UK government consults on reforms to money laundering regulations

In conjunction with the consultation, which is intended to improve the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), the Treasury will also survey regulated businesses – including large firms, small and medium-sized enterprises and sole traders – on the cost of compliance with the MLRs.

The consultation is the latest in a range of post-Brexit financial crime reforms, including the 2023 Economic Crime and Transparency Act, which introduced a corporate offence of failing to prevent fraud, and a consultation last year on reforming anti-money laundering (AML) supervision.

Themes covered by the consultation include making customer due diligence more proportionate and effective, strengthening system coordination, providing clarity on the scope of the MLRs, and reforming registration requirements for HMRC’s Trust Registration Service (TRS).

In particular, the consultation identifies longstanding issues with applying enhanced due diligence, such as the mandatory requirements in regulation 33 of the MLRs to obtain source of wealth and source of funds information for all business relationships or transactions with links to high-risk countries.

The consultation also reflects the enhanced role given to Companies House under the Economic Crime and Corporate Transparency Act to query and enforce the accuracy of company records by suggesting that AML supervisors, such as the Financial Conduct Authority and the Treasury, should have a duty to cooperate with Companies House.

In terms of more specialist topics, the consultation considers the appropriateness of the financial thresholds in the MLRs, like the current €10,000 threshold for high value dealers, estate agent businesses, letting agents and art market participants to apply customer due diligence.

Nicholas Kamlish, a financial regulation expert at Pinsent Masons, said firms in the insurance, pensions and advice sectors needed to note changes to the requirements on trust registration in particular.

“Under the MLRs, the beneficial ownership of most express trusts, including overseas trusts which have acquired UK land after October 2020, must be recorded in the TRS,” Kamlish said.

“The consultation proposes to extend this requirement to all non-UK express trusts which have acquired land before October 2020. Furthermore, individuals and organisations investigating money laundering or terrorist financing, for example banks or journalists, would be able to request data on such trusts from the TRS.”

He pointed out that firms struggling with the administrative burden of registering all their express trusts with the TRS would welcome the proposals to introduce a ‘de minimis’ threshold for registration, by which certain trusts – those not liable for UK taxes, not owning or having an interest in UK land or real property, not holding more than £5,000 in assets, and not distributing more than £2,000 in assets and expenses in any 12-month period – might be disregarded.

“Firms should note, however, that once a trust fails any of these tests, it stays registrable even if it then falls back below the threshold,” he added.

“The government also plans to introduce ‘anti-avoidance’ rules to prevent firms creating multiple trusts in respect of the same subject assets to take advantage of the de minimis threshold.”

Andrew Barber, a financial regulation and enforcement expert at Pinsent Masons, said: “The consultation is helpful in shining a spotlight on areas of financial crime regulation which are challenging to apply, particularly for non-financial firms caught by the MLRs, like serviced office providers.”

“A particular focus will be on due diligence, both in terms of the triggers for it, like the establishment of a business relationship or the carrying out of an occasional transaction over €1,000, and the checks to be applied, including verification of identity by digital means. By responding to the consultation, firms have an opportunity to identify areas of regulation which appear to be disproportionate.”

The consultation closes on 9 June.