Anti-money laundering: recent and upcoming developments

This article by Edward Rands BSc FCA summarises the latest key developments in anti-money laundering legislation, including changes affecting Suspicious Activity Reporting, Politically Exposed Persons and high-risk third countries, along with proposed regulatory changes.

Detailed guidance on anti-money laundering is available in Navigate Practice Management . See also the Anti-Money Laundering and Fraud Insight courses on Navigate Learning.

Suspicious Activity Reporting

The National Crime Agency (NCA) unveiled its new SAR Reporting Portal on 18 September 2023. At that stage, firms already registered with the old SAR Online system could continue to submit Suspicious Activity Reports (SARs) via that system, but were strongly encouraged to register with the new portal and start using it to submit SARs from that point.

Firms which had not previously been registered with SAR Online were required to register with and use the new SAR Reporting Portal from the point at which it came into operation.

On 4 March 2024, the NCA announced that the old SAR Online system had been completely deactivated, and was no longer available for the submission of SARs by any firm. Therefore, in order to submit SARs electronically, all firms now need to be registered with the new SAR Reporting Portal.

It is highly advisable for all firms to register to use the new system immediately, regardless of whether they currently have any SARs to submit. This will ensure that access is ready when a SAR submission needs to be made.

Politically Exposed Persons (PEPs)

The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (SI 2023/1371) was brought into force on 10 January 2024, amending the requirements of the  Money Laundering Regulations  (MLR) in relation to the risk assessment attaching to domestic PEPs.

A domestic PEP is defined for the purposes of the MLR as ‘a politically exposed person entrusted with prominent public functions by the United Kingdom’.

The effect of the amendment is two-fold:

• where a client or potential client is a domestic PEP, or a family member or a known close associate of a domestic PEP, the starting point for assessing the money laundering risk in relation to that client or potential client is that they present a lower level of risk than a non-domestic PEP; and
• if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that client or potential client is less than the extent to be applied in the case of a non-domestic PEP.

This effectively formalises the existing position that, although the fact that a client or potential client is (or is connected to) a domestic PEP has to be taken into consideration in the money laundering risk assessment, the degree of additional risk assessed will be less than for a PEP entrusted with prominent public functions by a country other than the UK.

Consequently, the extent of enhanced due diligence needing to be undertaken will be less where a domestic PEP is involved than would be the case for a non-domestic PEP.  However, if additional money laundering risks were identified beyond the simple fact that the relevant person was a domestic PEP, the risk assessment and the extent of the associated enhanced due diligence measures would still need to be increased, as for any other situation where enhanced due diligence was considered to be necessary.

High-risk third countries

On 22 January 2024, HM Treasury amended its approach to identifying High Risk Third Countries (HRTCs) for anti-money laundering purposes. Previously, it appended a list of such countries to the MLR, in Schedule 3ZA. From that date, Schedule 3ZA was removed, and an HRTC is now defined as:

‘A country named on either of the following lists published by the Financial Action Task Force (FATF) as they have effect from time to time:

(i) High-risk jurisdiction subject to a Call for Action; and

(ii) Jurisdiction under Increased Monitoring.’

The FATF lists are updated three times each year, at the end of the FATF meetings which are held in February, June and October.

The latest FATF lists were published on 23 February 2024, and accordingly HM Treasury’s list of HRTCs was updated with effect from that date.

Impact of HRTC classification

In practical terms, HRTCs are jurisdictions with unsatisfactory money laundering and terrorist financing controls.

MLR 2017, Regulation 33(1)(b)  requires regulated firms to apply enhanced customer due diligence measures and enhanced (i.e. more frequent) ongoing monitoring in any business relationships with a person established in an HRTC or in relation to any relevant transaction where either of the parties to the transaction is established in an HRTC.

Changes to the HRTIC lists in 2024

HM Treasury’s replacement of the old ‘Schedule 3ZA’ list of HRTCs with the FATF lists in January 2024 resulted in the addition and removal of certain countries to and from the list.  Further changes then occurred when the FATF updated its lists in February 2024. Firms will need to determine the effect, if any, on their client bases, of all changes to the list of HRTCs as defined by HM Treasury.

Economic Crime and Corporate Transparency Act 2023

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) received Royal Assent on 26 October 2023. The ECCTA introduces a number of measures to strengthen the fight against money laundering. Although these will not directly affect the obligations of regulated firms under the Money Laundering Regulations as they currently stand, they do serve to emphasise the importance of firms taking care to maintain their compliance with the regulations, and diligently reporting knowledge or suspicion of money laundering via SARs.

Proposed changes to the Money Laundering Regulations

On 11 March 2024, HM Treasury published a consultation document on potential improvements which could be made to the effectiveness of the Money Laundering Regulations. The consultation closes on 9 June 2024.

The proposals put forward in the document fall into four areas, as follows:

• making customer due diligence more proportionate and effective;
• strengthening system co-ordination;
• providing clarity on scope and registration issues; and
• reforming registration requirements for the Trust Registration Service.

Making customer due diligence more proportionate and effective

Considerations in this area are focused on concerns about the proportionality of due diligence and whether resources can be prioritised to where they will have the greatest impact.  Matters under consideration include:

• whether the triggers for due diligence are sufficiently appropriate and clear;
• whether greater clarity can be provided on when “source of funds” checks should be carried out;
• how support can be provided most effectively for the use of digital identity verification methods; and
• when enhanced due diligence checks should be required (including ensuring a proportionate approach to High Risk Third Countries).

Strengthening system co-ordination

Changes proposed in this section of the document reflect the need to update the Money Laundering Regulations to ensure continuing effective co-operation in the light of new and emerging money laundering threats, technological change, and changes in the legislative landscape (such as the ECCTA). Consideration is given to ways of ensuring that key information sharing routes are as effective as possible, whether AML supervisors should be required to co-operate with Companies House, and how regulated firms should use the national risk assessment to assist in targeting their compliance work.

Providing clarity on scope and registration issues

This area explores the need of regulated firms and their supervisors for up to date guidance on compliance with the AML regime, particularly in the light of the UK’s departure from the European Union.  Areas considered include the possibility of converting monetary thresholds set out in the Regulations from euros to sterling, and addressing potential gaps in the regulation of Trust and Company Service Providers.

Reforming registration requirements for the Trust Registration Service

A number of potential changes are considered to the registration requirements for trusts, aimed at increasing transparency in relation to certain higher risk trusts whilst reducing administrative burdens on low-risk trusts.