Anti-Money Laundering Regulations in the UK

Every year, money laundering costs the UK economy around £100 billion. To avoid the risk of penalties and fines resulting from non-compliance with anti-money laundering and countering the financing of terrorism (AML/CFT) regulations, firms in the UK should understand UK AML laws, be familiar with the relevant financial authorities, and implement a suitable compliance policy.

Who are the Anti-Money Laundering Regulators in the UK?

The Financial Conduct Authority (FCA)

The Financial Conduct Authority (FCA) is the UK’s main financial services regulator with authority over banks, building societies, credit unions, and other firms engaging in financial activities. Established in 2012 under the Financial Services Act, the FCA replaced the Financial Services Authority (FSA) and has a mandate to maintain the safety of the UK’s financial system and its financial institutions (FIs). The FCA oversees compliance with anti-money laundering regulations in the UK and has the power to investigate money laundering and terrorism financing offenses in conjunction with other law enforcement agencies and authorities, such as the Crown Prosecution Service (CPS). All banks and FIs in the UK must register with the FCA.

His Majesty’s Revenue and Customs (HMRC)

HMRC shares the responsibility to investigate money laundering offenses with the FCA. HMRC issues guidance on anti-money laundering in the UK, including compliance requirements for customer due diligence (CDD), transaction monitoring, and the need to issue an AML policy statement.  

In addition to the FCA and HMRC, the power to enforce money laundering regulations in the UK is shared by the National Crime Agency (NCA) and the Serious Fraud Office (SFO), both of which have power of arrest and can seek warrants and court orders. UK AML/CFT authorities also have the power to freeze and confiscate assets they suspect are involved in money laundering, terrorism financing, or other criminal activities.

What are the AML/CFT Regulations in the UK?

The UK is a member of the Financial Action Task Force (FATF) and has implemented AML legislation that meets the FATF’s global standards as well as the requirements of the Sixth Anti-Money Laundering Directive (6AMLD).

The UK’s anti-money laundering legislation is the Proceeds of Crime Act 2002 (POCA), the Terrorism Act 2000, and the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017.

What is the Proceeds of Crime Act (POCA)?

The POCA was introduced in 2002 and is the UK’s primary piece of AML regulation. It defines the offenses that constitute money laundering, including activities that cover the perpetration and facilitation of money laundering and the acquisition or distribution of its criminal proceeds. Under the POCA, banks and FIs must put appropriate AML controls in place to detect money laundering activities, including CDD and transaction monitoring measures and a range of reporting requirements. 

What is The Terrorism Act?

The Terrorism Act 2000 imposes CFT obligations on banks and FIs, which also include CDD, transaction monitoring, and reporting obligations. The Terrorism Act was first introduced in 2000 and was amended by the Anti-Terrorism, Crime and Security Act 2001, the Terrorism Act 2006, and the Terrorism Act 2000 and Proceeds of Crime Act 2002 (Amendment) Regulations 2007).

Other Anti-Money Laundering Regulations 

Beyond the POCA and the Terrorism Act, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (MLRs) 2017 came into force on 26 June 2017, in an attempt to improve and plug certain gaps in earlier versions of the law from 2007. Updates included:

• Tightening controls in the private sector.
• Requiring companies to conduct a written AML/CFT risk assessment.
• Improving transparency of beneficial ownership of companies and trusts.
• Effectively enforcing sanctions.

Following this, the Money Laundering and Terrorist Financing Regulations 2019 took effect on 10 January 2020. This legislation extends the range of regulated industries and alters how CDD and enhanced due diligence (EDD) are carried out.

Registering with an AML Supervisory Authority

Why is it Necessary to Register With a Supervisory Authority?

In the UK, it is a legal requirement for businesses in the financial sector to register with an anti-money laundering supervisory authority. Businesses register via the supervisory authority that regulates their industry. This is necessary for a few reasons:

• Oversight and accountability: Registration allows supervisory authorities to oversee and monitor a firm’s AML compliance activities. This helps ensure the firm is implementing appropriate AML policies and procedures to detect and prevent money laundering and other financial crimes.
• International cooperation: Many AML regulators are part of international efforts to combat financial crime. Registering with a supervisory authority helps facilitate cooperation and information sharing with other countries’ regulatory bodies, which is crucial in the global fight against money laundering. 

Firms that are not eligible for supervision may be supervised by HMRC.

Which Types of Companies Need to Register?

The types of firms that need to register with an anti-money laundering scheme include:

• Financial services and credit firms.
• Estate agents and lettings companies. 
• Accountants, tax advisors, and auditors.
• Trust service providers.
• Casinos.
• High-value art buyers and sellers.

Companies can seek advice on registration requirements from their professional body. 

How Many UK Supervisory Authorities Are There?

