Part 3: Upcoming changes to the UK’s anti-money laundering regime

In July 2021, HM Treasury launched a new AML consultation entitled ‘Amendments to the Money Laundering Terrorist Financing and Transfer of Funds Regulations 2017’. This consultation outlined ways in which the government intended to amend the UK’s money laundering regulations (MLRs) with several time-sensitive updates. The planned updates are required to ensure that the UK continues to meet international AML standards, whilst also clarifying how the UK’s anti-money laundering and counter-terrorist financing (AML/CTF) regime works. 

The changes to the MLRs have been made through draft secondary legislation entitled ‘the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022’. Most of the measures in this SI will come into force on 1 September 2022, subject to parliamentary approval

In this series of blog posts, we take a closer look at what these changes will mean for anti-money laundering compliance.

Proliferation Financing Risk Assessment

The consultation proposed changes to implement the Financial Action Task Force (FATF) standards in respect of Recommendation 1, to require financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) to identify, assess and take effective action to mitigate proliferation financing (PF) risk. 

The government has said that companies will have the flexibility to either create a new risk assessment or to incorporate PF into existing ML/TF risk assessments in order to reduce the burden and minimise costs. The government also recognised the need for further information dissemination to the private sector to increase and improve awareness of PF in various sectors and will conduct outreach to relevant supervisors so that they are able to support their regulated populations in understanding PF risks and carrying out risk assessments.

The government decided to take this measure forward through SI to enable the UK to implement international standards set by the FATF, by supplementing Regulations 16, 17 and 28 of the MLRs and to strengthen the private sector’s understanding and mitigation of proliferation financing risk. A definition of PF will also be included in the MLRs to clarify the type of activity that would be considered PF, whilst remaining tied to relevant UN Security Council Resolutions so as not to expand the scope included under FATF Recommendation 1.

Trust and Company Service Provider services and business relationships

The consultation proposed extending the scope of the definition of the term ‘Trust and Company Service Provider (TCSP)’ and ‘business relationship’ in the MLRs. 

The SI will amend Regulations 12 and 4 in the MLRs in order to achieve greater alignment between the forms of business arrangement that a TCSP can form and those that register with Companies House, in particular to include English, Welsh, and Northern Irish limited partnerships (LPs), as well as expanding the application of when a business relationship is established to form these business arrangements as well as those services a TCSP can provide in Regulation 12(2)(b) and (d). 

It was also decided that the measure will include the appointment of a limited partner by a TCSP as constituting a business relationship and will therefore require CDD to be conducted on limited partners, if they are the customers of TCSPs.

Reporting of discrepancies 

The consultation proposed to enhance the accuracy and integrity of the companies register by expanding Regulation 30A to introduce an ongoing requirement to report discrepancies in beneficial ownership information. 

The government decided to expand the discrepancy reporting requirement by including an additional provision to Regulation 30A(1) to expand the scope of the measure to also cover the ongoing business relationship. 

The government has also decided to streamline the requirement so that it is clear only ‘material discrepancies’ need to be reported, and to provide a list setting out which types of discrepancy would be ‘material’. A grace period will be added to this measure and it will not come into force until April 2023. The government also decided to expand the discrepancy reporting regime to extend the requirement to include entities on the Register of Overseas Entities (ROE).

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