Niall Hearty of Rahman Ravelli details HM Treasury’s consultation on its proposals to alter the money laundering regime.
HM Treasury has begun an exercise to take views and evidence on the steps that the government intends to take to amend the Money Laundering Regulations 2017, as amended (MLRs).
These amendments are necessary for the UK to continue to meet international standards set by the Financial Action Task Force (FATF) and to bring clarity on how the anti-money laundering regime operates, following feedback from industry and supervisors on the implementation of the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020.
The consultation and the concurrent Call to Evidence concern possible amendments to some aspects of the MLRs . These include the scope of the regulated sector to exempt particular payment service providers that may present a low risk of money laundering and terrorist finance.
The consultation also looks to strengthen supervision by making amendments to the suspicious activity reports (SARs) regime and by including the formation of a partnership within the scope of what can be classed as a ‘business relationship’. There are also proposed amendments in relation to the transfer of crypto assets and provisions related to information gathering and sharing by supervisors.
The Call for Evidence
On 22 July 2021, the Treasury published a Call for Evidence on a review of the UK’s anti-money laundering (AML) and counter-terrorist financing (CTF) regulatory and supervisory regime. It also published a Consultation Paper on amendments to MLRs, which are the UK’s main AML and CTF legislation. These amendments are set to be made via statutory instrument in Spring 2022. But the review will not cover related legislation, such as the Proceeds of Crime Act 2002 or the Terrorism Act 2000.
The Call for Evidence was prompted by the UK’s post-Brexit ability to set its own AML and CTF standards, as well as the government’s 2019 Economic Crime Plan, which said that the Treasury had to review the MLRs. The MLRs themselves require the Treasury to review them, with publication of the first review having to be made by 26 June 2022.
The Call for Evidence will review the overall effectiveness of the MLRs by assessing the effectiveness of the system, including an examination of the impact of the implementation of the EU’s Fifth Money Laundering Directive into UK law in January 2020. It will also assess whether the scope of the regulations remains in proportion to the scale of the risk posed by various sectors, whether the use of current enforcement powers is proportionate, the value of Treasury-approved guidance and the effectiveness and appropriateness of the supervisory regime structure.
In short, it aims to determine whether the main aspects of the regulations are operating as they were intended to, whether any changes are required and whether they are capable of ensuring the safe, effective use of current and future technology to combat money laundering and terrorist financing. The Call for Evidence also aims to assess whether new legal obligations should be placed on supervisors, such as the FCA, to enhance the effectiveness of SARs. The 2018 Mutual Evaluation of the UK by FATF raised concerns about the quality of SARs submitted in the UK and the use of intelligence gained from them.
The Consultation Paper’s Proposed Amendments to the MLRs
The Consultation Paper considers measures to:
- Change the scope of the MLRs to exempt particular payment service providers that present a low ML and TF risk, such as account information service providers, bill payment service providers and telecom, digital and IT payment service providers. The Consultation Paper is seeking views on whether payment initiation service providers should also be considered low risk and be able to be excluded from the scope of the MLRs.
- More clearly define what is meant by “financial institution” and “credit institution” – and whether activities that qualify a firm as a financial or a credit institution should be amended to align with the Financial Services and Markets Act 2000. The consultation is seeking views about whether it is unclear whether there are activities that do not come within the scope of the MLRs and, if there are, how these should be addressed.
- Clarify that AML/CTF supervisors have a right of access to view the content of SARs submitted by those they supervise.
- Amend regulations 16, 18, and 19 to include provisions on proliferation financing, so that the MLRs 2017 will require certain regulated bodies to assess the risk of breaches of UN-targeted financial sanctions relating to the financing of weapons of mass destruction.
- Amend regulations 12 and 4 to include the formation of limited partnerships, so that the definition of trust or company service provider adequately covers all business arrangements and services that have to be registered with Companies House.
- Align the obligation to report discrepancies in beneficial ownership to ongoing customer due diligence obligations – not just to the initial onboarding phase.
- Make amendments to improve information sharing and gathering between relevant authorities. It proposes doing this by extending the definition of relevant authorities to include government agencies such as Companies House and, possibly, by giving more powers to the FCA to enhance its supervision of Annex 1 financial institutions. Giving the FCA additional, flexible information gathering powers and extending its powers to include skilled person reports and a power of direction – such as restricting a firm’s ability to take on new customers – are also proposed.
- Introduce the “travel rule” to cryptoasset transfers, so that rules applicable to bank transfers can (as much as is possible) be applied to compel cryptoasset exchange providers and custodian wallet providers to send and record information on the originator and beneficiary of such transfers. Such an approach will ensure that the UK complies with FATF Recommendation 16.
The government is receiving comments on this consultation until 14 October 2021 but encourages responses to be made before this date where possible.