The year 2020 saw the UK Art Market contending with two novel problems: a pandemic and regulation. One of the last remaining unregulated markets, from the 10th of January last year, the transposition of the 5th Anti-Money Laundering Directive into national law required all Art Market Participants - Galleries, Dealers, Advisors & Auctioneers - to train staff, define Policies, Controls and Procedures and carry out Customer Due Diligence prior to concluding a sale.

Similar to the measures used by banks, the 5th Directive places an unavoidable and urgent requirement on Art Market Participants who are considered vulnerable to the threat of Money-Laundering, Financial Crime and Sanctions evasion.

Dealing in Art, it should come as no surprise that most Galleries and Dealers are lacking both resource and experience, as there is little to no competency within the business relating to compliance or anti-fraud. Not unsurprisingly the initial reaction was one of confusion and frustration, quickly overshadowed by the prospect that the inevitable friction regulation introduces could see non-essential ‘emotional’ art purchases suffer at a time when they are more important than ever.

While there are broad similarities between regulation as it pertains to historically regulated markets like banking and finance, the operational impact on a gallery is markedly different owing to a lack of infrastructure, time, money and man-power. Consider that banks will employ Compliance Officers to analyse information and make decisions thereafter, or have large, mature infrastructure to process, manage and maintain the range, depth and breadth of information with which a gallery must now deal amidst a remote setting.

Consider that galleries receiving and storing ID documents to email inboxes opens the door to identity theft in an industry already routinely targeted by Cybercriminals, where these risks and attacks will increase further in lieu of remoteness. While the Money-Laundering Regulations require requests for ID be made, a GDPR and Data Protection issue has been created in its wake for the Art Businesses lacking in systems and infrastructure. Email is no longer a safe channel of communication. Indeed, Business Email Compromise - referring to a range of attacks involving email hacking - saw invoice fraud increase by 155% in June, not long after Dickinson lost £2.4million in January to the very same threat.

The differences between historically regulated sectors are compounded further owing to the unique way in which galleries, dealers and auctioneers have come to operate with one another over time. Consider many Art Businesses purchase works from one another, consign works to one another, or may purchase on behalf of their clients. This type of activity when viewed through the lens of the 5th Anti-Money Laundering Directive is viewed as acting in agency and subsequently requires parties involved having to disclose on whose behalf they may be acting. 

While the heart of the regulation concerns itself with a call for transparency to reduce illegitimate activity, it is seemingly at odds with two fundamentally important characteristics which define the business of dealing in art: Discretion and privacy, two characteristics no less that are oft sought by legitimate buyers and collectors.
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With the UK, the EU and Switzerland having adopted the directive, the road to a regulated Art Market is both unavoidable and an eventuality. While the UK accounted for 21% of all sales of works of art, the US is twice that at 44%. Not unsurprisingly, the 1st of January brought antiquities dealers in the US under regulation, while the US Treasury placed Galleries and Museums on notice in November. 
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February 2021 will mark the start of a phased registration as the UK Art Market Supervisor HMRC requires all Art Market Participants to Register their business for Money Laundering Supervision for a firm deadline in June.