The United Kingdom maintains a comprehensive and multi-layered regulatory framework to combat Money laundering, terrorist financing, and related financial crimes. This framework is built upon a network of supervisory authorities, statutory bodies, and detailed legislative provisions, primarily governed by the Money Laundering Regulations 2017, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs 2017). Together, these elements establish clear responsibilities for regulated entities and provide the legal foundation for effective Anti-Money Laundering (AML) compliance.
Primary Regulatory Authorities and Their Roles
Several key authorities oversee the AML regime in the UK, each with distinct but complementary functions:
- Financial Conduct Authority (FCA) serves as a watchdog for financial markets and services, ensuring compliance with the Money Laundering Regulations 2017. It supervises compliance with AML obligations, can impose penalties for non-compliance ensuring firms implement effective controls to prevent financial crime.
- HM Revenue and Customs (HMRC) acts as the supervisory authority for Money Service Firms and Trust or Company Service Providers. Its role includes monitoring compliance and enforcing AML standards within these sectors.
- Professional Bodies are self-regulatory organisations such as the Association of Chartered Certified Accountants (ACCA), the Institute of Chartered Accountants in England and Wales (ICAEW), the Chartered Institute of Management Accountants (CIMA), the Chartered Institute of Taxation (CIOT), the Association of Taxation Technicians (ATT), and the Association of Accounting Technicians (AAT) hold statutory powers to supervise their members’ AML compliance.
- National Crime Agency (NCA) is the designated recipient of Suspicious Activity Reports (SARs) submitted by regulated entities, playing a central role in investigating and disrupting financial crime.
Core Legislative Framework: The Money Laundering Regulations 2017
The MLRs 2017 provide the detailed legal requirements that underpin AML compliance in the UK. Several regulations within the Money Laundering Regulations 2017 framework are particularly pivotal:
Customer Due Diligence (CDD)
Regulation 27-28 is a fundamental regulatory requirement that involves verifying the identity of clients through official documentation such as government-issued identification, proof of address, and financial statements.
Firms must implement these measures in compliance with the Money Laundering Regulations 2017 when establishing new relationships, conducting high-value transactions (€15,000+ for most sectors, €10,000+ for high-value dealers), or when suspicious activity is detected.
The process extends beyond basic identity verification to include identifying beneficial owners, understanding the purpose and nature of firm relationships, and maintaining ongoing monitoring to ensure customer information remains current.
Firm must continuously assess and update their risk profiles for existing clients, particularly when circumstances change significantly, such as alterations in business activity levels or ownership structures.
This comprehensive approach helps prevent money laundering and terrorist financing while ensuring compliance with regulatory obligations.
Risk Assessment
Regulation 18 imposes a fundamental obligation on all relevant persons to conduct thorough and documented risk assessments of their exposure to money laundering and terrorist financing risks. This assessment must consider multiple factors, as outlined in the Money Laundering Regulations 2017 including the characteristics of the client profile, geographical locations of operations, products and services offered, transaction type and delivery channels employed.
The risk assessment is not a one-time exercise; it must be formally documented in writing and regularly reviewed to reflect changes in the firm environment and emerging threats. This ongoing process ensures that organisations maintain a current understanding of their risk profile, which forms the basis for designing and implementing appropriate control measures.
Enhanced Due Diligence (EDD)
Where customers or transactions present heightened risks, Regulation 33 requires firms to apply EDD measures. This regulation expands the scope of EDD beyond traditional high-risk categories to include new risk factors reflecting evolving money laundering and terrorist financing methods.
Under the Money Laundering Regulations 2017 and EDD, firms must obtain additional, more detailed information about customers. This includes enhanced verification of identity, a deeper understanding of the source of funds or wealth, and comprehensive insight into the intended nature and purpose of the firm relationship.
Furthermore, higher-risk relationships demand increased ongoing monitoring, including more frequent transaction reviews, closer scrutiny of unusual patterns, and enhanced record-keeping to facilitate detection and reporting of suspicious activities.
Suspicious Activity Disclosure (SAD)
Regulation 66 mandates that regulated entities identify and report suspicious activities indicative of money laundering, terrorist financing, or related crimes. Organisations must file SADs with the NCA promptly in accordance with the Money Laundering Regulations 2017 upon identifying such activities.
A critical feature of this regulation is the strict prohibition against “tipping-off,” which forbids informing customers or third parties about ongoing investigations or reports, thereby protecting the integrity of law enforcement efforts.
To support this, firms are required to establish robust internal reporting procedures that enable employees to escalate suspicions confidentially and efficiently before external reporting.
Policies, Controls, and Procedures
Regulation 19 requires all regulated entities to develop, implement, and maintain comprehensive AML policies and procedures. These must clearly articulate the organisation’s approach to preventing money laundering and terrorist financing and include detailed processes for CDD, transaction monitoring, and record-keeping.
Regular staff training is a mandatory component, ensuring that employees understand their AML responsibilities and can identify and respond appropriately to suspicious activities. Additionally, regulated firms must establish an independent audit function to periodically assess the effectiveness of their AML systems and controls. However, sole practitioners without employees are exempt from this audit requirement due to practical limitations.
Conclusion
The UK’s AML regulatory framework, anchored by the MLRs 2017 and supported by a network of supervisory authorities, sets a high standard for financial crime prevention. Key regulations such as those governing CDD, Risk Assessment, EDD, Suspicious Activity Reporting, and internal policies create a comprehensive system designed to identify, mitigate, and report financial crime risks effectively.
For regulated entities, understanding and implementing these requirements is essential not only for legal compliance but also for maintaining the integrity and reputation of the UK financial system. As financial crime threats evolve, ongoing adherence to these regulations, supported by vigilant supervision and robust internal controls, will remain critical to safeguarding the UK’s position as a trusted global financial centre.
