Author: Nicola Sharp
23 September 2021
4 min read
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).
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.
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.
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 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.