HM Treasury review of UK AML/CFT regime

HM Treasury has published its broad review of the UK’s AML and CFT regulatory and supervisory regime, setting out its findings on the barriers to a more effective regime, its initial view on changes to be made, and where its focus lies for future work. This article considers the key takeaways from the report.

HM Treasury launched its call for evidence in July 2021, seeking views on the systemic functioning of the regulatory regime, the effectiveness of particular elements of the UK money laundering regulations (MLRs), and the overall effectiveness of the UK’s supervisory regime. The call for evidence closed in October 2021 and, after considering the responses, the government has now published its review of the regime.

The report (which can be downloaded in PDF format here) sets out the areas which the government considers most important for improving effectiveness. The three key themes of the report are:

Measuring effectiveness

The report sets out proposals for a stronger framework to measure the effectiveness of the MLRs. This includes an overall objective for the UK’s anti-money laundering (AML) regime (financial systems and the broader economy are protected from the threats of money laundering and terrorist and proliferation financing, thereby strengthening financial sector integrity and contributing to safety and security) and primary and secondary objectives of the MLRs. The proposals also include a commitment to developing a revised set of priority metrics as part of the updated Economic Crime Plan later this year.

Regulatory effectiveness

Proposed changes include removal of the list of required checks for customers in high risk third countries (HRTCs) in most circumstances, in order to align enhanced due diligence (EDD) for customers in HRTCs with EDD for other circumstances, where firms can tailor their checks to specific risks posed, and a review of the EDD requirement on “complex or unusually large transactions” to consider whether alternative wording would be less ambiguous and less likely to capture low risk situations. The report also commits the government to further work to better understand the risk profile of domestic politically exposed persons (PEPs); and moots potential changes so that, where risks are considered to be sufficiently low, EDD may not be automatically required for domestic PEPs. 

Supervision

In its 2018 mutual evaluation report, the Financial Action Task Force identified major deficiencies in the UK’s supervision regime. Consequently, the report sets out several shortlisted options for supervisory reform:

• “OPBAS+”, maintaining the existing professional body supervisor (PBS) framework and creating additional powers for the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to intervene where it identifies deficiencies in PBS supervision
• consolidation of PBSs, which would result in between two and six remaining PBSs, decreasing inconsistency across the PBS regime
• introduction of a single professional services supervisor with similar statutory powers to those provided by the MLRs to the FCA and HMRC; and
• introduction of a single AML supervisor

Each of the four options is still under consideration, and the government intends to launch a consultation on the benefits and risks of each model before reaching a decision.

The report is wide reaching in its proposals, and follows the Treasury’s response to the consultation on the UK AML regime earlier this month. At this point, Firms in the regulated sector needn’t take any specific action, but it’s important for key stakeholders to understand the proposed changes in order to demonstrate an attentive approach to financial crime horizon scanning, and to keep a watching brief for implementation of proposed changes under consideration.