Money Laundering is an activity in which criminals clean their ‘illicit money’ through untraceable means. Undeniably, it is a potent threat to the legal financial system and the economy as a whole. Also, it can cause the defaulter to be fined or bear severe punishments as per law. Similarly, Money Laundering Regulations are an imperative part of the Anti-Money Laundering process.
In August 2022, Entain Plc received a £17 million ($20.6 m) fine, the largest ever for a UK bookmaker, after failing to enforce AML measures. A year before, National Westminster Bank Plc was slapped with a £265 million ($298 m) fine for AML failures related to just one client.
Globally, Money laundering is a rapidly increasing activity. It is a crime in almost every country that recognizes Anti-money Laundering laws. This article gives detailed information about the Money Laundering Regulations in the United Kingdom.
Main AML Requirements in UK
- Obligated by the Money Laundering Regulations 2017, businesses must comply with various AML requirements. Additionally, in 2019 the regulations were amended to include the 5th AML Directive in national law. However, UK law already covers most of the 6th AML Directive, so it was not transposed.
- The Financial Services and Markets Act 2000 (FSMA) is a crucial piece of legislation that governs all financial services in the United Kingdom. This law establishes the Financial Conduct Authority (FCA) as the principal Anti-Money Laundering (AML) regulator and sets out guidelines for its responsibilities.
The FSMA was enacted in 2000 as a means of ensuring that financial markets in the UK are fair, transparent and effective. This law is designed to protect consumers, investors and the integrity of the financial system as a whole. The FCA is the body responsible for enforcing the FSMA, and it plays a critical role in ensuring that financial institutions comply with AML regulations.
FSMA- as a requirement for AML
Mainly, the FSMA is the requirement for financial institutions to implement robust Anti-Money Laundering Regulations. These include measures such as customer due diligence, transaction monitoring and reporting suspicious activity. The FCA is responsible for ensuring that these measures are in place and that they are being effectively implemented. In the event of non-compliance, the FCA has the power to impose fines and sanctions, and even revoke licenses.
Therefore, the Financial Services and Markets Act 2000 (FSMA) is the foundation of financial regulation in the UK. It establishes the Financial Conduct Authority (FCA) as the primary AML regulator and provides guidelines for its duties. So, it ensures that financial markets in the UK are fair, transparent and effective.
- The Proceeds of Crime Act 2002 (POCA) is a legislation in the UK that targets money laundering. Mainly, It empowers law enforcement agencies to seize and confiscate assets obtained through illicit activities. POCA also criminalizes money laundering, making it illegal to conceal, disguise, convert or transfer proceeds of crime. Additionally, it requires businesses to implement robust AML procedures and report suspicious activity to the authorities.
POCA's main goal
POCA's main goal is to disrupt and dismantle criminal organizations by depriving them of their illicitly-obtained assets. The law also allows for the recovery of assets in the public’s interest through the proceeds of crime funds. Furthermore, POCA has provisions for international cooperation and extradition, making it more effective in fighting transnational organized crime.
Ultimately, the Proceeds of Crime Act 2002 (POCA) is a powerful tool in the UK's arsenal to implement money laundering regulations. It empowers law enforcement agencies to seize and confiscate assets obtained through illicit activities. Also, it criminalizes money laundering and obliges businesses to implement robust AML procedures and report suspicious activity.
AML Regulators in UK
Notably, there are several regulatory authorities in the UK to regulate AML.
- The Financial Conduct Authority, or FCA, is an AML regulatory body in the United Kingdom. Primarily, it is responsible for overseeing financial institutions, including banks, cryptocurrency companies, and other businesses in the financial services sector. Also, the FCA has the power to investigate any money laundering activities that may be occurring in any industry.
- In the UK, the enforcement of AML regulations is carried out by HM Revenue & Customs (HMRC), the Serious Fraud Office (SFO), and the National Crime Agency (NCA), and they also investigate financial crimes together with the FCA.
Who is Regulated by the Anti-Money Laundering Regulations?
Approximately 100000 business entities in the UK are subjected to AML regulations. The list is expanding with the expansion of the economy. Currently, the following are the main businesses that are regulated by the Anti-Money Laundering Regulations.
- Banks and financial institutions
- Crypto Exchanges & Traders
- Real Estate Agents
- High-Value Item Dealers (jewelry, arts, cars etc.)
- Money Service Businesses (MSBs)
- NPOs, NGOs and Trusts
- Company Service Providers
Furthermore, the United Kingdom updated the Guidelines for the AML for Art Market in July 2022. These guidelines are an obligatory document for all who are subjected to the AML regulations in the UK. Also, it states that the ‘regulated art sector’ must conduct KYC. In September 2022, all express center trusts were included in the list of entities subject to the UK AML regulations.
UK AML Compliance - A Stepwise Procedure
AML Compliance in the UK contains 7 steps. Namely, these steps are:
- Risk Assessment
- Customer Due Diligence Checks
- Anti-Money Laundering Screening
- Ongoing Monitoring
- Recording Requirements
- Organizational Structure
Lastly, the UK has a robust system of money laundering regulations in place to combat money laundering. It includes the Financial Services and Markets Act 2000 (FSMA) and the Proceeds of Crime Act 2002 (POCA). The FSMA establishes the Financial Conduct Authority (FCA) as the primary AML regulator and sets out guidelines for its responsibilities. While POCA empowers law enforcement agencies to seize and confiscate assets obtained through illicit activities and criminalizes money laundering. Businesses operating in the UK are obligated to comply with these regulations and implement robust AML procedures, including customer due diligence and transaction monitoring. Failing to do so can result in significant fines and sanctions from the FCA and other regulatory authorities. Overall, the UK's AML regulations aim to protect consumers, investors and the integrity of the financial system, making it an effective and efficient system for preventing money laundering activities.
The Money Laundering Regulations have appointed 28 supervisors, one of which is HMRC. These regulations require businesses that are considered relevant to establish risk-based systems and policies to prevent their use for money laundering and terrorist financing activities.
Money laundering is considered a criminal offense under Part 7 of the Proceeds of Crime Act 2002. This includes actions such as possessing, hiding, converting, transferring or arranging proceeds from illegal activities, and applies to more than just cash.
Companies are expected to adhere to the regulations laid out in the Bank Secrecy Act, also known as AML rules. These rules aim at identifying and reporting any suspicious activity, including activities that lead to money laundering and financing of terrorism, such as securities fraud and market manipulation.