Change, Adaptation and Implementation – Money Laundering Regulation Amendments

For the financial services sector, 2022 has been proven to be a year of change, adaptation and implementation. With the introduction of the Economic Crime (Transparency and Enforcement) Act, and now, the HM Treasury’s Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument, there’s a lot to keep up with and we’re here to help.

The Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 - Statutory Instrument 2022 Explained

The main objective of the Money Laundering Regulations 2017 was to ‘make the UK financial system a hostile environment for illicit finance whilst minimising the burden on legitimate businesses’. In 2022, HM Treasury publicised its Post Implementation Review of the Money Laundering Regulations 2017 and have used the findings as a guide for the 2022 Amendment Statutory Instrument. The report suggested ongoing ineffective supervision by professional body supervisors and specific deficiencies in the application of risk mitigating measures by the private sector. As a result, the Statutory Instrument 2022 has clarified and proposed certain changes to regulation.

What are the changes and what do they mean?

The Statutory Instrument 2022 has introduced changes within six financial crime risk mitigation processes that we think are most relevant to you:

• Suspicious Activity Reports - whereby ‘a clear legal gateway’ for AML/CTF supervisors to access, view and consider the quality of the content of SARs submitted by supervised populations. This is to improve the effectiveness of their risk-based approach to supervision.
• Proliferation Financing Risk Assessment – new legislation requires FIs and DNFBs to complete their own risk assessments of PF, alongside their current risk assessments for money laundering and terrorist financing. General limited awareness of Proliferation Financing was found in each sector, so further familiarisation is recommended.
• Disclosure and Sharing – The FCA has been given additional powers of direction over Annex 1 Firms. This means that Regulations 74A-C will now be applied to both Annex 1 Firms and cryptoasset businesses. This was implemented after it was found that AML/CTF supervisors had limited skilled resources to detect and manage harm.
• Terrorist Financing Definition – the definition of Terrorist Financing has now been changed in accordance with s49 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA).
• Cryptoasset Transfers – Subject to parliamentary approval, the government has decided to impose the ‘Travel Rule’ with a 12-month grace period until 1^st September 2023. The Travel will only apply to cryptoasset exchange providers and custodian wallet providers. Secondly, the government has modified its proposal regarding unhosted wallets. This means that cryptoasset businesses will only be expected to collect beneficiary and originator information when transactions pose an elevated risk of illicit finance.

So, What Now?

Ultimately, the government’s objective is to uphold current international standards in order to effectively mitigate and detect illicit finance. Whilst the MLR amendments will require most Financial Institutions to go back to the drawing board to ensure compliance, the government has considered cost-effectivity and has thus only introduced changes deemed necessary for our success moving forward. The consensus reiterated the limited knowledge and inconsistencies found at supervisory level, so effective management systems and awareness of MLRs are not negotiable.

With this in mind, Beyond MI is here to support you with your risk governance framework and data capture processes to ensure they meet the requirements, if not exceed them.