UK Anti Money Laundering (AML) Regulations 2024 Explained

Money laundering is a major threat to financial systems worldwide. If left unchecked, money launderers can commit financial crimes, eroding the trust we have in our financial systems while preying on vulnerable people.

To that end, Anti-Money Laundering (AML) regulations and processes have been devised to protect our systems from these criminal organizations and prevent money laundering. 

The United Kingdom has put together a powerful AML regulatory framework, designed to offer comprehensive coverage, dynamic responses, and active enforcement for preventing money laundering. Let’s take a look at how it’s structured.

AML laws and regulations in the UK

Here are some of the regulations in place in the UK

Proceeds of Crime Act (POCA)

In 2002, the Proceeds of Crime Act (POCA) was enacted to serve as the foundation of the money laundering regulations under UK law. It defined the main types of money laundering offenses, and enabled law enforcement to seize any assets that were obtained via criminal activities.

POCA set up reporting obligations for a number of professionals at high risk, like accountants, lawyers, and insolvency practitioners, requiring them to report any suspicion of money laundering to the authorities.

Regulated entities were required to appoint a Money Laundering Reporting Officer (MLRO) to make sure that their firm complied with the AML regulations. POCA also required that Suspicious Activity Reports (SAR) be filed if any money laundering or terrorist financing activities were detected.   

The Financial Services and Markets Act 2000 (FSMA)

The Financial Services and Markets Act 2000 (FSMA) governs financial services in the UK. One of its primary tasks was to set up an exhaustive list of all the regulated activities in the UK, ensuring that they can only be performed while licensed.

This act enforces a number of money laundering regulations, including:

• Customer Due Diligence Measures
• Suspicious Activity Reporting
• Ongoing Monitoring
• Employee Training and Vetting
• Appointing Nominated Officers or MLROs 

The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017

Commonly referred to as MLR 2017, these money laundering regulations form a major part of the UK’s AML systems. MLR 2017 applies to a vast number of institutions, including financial institutions, auditors, accountants, tax advisers, and more.

MLR 2017 requires the relevant persons to undertake and document a wide-ranging risk assessment to identify and understand the degree of money laundering and terrorist financing risk they face. They also mandate that these persons undertake Customer Due Diligence Measures based on the level of risk.

As such, these money laundering regulations have put forth some key compliance requirements to prevent money laundering, including:

• Customer Identification and Verification
• Record Keeping
• Training and Awareness
• Appointment of Nominated Officers

Who is subject to AML regulations?

The overarching reasons for money laundering regulations are, of course, money laundering and terrorism financing risks, but the ways in which they affect each industry are different.

So let’s take a closer look at what kinds of industries are subject to money laundering regulations, and more importantly, why. The following sectors are particularly susceptible: 

• Financial Institutions: Financial institutions are the first line of protection against money laundering offenses and terrorist financing risks. Since they are at higher risk, they need to adhere to strict AML policies, enact adequate measures, and ensure that all enhanced due diligence procedures are followed to prevent money laundering.
• Accountants, Tax Advisors, Auditors: Given that they deal heavily with financial transactions as well as finance laws, criminal organizations can use them to evade safeguards. As such, anyone in the financial sector or related fields needs to implement the right AML controls and provide a suspicious activity report.
• Estate Agents and Property Professionals: Real estate, due to its high prices and high demand, attracts a lot of criminal organizations and suffers from great money laundering risks. To avoid these issues, real estate professionals need to undertake customer due diligence measures and make sure that all transactions are properly documented and above board.
• Legal Professionals: Similar to financial professionals, legal professionals are at higher risk of being involved in money laundering and terrorist financing schemes. These professionals often deal with large sums of money, or assist their clients with complicated transactions, both of which are heavily used for money laundering. As a result, they need to implement rigorous AML procedures and enhanced due diligence to prevent criminals from using their services to get around the law.
• High-Value Dealers: Art dealers, jewelers, antique dealers, or anyone dealing with high value items is at higher risk of money laundering problems. Criminal organizations often use high value assets as a method of laundering money, and so dealers need to have enhanced due diligence requirements and file SARs as soon as they see anything suspicious.
• Casinos and Gambling Establishments: Criminals often use gambling to convert dirty money into clean money, putting these establishments at great risk. Casinos need to implement strict AML measures to prevent money laundering from happening under their watch.

Who regulates AML in the UK?

Now that we have gone through the laws and regulations, let’s take a look at the bodies that handle the regulation and enforcement of AML in the UK. There are four main organizations that work to stop money laundering and terrorist financing. Each of them has separate but overlapping areas of jurisdiction, and they often work together to stop these criminal organizations.

Financial Conduct Authority (FCA)

The Financial Conduct Authority (FCA) is the primary regulatory body dealing with AML laws and regulations, and it oversees and enforces these regulations on the financial sector.

Deriving its power from FSMA and MLR 2017, it has set out detailed requirements for banks and other financial institutions, requiring them to assess money laundering risks, undertake risk-based customer due diligence measures, perform ongoing monitoring, file SARs, and maintain accurate records. The FCA also undertakes enforcement actions, penalizing firms that fail to meet AML guidelines. 

