Anti-Money Laundering compliance: What you might have missed in 2023

LSAG Advisory notice on Underground Banking and funds from China

8th March 2023 

This updated guide explores the risks arising from the use of Chinese informal value transfer systems (‘underground banking’) and the circumvention of Chinese currency controls. The guide sets out practical measures to help you mitigate the risks. 

My key takeaway is ultimately you must establish that the funds come from a legitimate source, being conscious of the unique red flags on a client’s banking transactions and supporting documentation.

Economic Crime Plan 2023 - 2026

30 March 2023

The UK government’s second economic crime plan aims to reduce money laundering, sanctions evasion and fraud, combat kleptocracy and recover more criminal assets.

The First Economic Crime Plan (2019-2022) was launched in July 2019. The first plan set out 52 actions. This tracker was most recently updated on 18 August 2022 at which time only 48% were completed, 15% were in progress, 17% were overdue and a further 19% had no due date.

The new three-year plan contains 43 actions to “strengthen” the UK’s economic crime supervisory regime including: 

• Greater government oversight to “ensure effectiveness and compliance” with the Money Laundering Regulations 2017.

• Increasing information sharing between the public and private sectors.

Update LSAG guidance

March 2023

Another update from LSAG who updated their guidance due to legislative changes coming into force on the 1st of April 2023. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 introduced changes to the MLR, including:

• A requirement to carry out proliferation financing risk assessments.

• Changes to the duty to report discrepancies to company registries.

Discrepancy Reporting

April 2023 

From April 2023, the way obliged entities can report a material discrepancy to Companies House changed. 

An amendment to the Money Laundering and Terrorist Financing Regulations 2022 has come into effect. It includes a new definition of ‘material discrepancy’.

Obliged entities must report differences between the information they gather and the information held at Companies House. Specifically, they must report differences in information about:

• People with significant control (PSC) of a company.

• PSCs of a limited liability partnership (LLP).

• PSCs of an eligible Scottish partnership.

• The registrable beneficial owner of an overseas entity (from 1 April 2023).

This difference is called a material discrepancy. This also applies to the Register of Overseas Entities. Learn more about the changes here.

High-Risk Third Countries Schedule 3ZA

June 2023 

We’re only halfway through the year and now it’s time to brush up on your geography because the list of high-risk countries set out in schedule 3ZA of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 has been updated twice. It was updated on the 27th June 2023 before being updated again in December (more on that change below).

Proceeds of crime

June 2023 

The SRA issued guidance on the proceeds of crime on the 29th June 2023, and it was updated on the 25 September 2023. The target audience of this piece is those considered outside of the money laundering regulations. 

This is a key reminder that all firms have obligations under the Proceeds of Crime Act 2002 (PoCA), regardless of the services they provide, not just those within the scope of the Money Laundering Regulations.

Solicitors Regulation Authority sectoral risk assessment

July 2023 

Two in a row from the SRA which has released new information regarding risk assessment. Firms must consider this sectoral risk assessment when creating and maintaining their own written firm-wide risk assessment as required by Regulation 18. The Sectoral risk assessment gives firms direction on the risks to support in targeting resources. To name a few:

• Cash-intensive/risky sectors or businesses.

• Long-standing /familiar clients.

• Size and value of the transaction.

• Physical cash.

• Transactions that don't fit the norms of your firm or the client's activity.

• Complex transactions.

• Payments to or from third parties.

• High-Risk Jurisdictions

  • Do not have equivalent AML standards.

  • Significant levels of corruption.

  • Stringent local capital offshoring controls.

SAR portal

September 2023 

In an exciting update, the National Crime Agency’s (NCA) long-awaited new Suspicious Activity Report (SAR) portal was released for general use on Monday, 18 September 2023. The new portal aims to make it easier for AML-regulated professionals to submit structured, meaningful and comprehensive SARs.

• It’s simpler and more intuitive, enabling reporters to submit high-quality SARs.

• Increased guidance for reporters with text and explanations throughout the submission process.

• More detailed and targeted data fields, providing more intelligence to law enforcement and government departments and increasing the potential utility of the SARs.

• It is aligned with Government Digital Standards, with embedded guidance to support reporters through their submissions.

With many new data fields to complete, the enhanced quality of submissions will provide much better intelligence to the UK Financial Intelligence Unit, law enforcement agencies and government departments in their fight against organised crime.

It’s a move that underlines the NCA's commitment to ramping up the fight against money laundering, terrorist financing and proliferation financing. 

Remember: the clearer and more comprehensive the information in your SAR, the more useful and actionable that report is.

AML Supervisory Regime

September 2023 

The 2022 Review of the UK’s AML regulatory and supervisory regime concluded that while there had been continued improvement to the regime, some weaknesses in supervision may need to be addressed through structural reform.

HM Treasury has published a consultation on reform of the anti-money laundering and counter-terrorism financing (AML/CTF) supervisory system, in line with a commitment in the Economic Crime Plan 2023-26.

The consultation ended on the 30th of September, in which four potential models for reform of the UK’s anti-money laundering and counter-terrorism financing supervisory system were set out.

It comprises three statutory supervisors - the Financial Conduct Authority, the Gambling Commission and HMRC - and 22 professional body supervisors who supervise the legal and accountancy sectors. The four model options are:

• OPBAS+.

