Improving the effectiveness of the Money Laundering Regulations

In what could prove to be a significant move, opinions are being sought on ways of easing the burden on banks applying anti-money laundering (AML) checks.

In a consultation document, ‘Improving the effectiveness of the Money Laundering Regulations’, HM Treasury says that it wants to make AML rules more proportionate for companies and their customers and clarify when checks are needed. It does, however, have no intention of changing the monetary thresholds for triggering due diligence.

The document is open for public consultation until 9 June 2024. It is a move that comes as the UK assesses the impact of Brexit on many aspects of economic life and as cryptoassets have, to some degree, marched into the space associated with the traditional financial sector. And as this is a consultation relating to rules that are applicable to approximately 100,000 businesses, the repercussions could be felt far and wide.

Commitment

This move is part of a commitment to consult on changes to the MLRs as part of a wider programme of work aimed at reducing money laundering, as set out in the Economic Crime Plan 2023 to 2026. It focuses on making customer due diligence more proportionate and effective, strengthening system coordination, providing clarity on the scope of the MLRs, and reforming registration requirements for the Trust Registration Service, which is the register on the beneficial ownership of trusts.

A 2022 HM Treasury review of the UK’s AML and counter-terrorist financing regulatory and supervisory regime found that there was scope for making technical changes to increase the effectiveness of the MLRs and ensure proportionality for regulated firms and customers.

Banks, accountants, lawyers, estate agents and casinos all have to conduct know-your-customer (KYC) checks on new and current customers as a means of detecting potential money laundering. Failures to do this properly have seen banks fined millions of pounds. And, on the flip side of this, many businesses have bemoaned their inability to open an account due to supposed AML-related concerns about their activities.

It should also be remembered that these measures are in place due largely to the fact that £12 billion in criminal proceeds is generated each year in the UK – and those in possession of that money will be on the lookout for ways to launder it. Any AML changes, therefore, could be of vital importance, for both those carrying out the checks and those being checked.

Changes

HM Treasury, however, has not proposed any major changes to the rules, which may be disheartening for some. But it has said that it will consider adjustments.

There is an acknowledgement that more clarity on how to apply existing rules could help reduce the number of cases where banks feel compelled to err on the side of caution.

HM Treasury is also considering what guidance could be issued on digital verification of a customer’s identity as part of AML checks. It recognises that delays in identity checks can create problems, such as when customers of a failed bank face longer than expected delays in accessing their money while accounts are transferred to another lender. The issue of how agencies could share AML-related data to prevent crime is also up for discussion.

Impact

At this stage, it is difficult to say what the precise impact of this consultation will prove to be. Much, obviously, will depend on the number of responses HM Treasury receives to its request for feedback. The content of those responses – and particularly how consistent they are – may well determine what, if any, changes we see.

It is, for example, possible that changes could be introduced that compel crypto firms to reconsider the requirements for ownership and control under the MLRs. The crypto-related issues in the consultation arise from the differences between the ownership and control requirements under the current MLRs and the broader Financial Services and Markets Act regime. Many in the crypto sector may, therefore, need to be prepared for some degree of adjustment.

The consultation is aimed at seeking views from the profession on the need for more guidance when it comes to AML. Whether this will be a lessening of the burdens on regulated firms or an increase in due diligence, we will need to wait and see. It is likely, however, that we will still have a risk-based approach once this consultation exercise is complete.