Anti-Money Laundering broadly refers to the activities that financial institutions perform to ensure they remain compliant with legal requirements to actively monitor and report suspicious activities during the course of their normal business operations. In the last two years, many changes to the UK’s anti-money laundering regulations have come into force, including the incorporation of international standards as set by the Financial Action Task Force as the transposition of the EU’s 5th Money Laundering Directive. Companies have to remain aware of legislative changes in order to avoid hefty fines and penalties from regulators.
Anti-Money Laundering In the UK
Anti-Money Laundering compliance is overseen by two authorities in the UK: FCA and HMRC. The Financial Conduct Authority (FCA) is the UK’s main financial services regulator, overseeing banks, credit unions, building societies, and other firms which engage in financial activities. The FCA has the power to investigate money laundering and the funding of terrorist activities in conjunction with relevant law enforcement agencies, including the Crown Prosecution Service.
Her Majesty’s Revenue and Customs shares the responsibility of investigating money laundering offences with the FCA and issues anti-money laundering guidance and compliance requirements, including requirements for customer due diligence (CDD) and transaction monitoring.
Both the National Crime Agency (NCA) and Serious Fraud Office (SFO) have the power of arrest should they suspect money laundering or terrorism financing.
Anti-Money Laundering Regulations In the UK
There are several regulations within the UK designed to combat money laundering, including:
The Proceeds of Crime Act (2002)
The Proceeds of Crime Act remains the UK’s primary AML regulation and defines money laundering offences in greater detail, including the perpetration and facilitation of money laundering and the distribution/acquisition of its proceeds. Under POCA, all financial institutions must employ the appropriate AML controls to detect money laundering activities, including a customer due diligence program, transaction monitoring and the reporting of suspicious activities.
The MLR 2017
Perhaps the second most pivotal piece of legislation following POCA is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations of 2017, or MLR 2017. This legislation transposes the obligations that were determined by the European Union’s fifth anti-money laundering directive (5AMLD), which saw controls within the private sector tightened and introduced the need for businesses to implement a written AML risk assessment.
The Money Laundering and Terrorist Financing Regulations (2019)
The Money Laundering implemented the EU Fifth Money Laundering Directive in the UK in 2020, extending the scope of regulated industries and changes to the manner in which customer due diligence and enhanced due diligence are conducted.
The UK AML Sanctions Regime
Following the UK’s exit from the EU, the UK implemented the Sanctions and Anti-Money Laundering Act (SAMLA), giving the UK government the power to lift or impose sanctions in line with its international obligations. SAMLA sets a lower requirement for the imposition of sanctions and will likely form the basis for a more extensive sanctions regime in the future.
Noncompliance with these AML regulations may result in up to 14 years imprisonment or hefty fines, depending on the offence. The FCA may also restrict the operations of firms found guilty of wrongdoing.
AML Compliance Requirements In the United Kingdom
Financial institutions must comply with the regulations set out in the various pieces of legislation detailed above by adopting a firm, risk-based approach to the threats they face. This includes AML risk assessments of their customers as well as the business sectors in which they operate, after which they must formulate and implement an appropriate response.
This typically includes:
- The introduction of an AML compliance program that includes customer due diligence and transaction monitoring, including Know Your Customer procedures, PEP and Sanctions Lists screening, and adverse media screening.
- The submission of suspicious activity reports (SAR) to the National Crime Agency when money laundering activity is suspected.
- The appointment of a dedicated, authorized, and knowledgeable Money Laundering Reporting Officer to oversee the firm’s compliance program.
- The implementation of an AML training program ensures employees have both the knowledge and resources required to combat money laundering and comply with regulatory changes.
It suffices to say that achieving compliance under UK AML regulations requires a great deal of effort and manpower. Manually verifying customer information and processing and analyzing large amounts of transaction and customer data is no longer tenable, which is why many companies have automated their AML processes using a variety of dedicated AML tools. This not only assists firms with adapting to ever-changing regulations but reduces the cost and manpower associated with due diligence while eliminating human error.
Since Brexit, the UK has dedicated itself to not only meeting but outpacing the EU’s already stringent measures set in place to combat money laundering and financial crime. While it’s admirable, it does provide considerable challenges for financial firms scrambling to adapt to new regulatory requirements. It’s absolutely imperative that companies familiarize themselves with changing legislation and adopt the right tools to remain compliant and adequately prepared at all times to avoid the harsh penalties imposed as a result of AML failures.