Money Laundering Regulations To Impact Financial Institutions
Update
In a significant move that promises to sharpen up financial crime risk management, the UK Government has introduced an amendment to the Money Laundering Regulations (MLRs), set to take effect on January 10, 2024.
The catalyst for this change can be traced back to the Nigel Farage/Coutts news, which prompted a comprehensive review of the treatment of domestic Politically Exposed Persons (PEPs). The outcome of this scrutiny has led to a pivotal amendment to Regulation 35, focusing on enhanced customer due diligence concerning domestic PEPs.
The core of the amendment lies in its impact on the risk assessment of domestic PEPs, differentiating them from their non-domestic counterparts.
Here are the key points:
- Alterations to Regulation 35: The amendment specifically targets Regulation 35, which deals with enhanced customer due diligence for Politically Exposed Persons. Financial institutions will need to carefully navigate these changes to ensure compliance.
- Lower Risk Assessment for Domestic PEPs: The updated regulation mandates that the starting point for risk-assessing domestic PEPs should be at a lower level compared to their non-domestic counterparts. This nuanced approach recognises distinctions in risk profiles, reflecting a tailored response to the characteristics of domestic PEPs.
- Scaled-Down Enhanced Due Diligence Measures: In cases where no other enhanced risk factors are identified, the extent of enhanced due diligence measures applied to domestic PEPs should be less stringent than those applied to non-domestic PEPs. This recognises the need for a more proportionate response based on the assessed risk.
Implications for financial institutions:
Whilst the change is ultimately in line with former guidance issued by the Financial Conduct Authority, the impending changes carry substantial implications for financial institutions, requiring them to ensure their existing frameworks are refined.