UK Money Laundering Regulation Changes Announced for September 2022

Shearman & Sterling LLP

Shearman & Sterling LLP

Following its 2021 consultation on targeted amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs), the U.K. government has published a consultation response which summarises the feedback to the consultation and sets out the government's approach to making changes to the statutory instrument. The amendments will be made in the draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, which are intended, for the most part, to take effect from September 1, 2022. A summary of the changes is set out below. The government will also soon publish its response to the call for evidence on the U.K.'s anti-money laundering and counter terrorist financing regulatory and supervisory regime, which covered the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime.

The government consulted on implementing the Financial Action Task Force requirement that crypto-assets be subject to the funds transfer requirements by applying those to crypto-asset exchange providers and custodian wallet providers carrying on business in the U.K., known as the "Travel Rule". The government is proceeding with the overall proposal, but is making adjustments in light of the feedback it received. In particular, both fiat currency and crypto-asset transfers will no longer be required for the calculation of the de minimis threshold, and the information requirements relating to unhosted wallet transfers will apply on a risk-sensitive basis only. Firms will be given time to operationalize compliance with these requirements. Subject to Parliamentary approval, crypto-asset businesses will have until September 1, 2023 to implement changes to ensure compliance with the Travel Rule.

The government had proposed amending the scope of the MLRs to exempt account information service providers, payment initiation service providers, bill payment service providers and telecom, digital and IT payment service providers on the basis that their activities pose low AML/CTF risks. In response to feedback, only AISPs will be exempt from the U.K.'s AML regime. PISPs will remain in scope since they are involved in the payment chain and generally pose an economic crime risk. Further work is needed to assess the position regarding bill payment service providers and telecom, digital and IT payment service providers.

The proposal to grant AML/CTF supervisors a right, on request, to view the content of a suspicious activity report submitted by the firms and individuals supervised by them will be implemented.

Despite overall support for the proposal to align the activities that make an entity a credit or financial institution under the MLRs with those under the Financial Services and Markets Act 2000 and the Regulated Activities Order, the government is not implementing this change at this stage because it will involve substantial technical analysis if it is to be done without resulting in unintended consequences.

The draft statutory instrument will include measures to incorporate the FATF's requirements for financial institutions and designated non-financial businesses and professions to identify, assess and take effective action to mitigate proliferation financing risk.

Furthermore, the proposals to improve the effectiveness of the MLRs as an intelligence and information-sharing gateway will be implemented. The government confirms that the intelligence and information-sharing gateway will be expanded to allow for reciprocal sharing from relevant authorities to supervisors and that the Financial Conduct Authority will be able more widely to disclose the confidential information it receives in connection with its MLR duties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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