On 24 June 2022, HM Treasury released two post-implementation reviews of the UK’s anti-money laundering and counter terrorist financing (“AML/CTF”) regime, fulfilling its statutory obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information of the Payer) Regulations 2017 (the “MLRs”).
The reviews respectively cover the implementation of the MLRs and the establishment of two public bodies: the National Economic Crime Centre (the “NECC”) and the Office for Professional Body AML Supervision (the “OPBAS”).
In recent months, as a result of Russia’s invasion in Ukraine, the UK government has implemented additional measures to tackle illicit financial operations. Amongst other actions undertaken, the Economic Crime (Transparency and Enforcement) Act created the Register of Overseas Entities Beneficial Ownership of UK Property which mandates disclosure of individual beneficiaries for properties held or controlled by foreign corporate undertakings. Further, the government amended the Unexplained Wealth Orders to help law enforcement target corrupt practices amongst elite PEPs such as Russian oligarchs.
The review, as summarised by HM Treasury, seeks to evaluate the effectiveness of the MLRs by focusing on three key themes:
- Systemic effectiveness: establish nation-wide benchmarks and definitions to further monitor the implementation of the UK AML/CTF framework.
- Regulatory effectiveness: support industries and sectors most affected by the risks of money laundering and terrorist financing and ensuring that firms and individuals possess the tools and skills to implement effective risk-based controls.
- Supervisory effectiveness: proposing and implementing further amendments to the current regulatory framework to enhance the MLR’s efficacy and range of action.
Systemic effectiveness
The post-implementation review of the MLRs outlines updated objectives for the future implementation of the current Regulations. Amongst other goals, the Treasury has announced that it intends to broaden its data collection range such as to build a comprehensive methodology for assessing the effectiveness of the MLRs.
To that end, the government is expected to amend existing reporting mechanisms, such as the annual supervision reports, to incorporate a number of new substantive disclosure requirements. These “outcome-focused” metrics will be issued by the government later this year in the context of the updated Economic Crime Plan.
Although the reviews seek to evaluate the effectiveness of the MLRs’ implementation, it fails to provide a definitive conclusion on the issue. Rather, the government has announced that it will develop a “revised set of priority” metrics to provide further feedback on the overall implementation status of the UK AML/CTF regulatory regime.
Further, HM Treasury has refuted the proposal to amend any fundamental provisions contained under the MLRs. The government has asserted that it is committed to increase the consistency of compliance amongst regulated persons.
Regulatory effectiveness
Acknowledging the volatility nature of risks in relation to money laundering and terrorist financing, the reviews unveiled the UK government’s plan to introduce the UK’s first National Risk Assessment (the “NRA”).
Following the its departure from the European Union and the end of the transition period, the UK now has full discretion to assess emerging risks and adjust the scope of the MLRs accordingly. Still, the NRA will remain within the standards set out by the FATF.
The NRA, said to be “fully suited” to the UK’s national circumstances, is expected to act as the government’s flagship venue for determining whether the obligations prescribed under the MLRs are proportionate given the identified emerging risk sources.
Although the UK’s AML/CTF framework is no longer bound by the EU Commission, it will be hard to amend or improve areas such as suspicious activity reporting for the time being. As it is now effectively on its own, the UK still has to further monitor the implementation of the MLRs before engaging in wider or more substantive revisions of its current regime.
Perhaps a long awaited announcement HM Treasury will work in concert with the NECC and the OBPAS to understand the needs of small and/or newly regulated firms, in the fulfilment of their obligations under the MLRs. The UK government has listed a number of venues for support such as the use of new technology and updated AML/CTF guidance based on industry or sectoral specifics.
Supervisory effectiveness
In addition to enforcing the MLRs and ensuring consistent compliance, the reviews emphasised on the need to spread engagement and understanding across all sectors. Whilst not considered in the present, the government is leaving the door open for a potential future reform that could extend the purview of national AML/CTF agencies beyond regulated sectors.
The government is expected to introduce three vehicles in an attempt to safeguard the UK’s position as a global leader in the fight against economic crime: the second public-private Economic Crime Plan, the Companies House reform, and the Economic Crime and Corporate Transparency Bill.
Questions and Answers
Along with the two post-implementation reviews, the UK government has provided some answers to the industry’s concerns:
- The government has pledged that it will review the risk profile of domestic/UK-residing PEPs to determine whether they should be subject to a regime distinct from that which is imposed for alien PEPs
- The definition of “correspondent relationships” provided by the MLRs will not be amended
- In the context of enhanced customer due diligence (EDD), the government will consider alternative wording for ‘complex’ and ‘unusually large’ transactions for the purpose of bettering clarity
- Requirements for choosing to conduct simplified customer due diligence (SDD) and the components thereof will not be amended
- The government will hold consultations to address the difficulties in accessing pooled client accounts, which could include broadening the list of low risk circumstances in which KYC checks for each client could be dismissed
- Record retention requirements for information or data obtained via reliance on third party CDD/KYC service providers will remain the same, as they mirror the requirements for ordinary CDD
- The government will consider issuing clearer requirements for electronic and non-face-to-face identity verification in the context of customer onboarding and CDD
