What are the differences between UK and EU AML regulations?
The UK and EU regulations have enjoyed years of alignment between their regulatory environments. However, since Brexit there have been some deviations.
What are the main EU AML regulations?
The European Union has introduced several pieces of AML legislation that are then implemented by member states as part of their domestic regulation. The UK chose to opt out of the sixth anti-money laundering directive (6AMLD) and has implemented its own AML controls.
The EU Anti-Money Laundering Directive
The main piece of EU legislation governing AML is the Anti-Money Laundering Directive (AMLD), and the European Parliament issues new versions of it periodically in response to changing conditions. Every new directive adds new regulatory obligations and updates old ones.
In June 2021, 6AMLD came into force, which replaced 5AMLD (2020) and 4AMLD (2017) before that. 6AMLD introduced:
- A harmonized definition of money laundering across all EU countries, including the 22 predicate offences that form the necessary framework for money laundering.
- Added “aiding and abetting” to the list of money laundering offences.
- Increased the minimum sentence for money laundering to 4 years in prison.
- Extended criminal liability of money laundering to include legal persons (i.e., companies and partnerships).
The EU’s efforts to address money laundering through its series of AML Directives reflects the potential damage that money laundering activity can cause. As such, firms operating in the financial sector should seek to fully comply with the requirements of the Directives in order to protect both their customers and business interests.
Financial Action Task Force Recommendations
The Financial Action Task Force (FATF) is one of the most important organizations in regard to fighting financial crimes.
The FATF is an intergovernmental organization made up of 37 member countries, and its Recommendations are the internationally endorsed global standards against money laundering and terrorist financing.
While the FATF Recommendations are not EU law per se, they require participating countries to outlaw money laundering and financial institutions to take action against financial crime. Due to these requirements and the large number of leading economies that are members of the FATF, the recommendations are viewed by many as having “soft law” status.
Some of the key FATF Recommendations and requirements include:
- The adoption of KYC practices by financial firms
- Taking a risk-based approach to AML
- Reporting suspicious transactions
- Performing additional checks on politically exposed persons (PEPs)
How do UK regulations compare?
The UK left the EU on 31 January 2020, and the transition period ended 11 months later, on 3 December 2020. On December 24, the EU and UK concluded the Trade and Cooperation Agreement (TCA) which regulates the future UK-EU relationship and sets out how the UK will manage AML going forward.
As of the end of the transition period, the UK is no longer subject to EU laws relating to AML. This includes 6AMLD. Instead, AML regulations in the UK are now wholly dictated by several pieces of domestic legislation. The UK remains subject to FATF Recommendations as a member of the FATF.
Proceeds of Crime Act 2002
The Proceeds of Crime Act is the UK’s primary AML legislation that define money laundering offences. Under POCA provisions, financial institutions are obligated to implement AML controls for detecting money laundering activities. These include transaction monitoring, CDD, and mechanisms for reporting suspicious activity.
Terrorism Act 2000 & Terrorism Act 2006
The Terrorism Act imposes counter financing of terrorism requirements on financial institutions. These also include transaction monitoring, CDD, and reporting obligations.
Money Laundering, Terrorist Financing, and Transfer of Funds Regulations
In 2017, the UK introduced the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations. These regulations transpose the obligations introduced by the EU’s 5th Anti-Money Laundering Directive and introduce requirements for firms to implement a written AML/CFT risk assessment.
Sanctions and Anti-Money Laundering Act 2018
The UK's departure from the EU meant that the country could now impose its own sanctions regime, rather than rely on the EU's sanctions.
Supposedly this meant that the UK could enact more deliberate sanctions on entities and move at greater speed than the supranational organisation. But this required legislation, to that end the UK passed the Sanctions and Anti-Money Laundering Act (SAMLA) in 2018.
This Act of Parliament provides the UK Government with powers to lift and impose sanctions in line with its international obligations. The UK Government also has the power to devise new sanctions under its own regime.
The key difference between the EU’s sanctions regime and the UK’s sanctions regime is that SAMLA introduces a lower threshold for the imposition of sanctions and enables the UK to freeze assets. This is a much broader scope than the EU sanctions regime and has led to speculation that the UK plans to adopt a much tougher approach to AML.
However, despite the new legislation, the UK has failed to outpace the EU's sanctions on Russia following the escalation of the Ukraine-Russia conflict, which may make observers question the purpose of this particular sanctions regime.
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