HM Treasury is currently re-evaluating the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs), with the aim of enhancing “proportionality” and adding “additional clarity” to the technical specifications of the regulations. This reassessment aligns with considerations for substantial modifications to the anti-money laundering (AML) supervisory framework, which may include appointing a unified AML supervisor for legal services, a position for which the Solicitors Regulation Authority has volunteered.
Consultation and Objectives – HM Treasury to Offer More Guidance and Clarity
Baroness Vere, Treasury Minister, highlighted in a recent consultation that the objective is to explore areas within the regulations where greater clarity could bolster compliance and facilitate more effective collaboration among regulated entities. The consultation, which concluded last month, reflects a strategic review of the regulations with a focus on maintaining a balance between regulatory demands and the risks of money laundering and terrorist financing.
Review Insights and Strategic Adjustments
A 2022 review indicated that while the main provisions of the MLRs are largely effective, there are several areas where technical enhancements could improve efficiency and ensure fairness for both regulated firms and their clients. Key areas for potential amendments include:
Customer Due Diligence Adjustments
The Treasury is considering revisions to make customer due diligence (CDD) processes “more proportionate and effective” and is seeking feedback on whether the triggers for CDD under Regulation 27 are clear enough. There is also a proposal for additional guidance to assist firms with ‘source of funds’ checks.
Digital Identity Verification
With the growing relevance of digital solutions, the Treasury is contemplating bespoke guidance to support digital identity verification, leveraging the UK digital identity and attributes trust framework to streamline these checks.
Enhanced Due Diligence Practices
For enhanced due diligence (EDD), the consultation asked firms to comment on their use of the risk factors in regulation 33(6), which include dealings in high-risk items such as oil, arms, and precious metals, among others. The Treasury clarified that not all transactions involving these factors require EDD but should be assessed for their risk potential.
Simplification and Currency Conversion
The consultation also covered potential changes from euro to pound sterling in the thresholds listed within the MLRs, and sought opinions on the registration requirements for custodial wallet and cryptoasset exchange providers, as well as for certain higher-risk trusts.
The Treasury anticipates making a decision on the future direction of the AML supervisory regime in the forthcoming months, as stated by Baroness Vere. These developments are expected to refine the regulatory processes, reducing the burden on firms while enhancing the effectiveness of the UK’s efforts to prevent money laundering and terrorist financing.
The focus on proportional regulation and clarity underscores the UK government’s commitment to both preventing financial crimes and supporting legitimate business operations through clearer, more manageable compliance requirements.
