Evolution in the UK’s Economic Crime regulatory regime

On 1 September 2022, changes to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) took effect.

The key measures include:

  • A new requirement for regulated firms to conduct business-wide proliferation financing risk assessments and maintain appropriate, controls and procedures for combatting proliferation financing activity.
  • A broadening of the definition of a ‘trust or company service provider’ (TCSP) to include firms which provide services relating to the formation of all types of business arrangement, including Limited Partnerships, and an expansion in the scope of TCSP due diligence obligations to include ‘one-off’ business relationships.
  • A new power for supervisors to request suspicious activity reports from regulated entities.
  • The implementation of the FATF ‘travel rule’ (with effect from 1 September 2023), which will extend elements of the existing information sharing regime for wire transfers to transfers of cryptoassets.

Changes to beneficial ownership transparency: a revised approach to discrepancy reporting

From 1 April 2023, the amended MLRs will also oblige firms to report ‘material’ discrepancies in beneficial ownership information at all stages of the customer lifecycle (i.e., on an ongoing basis), rather than just at onboarding. A material discrepancy will be newly defined to only include those discrepancies which may reasonably be considered linked to money laundering or terrorist financing, or to conceal details of the business of the customer. In addition, firms will be required to obtain an excerpt of the relevant register as part of the customer due diligence process.

Separately, changes to include certain trusts within the scope of discrepancy reporting requirements have now taken effect, and firms are required to obtain proof of a trust’s registration on the Trust Registration Service (TRS), and report discrepancies, prior to establishing a business relationship. From 1 April 2023, this obligation will also extend to all stages of the customer lifecycle.

What this all means

All these changes to the MLRs should prompt firms to perform a gap analysis against their existing internal policies and processes.

While there is no need to conduct a standalone proliferation financing risk assessment, there should be a focus on ensuring existing business-wide risk assessments are sufficiently robust to account for proliferation financing risk (as it is now defined in the MLRs). Training and further guidance to staff will also likely be needed.

Firms should also be seeking to ensure their systems are appropriately calibrated to the new discrepancy reporting obligations. Cryptoasset firms captured by the new ‘travel rule’ will need to assess and understand the new requirements and explore possible technological solutions.

Economic crime reform: finally shaping up?

With the recent introduction of the ‘Economic Crime and Corporate Transparency Bill’ into Parliament, the UK government has signalled that further, substantive regulatory reforms are coming.

The Bill would make long-awaited reforms to the operations of Companies House, including strengthening the integrity of its data holdings; introduce reforms to combat the abuse of limited partnerships; facilitate private sector information sharing; and strengthen law enforcement powers to seize cryptoassets.

A new and improved public/private Economic Crime Plan is also due soon, which could add further impetus.

Either way, it’s clear we are now entering a period of change in the UK’s regulatory framework for combatting economic crime, and firms should be ready to respond.


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