On January 10, 2024, the Money Laundering and Terrorist Financing (Amendment) Regulations 2023, take effect. The updated regulations mark a slight shift in the regulatory landscape in the United Kingdom. These regulations introduce modifications to the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations (MLRs). The impetus behind these changes' stems from the Financial Services and Markets Act 2023, which empowered HM Treasury to leverage its authority to amend the customer due diligence measures applicable to domestic (U.K.) politically exposed persons (PEPs).
What Does the Amendment Mean for PEPs?
The focus of the 2023 Amendment is on streamlining the due diligence measures for domestic PEPs, individuals entrusted with significant public functions by the UK government. This distinction separates them from their foreign counterparts. The crux of the amendments lies in the assumption of low-risk profiles for domestic PEPs (unless other factors come into play), a departure from the stringent measures applied to non-domestic PEPs. This adjustment is a response to concerns raised by Members of Parliament regarding financial institutions imposing excessive information requirements, which sometimes led to the denial of accounts to UK politicians and their family members.
The move to alleviate the regulatory burden on domestic PEPs is seen as a commendable effort to address practical challenges faced by individuals in public service. By adjusting the due diligence measures, the Amendment Regulations seek to strike a balance between maintaining the integrity of financial systems and ensuring that UK politicians can access essential financial services without undue hindrances. This aligns with the broader objective of fostering a conducive environment for political leaders to carry out their duties effectively.
Is the UK Departing from FATF Standards?
However, it is essential to consider how these changes align with international standards, particularly the recommendations set forth by the Financial Action Task Force (FATF). The FATF is a global body that establishes standards and promotes effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system.
The FATF recommendations emphasize the need for robust customer due diligence measures, especially concerning PEPs, to mitigate the risks associated with illicit financial activities. While the UK regulatory changes aim to address practical issues faced by domestic PEPs, they raise questions about their alignment with the spirit of FATF recommendations. The FATF emphasizes a risk-based approach to customer due diligence, urging jurisdictions to ensure that measures are commensurate with the risks involved.
In light of this, the reduction in due diligence measures for domestic PEPs in the UK may be perceived as a departure from the risk-based approach advocated by the FATF. Striking the right balance between facilitating the financial access of UK politicians and complying with international standards will be crucial for the effectiveness of these regulatory changes.