UK PLANS on Improving the effectiveness of the Money Laundering Regulations

The government is publishing its response to the 2024 consultation on the Money Laundering Regulations (MLRs), which received over 200 responses from a range of stakeholders across various sectors.

The consultation response outlines changes to the MLRs that will close loopholes, clarify requirements, and ensure customer due diligence is targeted at high-risk activities.

Other issues will be addressed through guidance, in collaboration with supervisors, to ensure a consistent, risk-based approach.

The areas where the UK Government intend to make changes to the MLRs are:

1. Enhanced due diligence on complex transactions;
2. Enhanced due diligence on high-risk third countries;
3. Due diligence on pooled client accounts;
4. Due diligence triggers for certain non-financial firms; 
5. Onboarding of customers in bank insolvency scenarios;
6. Information sharing between supervisors and other public bodies; 
7. Supervisor cooperation with Companies House;
8. Currency thresholds are currently in euros;
9. Registration and change in control for cryptoasset service providers;
10. Regulation of the sale of ‘off-the-shelf’ companies by Trust and Company Service Providers; and 
11. Registration requirements for the Trust Registration Service.

The document is the UK Government's response to a 2024 consultation on improving the Money Laundering Regulations (MLRs) to enhance the anti-money laundering and counter-terrorist financing (AML/CTF) framework.

It outlines proposed changes based on 224 responses from businesses, law enforcement, supervisors, and civil society, as well as feedback from roundtables and a survey on compliance costs.

The consultation, conducted between March and June 2024, followed a 2022 review that identified challenges to the MLRs' effectiveness.

Each item is covered in the summary, referencing the relevant sections for clarity:

1. Enhanced due diligence on complex transactions
• Covered in Summary: Under "Customer Due Diligence (CDD),"
1. The MLRs will be amended to require enhanced due diligence (EDD) only for "unusually complex" transactions, not all complex ones, to ensure proportionality and reduce over-compliance (see page 19, paragraph 1.49).
2. Enhanced due diligence on high-risk third countries
• Covered in Summary: Under "Customer Due Diligence (CDD),"
1. Mandatory EDD will be limited to transactions involving "Call for Action" countries, not the broader FATF Increased Monitoring List, allowing a more targeted risk-based approach (see page 21, paragraph 1.53).
3. Due diligence on pooled client accounts
• Covered in Summary: Under "Customer Due Diligence (CDD),"
1. New MLRs provisions will allow financial institutions to apply simplified due diligence (SDD) for pooled client accounts (PCAs) under a wider set of circumstances, with safeguards like establishing the PCA’s purpose and underlying customer identity (see page 23, paragraph 1.63).
4. Due diligence triggers for certain non-financial firms
• Covered in Summary: Under "Customer Due Diligence (CDD),"
1. No fundamental changes are needed for CDD triggers. Still, sector-specific guidance will clarify "business relationship" definitions for non-financial firms, such as art market participants and letting agents, to avoid the misapplication of triggers (see page 11, paragraph 1.9, and page 12, paragraph 1.10).
5. Onboarding of customers in bank insolvency scenarios
• Covered in Summary: Under "Customer Due Diligence (CDD),"
1. Introduction of a legislative carve-out for customer ID verification in bank insolvency scenarios to prevent onboarding backlogs, limited to banks under the Banking Act 2009 (see page 16, paragraph 1.36).
6. Information sharing between supervisors and other public bodies
• Covered in Summary: Under "System Coordination,"
1. Adding the Financial Regulators Complaints Commissioner to Regulation 52 for information sharing with the FCA and expanding the FCA’s ability to share confidential MLRs-related details, including for cryptoasset firms (see page 26, paragraphs 2.6 and 2.8).
7. Supervisor cooperation with Companies House
• Covered in Summary: Under "System Coordination,"
1. Regulation 50 will be amended to include the Registrar for Companies House and the relevant Secretary of State to improve supervisory coordination and transparency (see page 27, paragraph 2.13).
8. Currency thresholds are currently in euros
• Covered in Summary: Under "Scope and Registration Issues,"
1. Euro thresholds in the MLRs will be converted to GBP on a one-to-one basis (e.g., €15,000 to £15,000) for simplicity, except where FATF alignment requires exchange rate conversion (see page 30, paragraphs 3.5–3.6).
9. Registration and change in control for cryptoasset service providers
• Covered in Summary: Under "Scope and Registration Issues,"
1. Dual registration requirements for cryptoasset firms will be addressed via Financial Services and Markets Bill reforms, aligning MLRs with FSMA and removing the need for separate MLRs registration (see page 33, paragraph 3.20, and page 34, paragraph 3.21).
10. Regulation of the sale of ‘off-the-shelf’ companies by Trust and Company Service Providers
• Covered in Summary: Under "Scope and Registration Issues,"
1. The MLRs will be amended to include the sale of off-the-shelf companies within regulated TCSP activities to ensure CDD is applied, addressing a gap in the AML/CTF regime (see page 31, paragraph 3.13).
11. Registration requirements for the Trust Registration Service
• Covered in Summary: Under "Trust Registration Service (TRS),"
1. Reforms including requiring registration of non-UK express trusts holding UK land pre-6 October 2020, aligning deadlines for trusts arising from death, exempting Scottish survivorship destination trusts, and introducing a de minimis exemption for low-risk trusts (see pages 35–40, paragraphs 4.2–4.30).