In addition to the FCA and HMRC, the UK’s AML/CTF supervisory system includes a third statutory supervisor (the Gambling Commission) and 22 professional body supervisors (PBSs) that supervise the legal and accountancy sectors. These PBSs include:

1. Association of Accounting Technicians
2. Association of Chartered Certified Accountants
3. Association of International Accountants
4. Association of Taxation Technicians
5. Chartered Institute of Legal Executives
6. Chartered Institute of Management Accountants
7. Chartered Institute of Taxation
8. Council for Licensed Conveyancers
9. Faculty of Advocates
10. Faculty Office of the Archbishop of Canterbury
11. General Council of the Bar
12. General Council of the Bar of Northern Ireland
13. Insolvency Practitioners Association
14. Institute of Certified Bookkeepers
15. Institute of Chartered Accountants in England and Wales
16. Institute of Chartered Accountants in Ireland
17. Institute of Chartered Accountants of Scotland
18. Institute of Financial Accountants
19. International Association of Bookkeepers
20. Law Society
21. Law Society of Northern Ireland
22. Law Society of Scotland

However, following a review of AML supervision by HM Treasury in June 2022, the effectiveness of supervisory interventions across these PBSs was deemed inconsistent, creating a case for reform. As a result, the Treasury published a consultation paper in June 2023 that suggested either reducing the number of AML/CTF PBSs or creating a single AML/CTF supervisor for professional services to replace all 22 supervisors. 

HM Treasury will decide on a reform model post-consultation and issue a response document on implementation by Q2 2024.

What are the Penalties for Not Registering?

If a UK-registered FI fails to register with an AML scheme, they are in violation of the law and can face various penalties, which may include:

• Fines: Non-compliant firms may be subject to significant fines, and the amount can vary depending on the nature and severity of the violation. 
• Business restrictions: Authorities may impose restrictions on a firm’s operations or, in extreme cases, suspend its business activities until full compliance with registration requirements is achieved.
• Revocation of licenses: Regulatory bodies can revoke licenses or permits necessary for firms to operate legally in the UK.

What is the UK’s AML Sanctions Regime?

The UK passed the Sanctions and Anti Money Laundering Act (SAMLA) in 2018 before the UK left the European Union (EU) in 2020. The act gives the UK government powers to lift and impose AML sanctions as part of its regime and in line with its ongoing international obligations. Examples of UK AML sanctions include thousands of new designations in 2022 and 2023 under the Russia sanctions regimes.

What are the Penalties for Non-Compliance with UK’s AML/CFT Regulations?

Non-compliance with the UK’s AML/CFT regulations may result in financial penalties or up to 14 years imprisonment, depending on the nature and severity of the offense. In 2022, global fines for failing to prevent money laundering and other financial crime surged more than 50 percent, with many firms, particularly in the UK and the US, committing repeat infractions. 

The FCA also has the authority to cease or restrict the operations of firms that are found guilty of wrongdoing and may recover funds and assets that are involved in money laundering offenses via court or civil proceedings. Anti-money laundering compliance breaches in the UK may also result in significant reputational damage for the firms involved.

How to Comply with the AML/CFT Regulations in the UK?

To comply with UK AML/CFT regulations set out in the POCA, the Terrorism Act, and MLR 2017, FIs must take a risk-based approach to the threats they face. In practice, firms should perform anti-money laundering risk assessments on their customers and the business sectors in which they operate and use that information to implement a proportionate response. 

An effective anti-money laundering policy that complies with the UK’s AML/CFT regime should involve the following measures:

• AML program: Firms must put in place an AML/CFT compliance program that includes CDD and transaction monitoring measures in line with their regulatory obligations. Their AML program should also screen for adverse media stories, politically exposed person (PEP) status and sanctions lists.
• Reporting obligations: Firms must submit suspicious activity reports (SARs) to the NCA when potential money laundering activity is detected. 
• Money Laundering Reporting Officer: An individual must be appointed as Money Laundering Reporting Officer (MLRO) to oversee their firm’s AML compliance program. The MLRO should have sufficient authority and knowledge of money laundering risks to carry out their duties effectively.
• AML/CFT training: Firms should ensure their AML/CFT employees have the necessary knowledge and resources by implementing an ongoing training schedule and anticipating upcoming regulatory changes.

Automated Compliance

Achieving compliance with UK AML/CFT regulations requires significant administrative effort and the analysis of large amounts of transaction data. To avoid human error and potential compliance penalties, many firms automate anti-money laundering processes with a range of smart technology tools, including sophisticated transaction monitoring. 

Smart, automated tools from ComplyAdvantage add speed, accuracy, and efficiency to AML efforts. ComplyAdvantage solutions can also help firms adapt to new AML regulations, reduce false positives, and continue to deliver the highest standards of compliance.