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The UK’s AML-CTF Consultation

Author: Nicola Sharp  23 September 2021
4 min read

Posted in: Anti-Money Laundering.

Nicola Sharp of Rahman Ravelli details the UK’s review of its anti-money laundering and counter-terrorist financing regime.

The UK’s anti-money laundering (AML) and counter-terrorist financing (CTF) approaches both look set to undergo revision.

HM Treasury has published a Call for Evidence on a review of the UK’s AML and CTF regulatory and supervisory regime. It has also published a consultation paper on amendments that are to be made by statutory instrument in Spring 2022 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017), which are the UK’s main AML and CTF legislation. 

The two exercises are being treated as distinct from each other. The statutory instrument will not be affected by the findings that arise from the Call for Evidence. The Call for Evidence has been deemed necessary due to the UK’s post-Brexit ability to set its own AML and CTF standards as well as the commitment in the 2019 government Economic Crime Plan to review the MLRs 2017 (which themselves require the Treasury to conduct a first review of them by June 2022).

The Call for Evidence

There are three key areas of the UK AML and CTF regime that will be reviewed by the Call for Evidence.

The overall effectiveness of the MLRs 2017: This is to be assessed by examining recent improvements, including the implementation of the EU’s Fifth Money Laundering Directive into UK law in January 2020 and the impact of requirements imposed by the MLRs 2017.  The extent of the current regime and whether the scope of the regulations is proportionate to the risk will be examined, as will whether existing enforcement powers are appropriate, proportionate and being used properly. The Treasury has noted that there have been very few prosecutions under the MLRs 2017 and that it was only this year that the Financial Conduct Authority (FCA) commenced its first criminal AML proceedings.

Whether key elements of the existing regulations are operating as intended: The review aims to identify specific regulations within the MLRs 2017 that may not be supporting their overall aims. It will examine whether firms are able to identify ML and TF risks and make decisions based on this, and if the rules relating to due diligence clash with firms’ ability to exercise a risk-based approach. Whether the MLRs 2017 appropriately enable the safe and effective use of existing and future technologies to tackle ML and TF, what can be done to improve the quality of Suspicious Activity Reports (SARs) and the value of Treasury-approved guidance to firms will also be considered.

The effectiveness and appropriateness of the UK’s supervisory regime: The overall structure of the regime will be examined, including statutory supervisors, such as the FCA, HM Revenue and Customs and the Gambling Commission, and professional body supervisors, such as the Office for Professional Body Anti-Money Laundering Supervision. The regime’s strengths and weaknesses and its areas that could benefit from reform will be analysed, with the Treasury keen to ensure that criminals cannot take advantage of any gaps in supervision.

Proposed amendments to the MLRs 2017 in the Consultation Paper

The Consultation Paper considers amendments that are time-sensitive and necessary for the UK to both keep meeting international standards and clarify any post-Brexit ambiguities. The statutory instrument is set to contain a range of measures.

These include:

  • Exempting payment service providers that may present a low ML and TF risk. Potential subjects for exemption include account information service providers and bill payment service providers – which are both supervised for AML and CTF by the FCA – and telecom, digital and IT payment service providers, which are supervised by HMRC or the FCA, depending on their business model. The Consultation Paper is also seeking views on whether payment initiation service providers should be considered as presenting a low risk and are, therefore, suitable for exemption.
  • Clarifying whether the activities that define a “financial institution” and a “credit institution” need to be amended in order to align with the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and addressing whether there is a lack of clarity regarding which activities fall within the scope of the MLRs 2017.
    Considering what, if any, amendments to the MLRs 2017 are needed to allow, without ambiguity, AML/CTF supervisors the right of access to view the contents of SARs submitted by their supervised populations on request. 
  • Amending Regulations 16, 18, and 19 to include provisions on proliferation financing; so that the MLRs 2017 require certain regulated entities to assess the risk of possible breaches of UN-targeted financial sanctions relating to the financing of the proliferation of weapons of mass destruction.
  • Amending Regulations 12 and 4 to include the formation of limited partnerships in the services list in the definition of trust or company service providers, so that the definition covers all business arrangements and services provided that have to be registered with Companies House.
  • Aligning the obligation to report discrepancies in beneficial ownership to ongoing customer due diligence (CDD) obligations. The requirement that firms report discrepancies between beneficial ownership information they collate during CDD and what is on the Persons with Significant Control Registers only currently applies at initial onboarding. 
  • Making amendments to improve the effectiveness of intelligence and information sharing and allow reciprocal protected sharing between relevant authorities. The definition of relevant authorities may be extended to include more government agencies, such as Companies House. The Consultation Paper also requests views on giving extra supervisory powers to the FCA to help it supervise Annex 1 financial institutions, such as firms providing financial leasing services and some consumer credit firms.
  • Introducing the “travel rule” to cryptoassets transfers, in order to replicate as closely as possible the rules that apply to bank transfers in the Funds Transfer Regulation and ensure that the UK complies with Financial Action Task Force (FATF) Recommendation 16 regarding wire transfers. This would mean that cryptoasset exchange providers and custodian wallet providers would have to send and record information on the originator and beneficiary of cryptoasset transfers; with the information required dependent on the value of the transfer and whether the provider conducts business in the UK. 

Conclusion

Closing date for comments on both the Call For Evidence and the consultation paper is 14 October 2021. It should be noted that these Treasury activities are being conducted at a time when the European Union (EU) has produced its proposals for revising the EU-wide Money Laundering Directives. It remains to be seen what differences develop in the UK’s and EU’s approaches to AML-CTF.

There is a need for the relevant providers and institutions to take a close look at their current AML regimes and ensure that they are ready to implement any changes that are set to be introduced in spring 2022. The potential introduction of the travel rule for cryptoassets is of particular significance. But it is just one of a number of proposals that, if they become reality, will require notable alterations to many organisations’ working practices.

Nicola Sharp C 09983

Nicola Sharp

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nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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