Each of the 11 items is explicitly addressed in the Key Themes and Proposed Changes summary BELOW, aligned with the document’s structure and findings, ensuring comprehensive coverage of the proposed MLRs changes.

Key Themes and Proposed Changes

1. Customer Due Diligence (CDD):
• Objective: Make CDD more proportionate and effective.
• Issues Identified: Stakeholders found CDD requirements ambiguous, particularly around trigger points, source of funds checks, and verifying third-party representation.
• Government Response:
• No fundamental changes to CDD triggers, but sector-specific guidance will clarify "business relationship" definitions to reduce inconsistent application.
• Retain flexibility in source of funds checks, with improved sector-specific guidance and non-prescriptive examples to clarify "where necessary."
• Clarify that employees acting for their employer are not subject to full CDD unless specific risks arise, with updated sectoral guidance.
• Issue joint guidance with the Department for Science, Innovation and Technology on using digital identities for CDD, aligned with the Data (Use and Access) Act 2023.
• Introduce a legislative carve-out for customer ID verification in bank insolvency scenarios to prevent onboarding backlogs, limited to banks under the Banking Act 2009.
• Amend MLRs to require enhanced due diligence (EDD) only for "unusually complex" transactions, not all complex ones, and limit mandatory EDD to transactions involving "Call for Action" countries, not the broader FATF Increased Monitoring List.
2. System Coordination:
• Objective: Strengthen information sharing and coordination to combat economic crime.
• Issues Identified: Confusion around information-sharing gateways and the need for better cooperation with bodies like Companies House.
• Government Response:
• Add the Financial Regulators Complaints Commissioner to Regulation 52 for information sharing with the FCA.
• Expand FCA’s ability to share confidential MLRs-related information, including for cryptoasset firms, aligning with FSMA.
• Amend Regulation 50 to include Companies House and the relevant Secretary of State for better supervisory coordination.
• Retain current risk assessment clarity, with enhanced sector-specific guidance and use of the upcoming 2025 National Risk Assessment (NRA).
3. Scope and Registration Issues:
• Objective: Clarify MLR's scope and streamline registration processes.
• Issues Identified: Euro-based thresholds, gaps in Trust and Company Service Provider (TCSP) regulation, and dual registration for cryptoasset firms.
• Government Response:
• Convert euro thresholds to GBP on a one-to-one basis (e.g., €15,000 to £15,000) for simplicity, except where FATF.
• Alignment requires exchange rate conversion.
• Include the sale of off-the-shelf companies within TCSP-regulated activities to close a CDD gap.
• Align cryptoasset firm registration and change-in-control requirements with FSMA to reduce duplication, as part of upcoming financial services reforms.
4. Trust Registration Service (TRS):
• Objective: Reform TRS to focus on high-risk trusts and simplify requirements for low-risk ones.
• Issues Identified: Reporting gaps for non-UK trusts, inconsistent deadlines for trusts arising from death, and administrative burdens for small trusts.
• Government Response:
• Require registration of non-UK express trusts with no UK trustees that acquired UK land before 6 October 2020 and extend data-sharing requirements.
• Align registration deadlines for trusts arising from death (e.g., co-ownership property trusts, deed of variation trusts) to two years post-death.
• Exempt Scottish survivorship destination trusts from TRS registration due to low ML/TF risk.
• Introduce a de minimis exemption for trusts with no UK tax liabilities, no UK land, assets ≤£10,000, income ≤£5,000, and non-financial assets ≤£2,000, to reduce burdens on small trusts.
5. Further MLRs Revisions:
• Align MLRs with FSMA Exemption Order for overseas sovereign wealth funds operated by central banks or public bodies.
• Clarify that “insurance undertaking” in the MLRs excludes reinsurance contracts, which pose low ML/TF risk.
• Align cryptoasset firms’ counterparty due diligence with FATF standards.
• Remove Stamp Duty Reserve Tax (SDRT) as a trigger for TRS registration to reduce administrative burdens, while retaining other tax triggers.

Next Steps

• HM Treasury will publish a draft Statutory Instrument for technical feedback and aims to lay it in Parliament in 2025, subject to parliamentary time.
• Non-legislative measures, such as improved sectoral guidance, will address issues not requiring regulatory changes.
• The changes aim to balance risk-based AML/CTF measures with reduced administrative burdens, supporting the UK’s economic integrity and global leadership in tackling illicit finance.

Additional Notes

• The document includes a glossary defining terms like AML/CTF, CDD, EDD, FATF, and TRS.
• Contact details for HM Treasury are provided for further inquiries.

This summary captures the core findings and proposed amendments, focusing on clarity, proportionality, and system coordination to enhance the effectiveness of the MLRs.

SOURCES

https://assets.publishing.service.gov.uk/media/6878c1b42bad77c3dae4dd25/MLRs_Consultation_Response.pdf