Improving the effectiveness of the Money Laundering Regulations – Law Society response

HM Treasury is consulting on improving the effectiveness of the Money Laundering Regulations (MLRs 2017). Read our full response.

The proposals

HM Treasury is consulting on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

This is part of its commitment to consult on changes to the MLRs as part of a wider programme of work aimed at reducing money laundering, as set out in the Economic Crime Plan 2023 to 2026.

It focuses on four core themes:

  • making customer due diligence more proportionate and effective
  • strengthening system coordination
  • providing clarity on the scope of the MLRs
  • reforming registration requirements for the Trust Registration Service

It principally covers issues already identified by HM Treasury, for example, in its 2022 review of the UK’s anti-money laundering and counter-terrorist financing regulatory and supervisory regime.

The 2022 review found that, while the core requirements of the MLRs are mostly fit for purpose, potential technical changes could be made to increase effectiveness and ensure proportionality for regulated firms and customers.

Our view

Any reforms to the MLRs should not place disproportionate and unnecessary obligations on the legal profession.

Solicitors play an important role in combating money laundering and remain fully committed to tackling illicit finance.

We fully support the goals of a robust and proactive anti-money laundering (AML) regime, including proportionate and risk-based MLRs being reinforced by appropriate guidance.

However, the current MLRs do not achieve this and changes are needed to accomplish this goal.

The MLRs are aimed at retail banks, which process hundreds of thousands of customer transactions daily.

Many of the requirements are disproportionate, unnecessary and difficult to implement in practice for solicitors, particularly for smaller firms that have limited resources.

We therefore welcome the opportunity to ensure the MLRs are more proportionate to the risks and emerging threats.

Data privacy

We welcome plans to remove barriers to the adoption of new technologies, such as digital identification.

We are, however, concerned on the wide scale processing of personal data for compliance.

There needs to be a balance between data privacy and AML obligations, a balance which at times can be incorrectly weighted in the latter’s favour.

Managing specific risks

Client and matter profiling have a stronger emphasis in the reformed MLRs.

Customer due diligence measures in practice are to ‘know your client’.

However, the current sectoral guidance focuses too much on name, address and date of birth. This rarely helps identify potential real risks or provides an adequate profile of the client.

The MLRs should make it clearer that where a client is conducting activity outside their socio-economic profile, the solicitor should either update their profile or understand why and how they are involved in the unusual matter.

Next steps

The consultation closed on 9 June 2024.

HM Treasury is analysing the consultation feedback.

Read the consultation on the GOV.UK website

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