Supervision - United Kingdom

What are my obligations as a practitioner?

Practitioners should and indeed are obliged to consult guidance documents when considering their obligations. In the United Kingdom the CCAB has produced anti -money laundering guidance .The latest version includes details of obligations in respect of proliferation financing  which obligations were imposed in the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022.The latest guidance is  the Anti-Money Laundering, Counter-Terrorist and Counter-Proliferation Financing Guidance for the Accountancy Sector (2023).It contains detailed guidance including guidance on the summary paragraphs below.  See also explanatory notes on the guidance (2023 update awaited).

The reader’s attention is also drawn to the supplementary Anti money-laundering guidance for tax practitioners which is guidance issued by CCAB for those providing tax services in the United Kingdom, on the prevention of money laundering and the countering of terrorist financing. The supplementary guidance is not standalone guidance; it must be read in conjunction with the Guidance for the Accountancy Sector (above).

Click here for UK legislation on  money laundering. The Money Laundering ,Terrorist Financing, and Transfer of Funds (Information on the Payer ) Regulations 2017 are referred to on these pages as the MLR 2017 (as amended).

The Economic Crime (Anti-Money Laundering) Levy Regulations 2022 came into force in the UK on 1st April 2022. The levy is intended to fund government action and initiatives to tackle money laundering. The  charge will be levied on regulated  businesses under money laundering legislation and is to be based on UK revenue depending on whether the entity is considered “medium”,” large” or “very large” as defined in the Finance Act 2022.

A brief review of some of the obligations is provided in the paragraphs below.

Firms must carry out and keep up to date a firm-wide business risk assessment under Regulation 18 of MLR 2017 (as amended).Also ,since 2022 with the coming into force of the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 (“2022 Regulations) a relevant person must take appropriate steps to identify and assess the risks of proliferation financing to which its business is subject. The assessment should include consideration of the firm’s client base and services it offers, the countries and geographical areas the firm operates in, the type of transactions carried out and the delivery channels used. For example, where the channel allows the service to be delivered without meeting the client face-to-face that might lead to a higher risk of exposure to money laundering.

The legislation also requires that firms have regard to any relevant information in national risk assessments. Click the link for the UK’s latest National Risk Assessment  .They must also have regard to any guidance on risk issued by the competent authority for the designated person. In addition to the UK National Risk Assessment  referred to above reference should be made to  The Chartered Accountants Institute Risk Outlook January 2021 which assesses the  circumstances where there might be a  high risk of money laundering or terrorist financing in the accountancy sector.

In the case of proliferation financing the firm must have regard to the proliferation financing risk assessment which Treasury is required to carry out under the 2022 Regulations. 
Please also click the link for  the first UK national risk assessment of proliferation financing  published in September 2021.

The MLR 2017 (as amended) requires that a written record of the firm wide risk assessment is maintained, and that Relevant Persons should be prepared to provide this to their supervisory authority if requested. It should also be updated regularly.

Failure to comply with the obligations is an offence.

It is now a statutory requirement under MLR 2017 (as amended) , to carry out a stand-alone risk assessment on each client to whom a firm provides an AML-regulated service. This is to determine the type of client due diligence to be applied to that client. The legislation details the matters the firm should have regard to such as

its firmwide risk assessment,

any national risk assessment

guidance from a competent authority

relevant risk variables (see Regulation 28 (13)) including

the purpose of the relationship,

size and regularity of transactions

duration of the business relationship

the presence of certain factors which might suggest a lower or higher risk.

Regulation 33(6) contains a non-exhaustive list of factors suggesting potentially higher risk. For example, a customer where the ownership structure of the company appears unusual or excessively complex given the nature of the company’s business or dealings in a country identified by credible sources as having significant levels of corruption or other criminal activity might suggest a potentially higher risk.

CUSTOMER DUE DILIGENCE

Regulation 27 of MLR 2017 (as amended) sets out the requirements as to when CDD must be conducted. For example when

• a Relevant Person establishes a business relationship;
• a Relevant Person engages in an occasional transaction
• a Relevant Person suspects money laundering or terrorist financing;
• a Relevant Person doubts the veracity or adequacy of documents or information previously obtained for the purposes of identification or verification;
• Also, at other appropriate times applying a risk sensitive approach.

In the case of Trust and Company Service Providers a business relationship  exists whether or not the relationship is otherwise expected to have an element of duration. (See Regulation 4).

Regulation 28 details the CDD measures to be taken such as identifying the customer and verifying their identity unless the identity is already known and has previously been verified and assessing and where appropriate obtaining information on the purpose and intended nature of the business relationship or occasional transaction.

Section 5 of the CCAB AML guidance provides further information on Customer Due Diligence including on beneficial owners, enhanced due diligence and politically exposed persons ("PEPs"). Regulation 35 of the MLR 2017 (as amended ) deals with PEPs and see below for further information on PEPs.

HIGH RISK THIRD COUNTRIES

In the context of the obligation to apply enhanced customer due diligence, regulation 33(6)(a)(ii) and (c) of MLR 2017 (as amended)  make reference to geographical risk factors and regulation 33(1)(b) of MLR 2017 (as amended) refers to high risk third countries .Regulations made by the UK government from time to time give the most up to date  list of high risk third countries. You will find the most recent  regulations from time to time by clicking the link on the advisory notice below.

Click here for  HM Treasury Advisory Notice on High Risk Third Countries which is published and updated by HM Treasury from time to time.

Please also refer to section 187 of the Economic Crime and Corporate Transparency Act 2023 which was brought  into force on 15 January 2024.The changes amend  the Sanctions and Anti-Money Laundering Act 2018 to allow for regulations concerning enhanced due diligence measures for the purposes of anti-money laundering and counter terrorist financing to be made referencing directly the list of high-risk countries published by the Financial Action Task Force as it has effect from time to time.

POLICIES CONTROLS PROCEDURES (PCPs)

All accountancy firms are required to have up to date internal policies, controls and procedures in place to protect against money laundering ,terrorist financing and proliferation financing (section 19A is inserted pursuant to the 2022 Regulations . Regulations 19,20 & 21 require that the policies and procedures should include risk management practices, internal controls, customer due diligence reliance and record keeping and monitoring and communication of policies and procedures. They must be approved by senior management and relevant persons must ensure that the policies and procedures  are regularly reviewed and updated.

The PCPs must provide for identification and scrutiny of cases where a transaction is complex or unusually large, or there is an unusual pattern or the transaction(s) have no apparent economic or legal purpose, or any other activity or situation which the relevant person regards as particularly likely by its nature to be related to money laundering ,terrorist financing or proliferation financing.

There is a statutory obligation under Regulation 24  that the relevant  person ensures that employees and agents are made aware of and given training on the law relating to money laundering ,terrorist financing and proliferation financing.

UK Reporting Obligations -Suspicious Activity Reports

Click here for more information on Professional Standards' pages on UK law and guidance  and click here to go to the technical hub page on reporting requirements.

Politically Exposed Persons (PEPs)

Reglation 35 of MLR 2017 (as amended) requires relevant persons to have appropriate risk-management systems and procedures in place to determine whether a customer or the beneficial owner of a customer is a PEP or a family member or a known close associate of a PEP .They are required to manage the enhanced risks arising from the relevant person's business relationship or transactions with such a customer.

Other provisions include a requirement to have senior management approval to establish or continue the relationship and an obligation to take adequate measures to establish source of wealth and source of funds. Save as follows, enhanced due diligence must be applied. The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (Regulation 1371/2023) which took effect on 10 January 2024 provides that for the purpose of assessing risk, the starting point is that   domestic (i.e. UK) PEPs  present a lower level of risk than non-domestic PEPs .If no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer or potential customer is less than the extent to be applied in the case of a non-domestic PEP.A parliamentary statement on lower risk of domestic PEPs explains the change is to ensure that relevant persons take a proportionate and risk-based approach to the treatment of domestic PEPs, and to allay concerns that a number of holders of prominent public positions and their family have encountered problems accessing financial services due to their status as Politically Exposed Persons.

The UK Financial Conduct Authority (FCA)  also did work in this area. In September 2023 the FCA announced a review of the treatment of domestic Politically Exposed Persons (PEPs) by financial services firms. The review is to look at firms’ arrangements for dealing with PEPs based in the UK and to report by the end of June 2024. In August 2023 the FCA invited UK PEPs to share their experiences, including any problems they or their family members have encountered with the PEPs regime. 

Click the link for guidance published by the FCA in 2017  guidance for how financial services firms should treat customers who are politically exposed persons when meeting their anti-money laundering obligations. 

These pages are provided as resources and information only and nothing in these pages purports to provide professional advice or definitive legal interpretation(s) or opinion(s) on the applicable legislation or legal or other matters referred to in the pages. If the reader is in doubt on any matter in this complex area further legal or other advice must be obtained. While every reasonable care has been taken by the Institute in the preparation of these pages, we do not guarantee the accuracy or veracity of any resource, guidance, information or opinion, or the appropriateness, suitability or applicability of any practice or procedure contained therein. The Institute is not responsible for any errors or omissions or for the results obtained from the use of the resources or information contained in these pages.

These pages are provided as resources and information only and nothing in these pages purports to provide professional advice or definitive legal interpretation(s) or opinion(s) on the applicable legislation or legal or other matters referred to in the pages. If the reader is in doubt on any matter in this complex area further legal or other advice must be obtained. While every reasonable care has been taken by the Institute in the preparation of these pages, we do not guarantee the accuracy or veracity of any resource, guidance, information or opinion, or the appropriateness, suitability or applicability of any practice or procedure contained therein. The Institute is not responsible for any errors or omissions or for the results obtained from the use of the resources or information contained in these pages.