The UK government’s consultation on the Money Laundering Regulations

HM Treasury may have given an early birthday gift to the UK’s now 30-year-old anti-money laundering (AML) regulatory regime. This is through the latest consultation on ‘Improving the effectiveness of the Money Laundering Regulations’. Published on 11 March, the consultation provides the potential for a positive step forward in improving the effectiveness and proportionality of the current regime.

The UK’s AML regime has grown significantly since it was introduced by the Money Laundering Regulations 1993 (which came into force on 1 April 1994). In 1994, the UK’s AML regime simply obliged financial institutions to have systems in place to identify customers and make suspicious transaction reports to the then National Criminal Intelligence Service. Since 1994, there have been numerous amendments to the regulatory regime, which has expanded both in terms of the scope of the business activity it covers and the requirements on those working in those businesses.

The consultation follows the findings of the 2022 review of the UK’s AML/CFT regulatory and supervisory regime and is linked to the Economic Crime Plan for 2023 to 2026. The consultation appears to be well thought through, relevant and balanced. However, it is based on the government’s assessment that the regime is generally adequate and, subject to an identified need for a number of updates, fit and able to keep pace with today’s global financial system and the financial crime threat faced. It follows that, while a positive step forward, the question of whether more fundamental change is needed is avoided. There is also a risk that good intentions to create efficiencies may lead to increased risk for regulated firms.

The main driver is to achieve better proportionality and an improved balance between the burden placed on regulated firms and their customers against the risk of money laundering and terrorist financing. Central to this discussion is the question of how to support firms in confidently designing and deploying a risk-based approach to help achieve this balance. Those who are stakeholders in AML compliance in the legal sector would find value in responding to the consultation to seek to influence positive outcomes from the consultation.

The core themes

The consultation principally considers:

• making customer due diligence more proportionate and effective,
• strengthening system coordination and the sharing of information between supervisors and other government bodies,
• the scope of the regulations, and
• reforming the registration requirements for the Trust Registration Service.

HM Treasury is also separately keen to hear from stakeholders regarding the cost of compliance.

Customer due diligence (CDD)

The consultation recognises that CDD and ongoing monitoring is expensive and that some firms may choose to ‘over-comply by taking a blanket or overly risk-averse approach […] consumer feedback indicates that customers often feel that checks are intrusive, administration heavy or don’t reflect their understanding of the risks they pose’. The consultation explores how firms may better apply a risk-based approach and identifies three areas where there is a risk of ambiguity in doing so: