Introduction
In a move aimed at bolstering the UK’s defenses against financial crime, the HM Treasury has unveiled a draft outlining proposed revisions to the country’s money laundering regulations. This initiative comes in response to identified vulnerabilities and the shifting landscape of financial risks, particularly concerning cryptocurrency operations. The draft stresses a need for a more risk-oriented approach that is both effective in combating financial crimes and feasible for the industry to implement.
Key Proposals and Insights
In the detailed document, officials highlighted a commitment to enhance guidance regarding Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) measures, including the introduction of distinct directives for the application of digital identity verification within these frameworks. The significance of these changes follows insights from a public consultation conducted in 2024, which pinpointed weaknesses in various areas including pooled client accounts, oversight of crypto businesses, and customer due diligence processes.
According to the National Risk Assessment of Money Laundering and Terrorist Financing, released in July, the UK is highly vulnerable to such threats due to the character of its expansive economy.
Additionally, the Home Office’s Economic Crime Survey for 2024 reported that approximately 2% of UK businesses—equating to around 33,500—had encountered known or suspected cases of money laundering in the previous year. Notably, the report indicated that fraud, much of which is enabled by cyber technology and often orchestrated by international actors, represents over 43% of all recorded crimes in England and Wales.
Concerns Regarding Cryptocurrency
Against this backdrop, concerns regarding the role of crypto assets have surged. A survey by the Financial Conduct Authority (FCA) showed that as of 2024, 12% of adults in the UK held cryptocurrency, raising alarms among law enforcement officials regarding their increasing use in laundering operations, particularly through entities based outside of the UK’s jurisdiction.
Proposed Regulatory Changes
The proposed regulations introduce significant shifts for cryptocurrency businesses, including a broader “fit and proper” evaluation for firm controllers to replace the previous beneficial ownership assessment. This new criterion aims to enhance oversight, especially for firms with intricate ownership arrangements. Furthermore, the regulations propose reducing the notification threshold for changes in control from 25% to 10%, which is consistent with provisions in the Financial Services and Markets Act (FSMA). This adjustment mandates that any entity acquiring a minimum of 10% ownership or influential control must inform the FCA.
Additional regulatory changes encompass updates on customer due diligence, the registration of trusts, and new restrictions on correspondent banking operations, alongside technical modifications such as the conversion of monetary thresholds from euros to British pounds.
Public Consultation
The HM Treasury is currently seeking public input on these proposed rules until September 30, with the aim of finalizing them for discussion in Parliament by early 2026.
