HMT consultation response on improving the effectiveness of the money laundering regulations

HM Treasury (HMT) has published its consultation response in relation to its 2024 consultation on proposals to improve the effectiveness of the UK Money Laundering Regulations (MLRs). The consultation concentrated on four areas: (i) customer due diligence; (ii) system coordination around economic crime; (iii) clarifying scope; and (iv) registration requirements for the Trust Registration Service. The response confirms that a number of updates will be made to the MLRs and associated guidance. On customer due diligence, in particular, the following key changes were confirmed as set out below.

• On making customer due diligence (CDD) more proportionate and effective for non-financial firms, HMT will ask supervisors and industry bodies to consider areas where guidance on the concept of "business relationship" source of funds checks and requirements for individuals purporting to act on behalf of a customer may be useful and helpful, and will align transaction-based triggers for art market participants and letting agents.
• On digital identity verification, HMT will produce guidance on using digital identities for MLR checks jointly with the Department for Science, Innovation and Technology.
• For banks onboarding new customers from a bank which has gone into insolvency under the Banking Act 2009 Bank Insolvency Procedure, HMT will amend the MLRs to provide carve-outs from CDD requirements so that customers can access new accounts quickly.
• On enhanced due diligence (EDD), HMT is making changes in relation to complex transactions, meaning EDD is required only on "unusually complex" transactions and not all complex transactions, and on high-risk third countries, mandating EDD only in respect of "call for action" countries, and will work with supervisor and industry bodies to ensure there is clear guidance on the mandatory requirement to carry out EDD.
• New requirements for pooled client accounts will be included in the MLRs, distinct from the existing simplified due diligence requirements.

For cryptoasset service providers, the consultation response helpfully confirms that the MLRs will be aligned with the Financial Services and Markets Act 2000 (FSMA) authorisation framework, and the current requirement for cryptoasset firms both to register under the MLRs and to be authorised under FSMA, will be removed. As a result, that firms authorised under FSMA by the FCA will no longer need to register separately under the MLRs as cryptoasset exchange providers or custodian wallet providers.

Further amendments were also confirmed in relation to the other focus areas, including updating EUR references to GBP and amending the scope of regulated trust or company service provider activity to include sale of "off-the-shelf" companies, and certain changes in relation to the operation and scope of the trust registration service.

HMT confirms it intends to publish the draft statutory instrument amending the MLRs in the coming months for technical feedback, to be laid in Parliament later this year if parliamentary time allows.

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