• Professional body supervisor consolidation.

• Single professional services supervisor.

• Single anti-money laundering supervision.

These four models represent a commitment to strengthen the UK’s defences against economic crime, responding to calls to address weaknesses in the current system. HM Treasury aiming to decide which model to adopt at the end of Q1 2024. Learn more about the regime at this link.

Economic Crime Levy

September 2023  

We’ve nearly made it through summer, so let’s take a look at The Economic Crime Levy (ECL). 

• April 2023 – the first levy year began. 

• September 2023 – the first payments are collected by HMRC, the FCA and the Gambling Commission.

The ECL is an annual charge that will affect entities (organisations) that are supervised under the Money Laundering Regulations (MLR) and whose UK revenue exceeds £10.2 million per year.

HM Treasury states that the levy will raise £100 million annually from around 4,000 AML-regulated entities. Funding will go here. Read more about the levy on the gov.uk website.

AML training

September 2023 

Failing to train is training to fail (or something like that) and so the SRA has confirmed its next thematic review will focus on AML training.

For more information about training, check out section 8 of the LSAG guidance which provides more information on training covering: 

8.2 Who

8.3 Content

8.4 Methods

8.5 Timing

8.6 Records

Firm-wide risk assessments

21 September 2023  

This guidance tries to help firms subject to the money laundering regulations comply with the requirement to have a firm-wide risk assessment under regulation 18. This guidance is a living document and SRA will update it from time to time.

The Economic Crime and Corporate Transparency Act 2023

October 2023

The bill passed through parliament and became law. The act follows the Economic Crime (Transparency and Enforcement) Act, passed in 2022. This follow-up legislation will aim to deliver:

• Reforms to Companies House.

• Reforms to prevent the abuse of limited partnerships.

• Additional powers to seize and recover suspected criminal cryptoassets.

• Reforms to give businesses more confidence to share information to tackle money laundering and other economic crime.

• New intelligence gathering powers for law enforcement and removal of burdens on business.

• Removal of the statutory cap on financial penalties for the Law Society, as delegated to the Solicitors Regulation Authority. Read more here. 

• Failure to prevent fraud. More information can be found here. 

For more information check out the government fact sheet and the Law Society guide.

Anti-Money Laundering Annual Report 22-23 

13th October 2023

This exciting report addresses the SRA’s work in tackling money laundering and terrorist financing over the last year, noting inspection findings, enforcement and common themes including: 

• Inadequate risk assessment, policies, controls and procedures. 

• Inadequate supervision or training. 

• Systems and processes. 

If you want to hear more about the findings you can hear directly from the SRA on demand: 

AML Enforcement Trends on 11th September 2023 

SRA Compliance Officers Virtual Conference 2023 - 6 November 2023  

Client and matter risk assessments

October 2023 

The SRA issued several documents to help firms understand their obligations and how to comply with them concerning client and matter risk assessments. The SRA has noted that these publications were required as they see a persistent level of non-compliant client/matter risk assessments, and this remains an area where improvement is necessary.

• Warning Notice - Client and Matter Risk Assessment.

• SRA template client and matter risk assessment.

• Client and matter risk assessment thematic review.

Addendum to the LSAG guidance 

December 2023 

The LSAG has published an important update to its AML guidance for the UK legal profession.

The addendum to the 2023 version of LSAG’s guidance contains important legislative updates, along with changes in LSAG position and supervisory interpretation and expectations. It covers several key topics:

• Economic Crime Levy considerations for larger firms.

• Discrepancy Reporting Guidance.

• Registers of Overseas Entities update.

• Changes brought in by the Economic Crime Act, including a new POCA de minimis limit of £1,000.

• A definition of Supply Chain Risk, which is particularly relevant in the context of financial sanctions requirements.

• Supervisory expectations in respect of evidencing Third-Party Source of Funds involved in a transaction.

• LSAG-proposed amends to the Identification & Verification approach set out in existing LSAG guidance.

• Erratum regarding Beneficial Ownership thresholds.

The update is currently pending a decision on approval by HM Treasury and, if accepted, will be integrated into the text of the main LSAG guidance.

High-Risk Third Countries Schedule 3ZA 

December 2023 

As mentioned above, after the initial change in June, the list of high-risk countries has been set out in schedule 3ZA of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 was updated again on the 5th of December 2023. 

Albania, Cayman Islands, Jordan and Panama are no longer classed as high-risk third countries for enhanced customer due diligence requirements in regulation 33(1) of the MLRs.

Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam are now classed as high-risk third countries for enhanced customer due diligence requirements in regulation 33(1) of the MLRs. See the second update here.

The Money Laundering and Terrorist Financing (Amendment) Regulations  

December 2023 

And to end the year strong, a change to the way domestic politically exposed people (PEPs) are assessed. For assessments under regulation 35(3) of the MLRs, where the customer is a domestic PEP , a family member or known close associate of a domestic PEP, the starting point for the assessment is that the individual presents a lower level of risk than a non-domestic PEP. The extent of enhanced customer due diligence measures to be applied to the individual  should be less than for non-domestic PEPs, unless of course enhanced risk factors apply. 

This amendment comes into effect on 10th January 2024 and more information can be viewed here.