Treasury seeks to improve “proportionality” of AML rules

Vere: Additional clarity might help

HM Treasury is seeking improved “proportionality” and “additional clarity” in plans for technical changes to the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs).

The move comes as the Treasury ponders radical changes to the anti-money laundering (AML) supervisory regime, which could a see a single AML supervisor for legal services – the Solicitors Regulation Authority has put itself forward for the role.

Treasury minister Baroness Vere said the consultation published last month focused on where “additional clarity might support compliance with the regime” or where there might be opportunities for organisations to work together more effectively.

“A key principle in the MLRs is proportionality. Where there is room to find a better balance between what we ask of regulated firms and customers, and the risk of money laundering and terrorist financing, then we want to seek to address this.”

A review of the MLRs in 2022 found that, while the core requirements of the regulations were mostly fit for purpose, there were potentially a number of technical changes that could be made to increase effectiveness and ensure proportionality for both regulated firms and customers.

The Treasury said the main themes covered by the consultation were making customer due diligence (CDD) “more proportionate and effective”, strengthening co-ordination by different bodies across the AML regime, providing clarity on scope of the MLRs and reforming registration requirements for the Trust Registration Service.

On CDD, the Treasury asked whether the “triggers” in regulation 27 were sufficiently clear and whether additional guidance or detail was needed to help firms understand when to carry out ‘source of funds’ checks.

In response to calls for greater clarity on digital identity verification, the Treasury said it was considering bespoke guidance.

Before it made any changes to the MLRs to encourage digital ID checks, the guidance could, among other things, explain how firms could use the UK digital identity and attributes trust framework to facilitate checks.

On enhanced due diligence (EDD), firms were asked whether they had actually used the risk factors listed in regulation 33(6) to identify suspicious activity.

Among the risk factors are transactions relating to “oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or other items of archaeological historical, cultural or religious significance or rare scientific value”.

The Treasury said it was “not necessarily the case (or required by law) that every single customer or transaction with these specific factors” must be subject to EDD, only that the relevant person had considered the risks posed by the factors.

Officials understood that some found these factors were not relevant or useful to identifying suspicious activity.

Other firms found that complying with the mandatory requirements for customers and transactions in high-risk third countries under regulation 33 to be “expensive and burdensome”.

The Treasury also asked how the thresholds in the MLRs which are currently listed in euros could be changed to pounds sterling, and about the registration requirements for ‘custodial wallet’ and cryptoasset exchange providers and for “certain higher-risk trusts”.

Baroness Vere added that the government expected to make a decision “in the coming months” about the future of the AML supervisory regime.

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