On 15 June 2022, HM Treasury issued its response document to its October 2021 consultation on the steps the government proposes to take to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017). The consultation was undertaken at the same time HM Treasury issued a call for evidence to inform a broader review of the UK’s anti-money laundering/countering the financing of terrorism regulatory and supervisory regimes.
Key points in the response document include:
- AISPs and PISPs: The government has decided to exclude Account Information Service Providers (AISPs) from the regulated sector but keep Payment Initiation Service Providers (PISPs) within scope at this time. This reflects a higher number of stakeholder responses which raise concerns that PISPs, unlike AISPs, are involved in payment chains so may represent a higher risk of being used as a tool for economic crime more broadly (such as fraud).
- BPSPs and TDITPSPs: The government is not removing Bill Payment Service Providers (BPSPs) and Telecoms, Digital and IT Payment Service Providers (TDITPSPs) from the scope of the MLRs 2017. The government feels that further research is needed to confirm definitely whether any business in the UK is truly operating as a BPSP. It also wants to develop a more in-depth understanding of the small payment institution TDITPSPs supervised by HM Revenue & Customs and any associated risks of money laundering, terrorist financing and proliferation financing.
- Art Market Participants: The government is amending the definition of Art Market Participant to explicitly exclude from scope artists who sell their own works of art over the EUR 10,000 threshold. This exemption for artists will apply when the artist sells their works of art as an individual and when they sell their work through a company or partnership, where they are a shareholder or partner.
- Suspicious activity reports: The government is proceeding with its proposal concerning access to suspicious activity reports (SARs) by supervisors. Among other things, the government has concluded that no increased tipping off risk is expected, as sections 333A and 333D of the Proceeds of Crime Act 2002 already permit SARs to be disclosed to an authority that is the supervisory authority for that firm/individual under the MLRs 2017 without the offence of tipping off being engaged.
- Credit and financial institutions: The government is not taking forward, at this time, its proposal to clarify the activities that make a person a credit and financial institution as per Regulation 10 of the MLRs 2017. It is expected that longer-term discussions with industry are needed, given these discussions will be especially complicated and technical.
- FATF Recommendation 1: The government is taking forward its proposal to implement the Financial Action Task Force (FATF) standards in respect of Recommendation 1, to require financial institutions and designated non-financial businesses and professions to identify, assess and take effective action to mitigate proliferation financing risk. A definition of proliferation financing will also be included in the MLRs 2017 to clarify the type of activity that would be considered proliferation financing, whilst remaining tied to the relevant UN Security Council Resolutions so as not to expand the scope included under FATF Recommendation 1.
- Forms of business arrangement: The government is amending Regulations 12 and 4 of the MLRs 2017 so that there can be better alignment between the forms of business arrangement that a Trust and Company Service Provider (TCSP) can form and those that register with Companies House, in particular to include English, Welsh and Northern Irish limited partnerships, as well as expanding the application of when a business relationship is established to form these business arrangements as well as those services a TCSP can provide in Regulation 12(2)(b) and (d). This measure will also include the appointment of a limited partner by a TCSP as constituting a business relationship and will therefore require customer due diligence (CDD) to be conducted on limited partners, if they are the customers of TCSPs.
- Discrepancy reporting requirement: The government is expanding the discrepancy reporting requirement by including an additional provision to Regulation 30A(1) of the MLRs 2017 to expand the scope of the measure to also cover an ongoing business relationship. When an obliged entity undertakes CDD, pursuant to the ongoing CDD requirements in Part 3 of the MLRs 2017, they will also be required to report discrepancies against information held on the appropriate register as they would have under the existing provisions under Regulation 30A. To address concerns from respondents, the government has decided to streamline the requirement so that it is clear only ‘material discrepancies’ need to be reported, and provides a list setting out which types of discrepancy would be ‘material’.
- Register of Overseas Entities: The government is expanding the discrepancy reporting regime to entities in the new public ‘Register of Overseas Entities’.
- Regulation 52 of the MLRs 2017: The government is amending Regulation 52 of the MLRs 2017 to: expand the intelligence and information-sharing gateway to allow for reciprocal sharing from relevant authorities (specifically law enforcement) to supervisors; expand the list of ‘relevant authorities’ to explicitly include certain parts of Business, Energy & Industrial Strategy, to support their functions under the MLRs 2017; and enable the FCA to disclose the confidential information it receives, in relation to its MLRs 2017 duties, more widely.
- Regulations 74A-C of the MLRs 2017: The government is extending Regulations 74A-C of the MLRs 2017 to apply to Annex I firms. This measure will bring Annex I firms in alignment with the current powers that the FCA has available for cryptoasset businesses under Regulations 74A-C of the MLRs 2017, creating a level playing field from the position of cryptoasset firms.
- Travel Rule: The government is proceeding with its proposed changes to comply with the expansion of the application of FATF Recommendation 16, regarding information sharing requirements for wire transfers to cryptoassets (the ‘Travel Rule’). However, the government is modifying its proposals and will no longer require that both fiat currency and cryptoasset transfers be considered for the calculation of the de minimis threshold. It has also decided to make the information requirements relating to unhosted wallet transfers applicable on a risk sensitive basis only. The government is also introducing a 12-month grace period, to run from the point at which the amendments to the MLRs 2017 take effect until 1 September 2023, subject to Parliamentary approval, during which cryptoasset businesses will be expected to implement solutions to enable compliance with the Travel Rule.
- Unhosted wallets: The government is modifying its proposals with regard to unhosted wallets. Instead of requiring the collection of beneficiary and originator information for all unhosted wallet transfers, cryptoasset businesses will only be expected to collect this information for transactions identified as posing an elevated risk of illicit finance. The minimum factors that firms should consider when making such a determination of risk will be set out in the legislation.
- Acquirers of cryptoasset firms: The government is modifying Regulation 57 of the MLRs 2017 and adding a new Regulation 60B and schedule 6B to require proposed acquirers of cryptoasset firms to notify the FCA ahead of such acquisitions, thereby allowing the FCA to undertake a ‘fit and proper’ assessment of the acquirer.
- Bank account portal: The government is not proceeding with its proposal for a ‘bank account portal’ and the requirement to implement one under Part 5A of the MLRs 2017 will be removed.
The changes to the MLRs 2017 have been made through draft secondary legislation entitled ‘The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022’. Most of the measures in the statutory instrument will come into force on 1 September 2022, subject to Parliamentary approval.