HMT Publishes Review of AML/CFT Regulatory Regime

The forward-looking review of the AML/CFT regime focused on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), ensuring the application of effective risk-based controls across the regulated sector and developing a world-class AML supervisory regime. The review has been structured around three key themes:

• Systemic Effectiveness. Ensuring that as the government works to reform and improve the UK’s regime, there is an agreed definition of what effectiveness looks like and some proposals on how we can start to measure this with more precision
• Regulatory Effectiveness. Ensuring that the firms and individuals on the front line of the UK’s fight against illicit finance are well-equipped, with a strong risk understanding and capability to implement effective risk-based controls within their business as well as the scope to target that activity at areas of highest risk
• Supervisory Effectiveness. Continuing reform of the supervision regime and building on the improvements made in recent years while assessing the rationale for further structural change to the regime

The post-implementation review of the MLRs draws on the methodology of "Immediate Outcomes" established by the Financial Action Task Force (FATF), which is the international standard-setter for AML. The review assessed the extent to which the MLRs had been successful in meeting their stated policy intent, which was to transpose 4MLD and 5MLD (Anti Money Laundering Directive), making the UK economy a hostile environment for illicit finance while minimizing unnecessary burdens on legitimate businesses. The post-implementation review of the OPBAS regulations considered the implementation and effectiveness of the regulations and the activity they require of supervisors. The review measured the progress of OPBAS and effectiveness of the OPBAS regulations. The report focusses on the areas that the government considers are the most important for improving effectiveness. This includes large overarching areas (such as the risk-based approach and the objectives of the MLRs) and much more specific areas (such as the gatekeeping test or guidance drafting process). The key areas of the government focus for the next phase of the development of the MLRs are as follows:

• Supervision. The government is clear that reform is needed, but the best scale and type of reform to improve effectiveness and solve the problems that have been identified is not yet clear. The government has laid out a shortlist and will consult further on options for reform.
• Specific regulations. The government is confident that most of the requirements and provisions currently in the MLRs are the right ones. The government is committed to continuing to align with and champion the FATF’s recommendations.
• Objectives. The government will set out clear new objectives to the MLRs, in line with the FATF’s methodology and embedding a renewed definition of effectiveness.
• Risks. The government will use existing processes including the NRA to consider emerging ML/TF risks and consider sectors for addition to the MLRs. The government will not set out National Priorities at this time but will instead focus on a system-wide effort to improve risk understanding and information sharing around risks and threats.
• Wider levers for effectiveness. The government continues to engage with stakeholders to deepen understanding of the application of new technologies, the challenges faced by small or newly regulated firms, the incentives of the current system, and the supervisory approach to the risk-based approach.
• Guidance. The government will not overhaul the current guidance arrangements but will seek to make the existing guidance more streamlined, consistent, and clear; it will consider requests for further guidance on a case-by-case basis.

Related Links

• Press Release
• Review of AML/CFT Regime (PDF)
• Post Implementation Review of MLR (PDF)
• Post Implementation Review of OPBAS Regulations (PDF)

Keywords: Europe, UK, Banking, AML CFT, Money Laundering, OPBAS, MLR, Systemic Risk, FATF, ML TF Risk, AMLD, Regtech, Operational Risk, Basel, HM Treasury