His Majesty’s Revenue and Customs (HMRC)

His Majesty’s Revenue and Customs (HMRC) is a major AML supervisor in the UK, covering thousands of businesses over nine different sectors, including:

• Money Service Businesses (MSB)
• Accountancy Service Providers (ASP)
• Trust or Company Service Providers (TCSP)
• Estate Agency Businesses (EAB)
• Letting Agency Businesses (LAB)
• Art Market Participants (AMP)
• High-Value Dealers (HVD)
• Bill Payment Service Providers
• IT and Digital Payment Service Providers

As you can see from this list, the HMRC has a vast number of responsibilities. To handle them, the HMRC uses a risk-based approach, providing maximum supervision to the high-risk sectors. It conducts regular AML inspections, and can impose heavy penalties on any institution caught failing to comply with regulations.

Prudential Regulation Authority (PRA)

The Prudential Regulation Authority (PRA) is another regulatory body of the UK’s AML system. Its primary role is the prudential regulation and supervision of banks, building societies, credit unions, insurers, and investment firms. Given the importance of these institutions, the PRA ensures that they follow AML regulations. 

The National Crime Agency (NCA)

While the FCA, HMRC, and PRA act as watchdogs, enforcement is in the hands of the National Crime Agency (NCA). As the name suggests, the NCA is the law enforcement organization responsible for tracking down organized crime, which includes money laundering and terrorist financing. They investigate and break any criminal organizations that operate in their jurisdiction, and often collaborate with other agencies when dealing with cross-border crimes. 

Anti-Money Laundering measures to stay compliant

Given the vast scope of the UK’s AML regulations, it’s best to stay ahead of the rules and policies. If you’re working with UK-based institutions, you should make sure that you’re compliant with the following AML measures.

Customer due diligence checks

Customer Due Diligence (CDD) checks involve making sure that your customers are indeed who they say they are, and making sure that they are not a politically exposed person or connected to money laundering organizations. Enhanced due diligence measures are mandatory for regulated industries. These checks must remain part of an ongoing process of risk assessment. As and when the customer’s activities and financial profiles change, the assessment should change alongside.

Risk assessment and screening

If you are a regulated institution, you must undertake the proper risk assessment processes to identify and assess the level of money laundering or terrorist financing risk you face. Different businesses face different levels of risk, especially if they work with high risk third countries, and as a result, any risk assessment must take the size and nature of the business into account.

That said, the biggest weak point of any business are its customers. Proper screening processes need to be put in place to counter this specific risk. Law enforcement organizations across the world have shared financial sanctions lists, and firms need to screen their customers against these lists to ensure that they are not participating in money laundering or terrorist financing activities.

Ongoing monitoring

If a criminal manages to successfully hide their affiliations and evade the CDD checks, they can then use any business to launder their money successfully. To make sure this can be countered, you need to perform ongoing monitoring. Any suspicious changes in customer behavior or transactions should be flagged for further analysis.

Reporting

The United Kingdom’s reporting system has a broad scope, with strong reporting requirements. The different kinds of reporting systems include:

• Suspicious Activity Reports: The basic form of reporting, generally filed whenever a certain transaction or activity is considered suspicious.
• Currency Transaction Reports: Meant to track large cash transactions, this report is filed when any transaction over a certain threshold is flagged.
• Report of Foreign Bank and Financial Accounts (FBAR): People with bank accounts in foreign countries need to file this report if those accounts contain money above a certain threshold.
• Report of International Transportation of Currency or Monetary Instruments (CMIR): Anyone transporting cash or monetary instruments into or out of the UK needs to file this report if the amount exceeds specific thresholds.
• OFAC Reporting System for Blocked and Rejected Transactions: This system is used to track any transactions that get blocked or rejected due to sanctions compliance issues. It reports to the Office of Foreign Assets Control (OFC).

Documentation

Defending against money laundering activities requires proper documentation. Depending on the risk analysis, all firms need to have policies, controls, and procedures for documentation.

Here are some of the key documentation requirements:

• Procedures for SARs
• Measures to be taken for the adoption of new technology
• Procedures for AML training
• Procedures for independent audits
• Procedures for risk assessments
• Client Due Diligence procedures
• Procedures for ongoing monitoring

By documenting these procedures and their results, the process of record-keeping is simplified. These records are also necessary to prove AML compliance, as the penalties for failing to do so are sky-high.

What happens if you fail to follow the AML regulations?

In civil cases, the FCA can impose huge financial penalties on any firm found not following AML regulations. In 2023, there were a number of high-profile cases with fines in the millions of pounds. Some popular examples being:

• ED&F Man Capital Markets Ltd – Fined £17.2 million 
• Equifax Ltd – Fined £11.1 million 
• Guaranty Trust Bank (UK) Ltd – Fined £7.6 million

In each of these cases, the firms involved failed in their duty to the public. All in all, the FCA collected around £53 million in fines from financial crimes in 2023. The penalties are based on a number of factors, including the amount of money that was potentially laundered, how long the firms were non-compliant, and the past behavior of the firm.

Criminal cases, however, are different. They fall under the purview of POCA, which undertakes criminal proceedings, and the penalties are correspondingly harsher. Anyone caught in violation can be hit with unlimited fines and up to 14 years of imprisonment. On top of the fines, any firms caught supporting money laundering or terrorist financing also suffer severe reputational damage.

Stay compliant with effective AML solutions

Given how complex the UK AML regulations are, following them properly was a difficult task. But things have changed. With the recent advancements in Machine Learning and AI, AML compliance has been made significantly easier. But you need a tool that’s the right fit for your business.

Here at HyperVerge, we are dedicated to helping you meet the legal AML compliance requirements. Our systems automate compliance processes end-to-end, allowing you to improve risk management and fight financial crimes. If you’d like to know more, click here to see how we can help.