Money Laundering Regulations Explained

Money laundering regulations is the term given to the legislation and policy that’s put in place to prevent and deter money laundering. As there are different financial authorities operating in different continents, these regulations vary slightly, according to where you are in the world.

The Financial Action Task Force (FATF) is global, so in the UK, we adhere to their definition of AML compliance. The UK also follows the guidelines set out by the Financial Conduct Authority (FCA), and abides by the EU’s Anti-Money Laundering Directives, even though it is no longer a member state.

EU Money Laundering Directives

The EU Money Laundering Directives are instructions intended to minimise money laundering and financial crime, regularly issued and updated by the European Union.

The most recent changes to these regulations comes with the 5^th and 6^th Money Laundering Directives. 5AMLD came into effect on 10^th January 2020, and includes the following updates:

• There’s a new focus on cryptocurrencies like Bitcoin; under 5AMLD, these will be regulated for AML compliance for the first time. That means cryptocurrency exchanges will have compliance obligations, and a duty to report suspicious activity, just like financial institutions.

• Regulation has also been extended to cover high value goods – for example, AML checks are now required on the transaction of any art sale over €10,000.

• Enhanced Due Diligence is now compulsory if a member state (or firm within it) is doing business with any high risk third countries.

• The limit on anonymous prepaid cards has been reduced from €250 to €150, in an attempt to counter the funding of terrorism. As well as this, prepaid cards issued outside the EU will no longer be permitted.

A draft of 6AMLD was published in late 2018, but it will not be implemented officially until June 2021. Here’s a breakdown of what you should expect: 

• A more synchronised definition of money laundering offences across the board with member states.

• Harsher consequences for those convicted of money laundering offences – all member states will instate a maximum prison sentence of 4 years, as well as steeper fines and more restrictive sanctions.

• The addition of ‘aiding and abetting’ to key money laundering offences – this likely means that “enablers” (or individuals who are only involved in the crime peripherally) will face tougher punishments too.

Which sectors do money laundering regulations apply to?

In the UK, money laundering regulations apply to several different business sectors, including businesses which offer financial services, accountants, solicitors and estate agents.

If money laundering regulations apply to your firm, you’re legally obliged to register with a supervisory authority, so that your AML compliance can be monitored. There are three main supervisory authorities in the UK: HMRC, the FCA and the Gambling Commission.

Most financial organisations are supervised by the FCA, but according to GOV.UK, HMRC acts as the supervisory authority for the following business sectors:

• High value dealers (e.g., art dealers)

• Estate agents

• Money service businesses that aren’t monitored by the FCA

• Telecommunications, digital and IT payment services that aren’t monitored by the FCA

• Bill payment service providers that aren’t monitored by the FCA

Registering your business with a supervisory body is fairly straightforward. You can find a full breakdown of how and who to contact over on GOV.UK.

Applying a Risk-Based Approach

In the formal recommendations made by the FATF, it’s suggested that every financial organisation applies a risk-based approach to their compliance. A successful risk-based approach will involve the following steps:

• Carrying out a thorough analysis of your business, in order to identify the areas which are most vulnerable to money laundering.

• Thoroughly assessing your clients and customers – including everything from adverse media checks to sanctions screening, enhanced due diligence and ongoing monitoring.

• Implement standardised processes to minimise and monitor risk within your company – appoint an MLRO to spearhead anti-money laundering efforts.

• Regularly review your risk assessment methods, to ensure that they’re up to date with money laundering regulations, and appropriate to the level of risk your customers pose. 

Suspicious Activity Reports

A Suspicious Activity Report, or SAR, is a submission you make to the National Crime Agency, or NCA. According to the NCA, these reports ‘alert law enforcement to potential instances of money laundering or terrorist financing.’

The NCA states also that you should submit an SAR if you ‘know, or suspect or have reasonable grounds for knowing or suspecting, that a person is engaged in, or attempting, money laundering or terrorist financing.’ You can ask your MLRO to submit a SAR on your behalf, or you can submit one yourself via the SAR online system. 

SmartSearch Can Help

Money laundering regulations are updated periodically, in line with the evolving ways that financial crime is carried out. This can make maintaining your firm’s compliance more of a challenge, as each time a new directive or legislation is passed, your company’s AML regime needs to be updated to reflect this.

SmartSearch can assist you with AML compliance, every step of the way. We’re experts in money laundering regulations, so we can ensure that your firm’s AML measures are up to scratch. Our accessible platform carries out a wide variety of automated checks, to assess your customer base thoroughly whilst remaining discreet.