance." Journal of
financial economics 58, no. 1 (2000): 3-27.
Masciandaro, D, ed. Global financial crime: terrorism, money laundering and offshore centres.
Taylor & Francis, 2017.
Mei, De, and Li Z. "Anti-Money Laundering Game between Banking Institutions and Employees
in the Progressing CNY Internationalization." Modern Economy 6, no. 04 (2015): 490.
Pistor, K, Martin R, and Stanislaw G. "Law and finance in transition economies." Economics of transition8, no. 2
(2000): 325-368.
Porta, R, L, Florencio L, Andrei S, and Robert W. V. "Law and finance." Journal of political economy 106, no. 6
(1998): 1113-1155.
Saunders, A, and Marcia M, C. “Financial institutions management: A risk management approach”.
Irwin/McGraw-Hill, 2003.
Serhan, C, Sandy M, and Silvana E, W. "Anti-Money Laundering Rules and the Future of
Banking Secrecy Laws: Evidence from Lebanon." International Finance and Banking 3, no. 2
(2016): 148.
Shleifer, A, Robert W. V, Porta, R, and Lopez, F. "Investor protection and corporate governance." Journal of
financial economics 58, no. 1-2 (2000): 3-27.
Usman K, M. "Anti-money laundering regulations and its effectiveness." Journal of Money
Laundering Control 17, no. 4 (2014): 416-427.