HM Treasury responds to its consultation on MLRs

The key changes proposed to Money Laundering Regulations (MLRs).

On 17 July, HM Treasury (HMT) published its response to the 2024 consultation on the Money Laundering Regulations (MLRs), sharpening the regime ahead of the Financial Action Task Force’s 2027 review.

AAT has previously responded to this consultation, and the Government has positively responded to our calls for greater clarity and proportionality. The response details changes to close loopholes, clarify requirements and target customer due diligence (CDD) at high-risk activity, with other issues addressed through guidance in collaboration with AAT and other supervisors.

We welcome many of the changes, such as removing references to euros, efforts to improve access to pooled client accounts, and changes to improve information sharing. We are also looking forward to engaging officials soon on updating guidance.

Key changes at a glance

Customer due diligence

• Supervisors are going to update guidance on when a ‘business relationship’ begins, source of funds checks, mandatory enhanced due diligence (EDD) triggers, and verifying agents acting on behalf of customers.
• HMT and the Department for Science, Innovation and Technology will jointly produce guidance on using digital identities for MLRs identity verification checks.

We would like to take this opportunity to remind our members to be cautious when choosing software providers to help with due diligence obligations. You should conduct sufficient research to ensure their reliability. Some accountants see these providers as one-stop shops, but the responsibility for undertaking CDD will always lie with the accountant.

HMT will make amends to the MLRs to:

• Clarify that art dealers and letting agents follow the same transaction-based CDD requirements as high-value dealers.
• Provide carve-outs from CDD to assist the customers of an insolvent bank to quickly access new accounts.
• Clarify that EDD is required on only ‘unusually complex’ transactions, instead of all complex transactions.
• Introduce new requirements for pooled client accounts so that they can be offered in more cases than currently permitted under simplified due diligence rules.
• Mandate EDD only where the relevant transactions involve a person established in a ‘Call for Action’ (‘black-list’) country, instead of in a ‘Jurisdiction under Increased Monitoring’ country (‘grey-list’).

System coordination

• The Financial Regulators Complaints Commissioner will be added to the list of relevant authorities in Regulation 52 to support investigating complaints about the FCA. 
• Improving the effectiveness of cooperation between supervisors and Companies House, the role of which is becoming increasingly important in tackling economic crime.
• HMT will work with supervisors to ensure that guidance is clear on how to carry out risk assessments, encouraging sector-specific guidance and case studies where possible.
• The Government will publish further details on how system priorities (high-level threats) align with the National Risk Assessment when each new priority list is published.
• The FCA will be able to share more confidential information about cryptoasset firms.

The scope of MLRs

• The sale of ‘off-the-shelf’ companies will be regulated to close a known loophole.
• Upcoming legislative reforms will make changes to ensure firms authorised for new cryptoasset activities will not be required to additionally register under the MLRs.
• EUR → GBP: All monetary thresholds in the MLRs will be converted to GBP on a 1:1 basis, simplifying compliance (except where FATF thresholds would be impacted).

Reforming the Trust Registration Service (TRS)

Trusts without UK trustees that acquired UK land before 6 Oct 2020 will have to register if they still hold the property. All such trusts will be subject to TRS data sharing (subject to a legitimate interest test). However, the Government will also introduce a de minis exemption for certain trusts currently required to register, lowering administrative burdens.

The Government will amend the MLRs to include an exemption from registration, for two years following the death of the settlor, of certain trusts, as well as of Scottish survivorship destination trusts.

Proposed further MLRs revisions

• Overseas sovereign wealth funds operated by listed central banks or public bodies will be exempted from MLRs for their exempt activities.
• An amendment to the MLRs will clarify that the definition of ‘insurance undertaking’ does not include certain reinsurance contracts (deemed low risk).
• Certain requirements for cryptoasset businesses in the MLRs will be aligned with requirements for credit and financial institutions to ensure that crypto firms apply the same counterparty due diligence checks.
• The Government will remove stamp duty reverse tax from the taxes which trigger registration, as some exempt trusts can become registrable only based on paying this tax.

AAT’s reaction

AAT will closely monitor the implementation of MLR reforms and will soon engage officials on creating more effective guidance to help our members navigate them.  

AAT CEO Sarah Beale MAAT used this opportunity to remind members that, while compliance can feel heavy, “it’s our chance to keep the UK’s financial system safe and trusted”.

If in doubt, we have a range of support and resources available.

You can read Sarah’s full response on Linkedin.

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