UK government aims to make it easier for companies to meet anti-money laundering duties

Out-Law News | 01 Sep 2015 | 12:03 pm | 2 min. read

Businesses are being encouraged to share their frustrations with the challenge they face in verifying the identity of customers when adhering to anti-money laundering rules.

The UK government has launched a review in anti-money laundering (AML) and counter terrorist financing (CTF) regulations and said its is committed to "improving the efficiency and effectiveness" of those rules. The review is part of an initiative to cut bureaucracy for businesses and will "target the way regulation is implemented", it said.

UK companies subject to the AML and CTF rules are "encouraged to submit evidence of over-complicated and ineffective requirements". The call for evidence is open until 23 October.

"Businesses have expressed concerns that current guidance, rules and proof of identity requirements can be unnecessarily cumbersome and complicated," a statement issued by the Department for Business and the Treasury said. "Inconsistency and confusion over how rules to stamp out money laundering are applied leads to a less effective regime, which disproportionately affects legitimate businesses."

"The government wants these rules to protect the country and safeguard the UK’s world leading financial services industry, without putting disproportionate burdens on legitimate businesses or those companies that use their services," it said.

Insurance regulation expert Tobin Ashby and financial services and technology law expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, recently highlighted the challenge that financial services businesses face in complying with AML rules as a result of their increasing use of digital technology to serve customers.

They said: "'Knowing' customers, verifying their identities online, securing and authenticating transactions and dealing with anti-money laundering and fraud will all be affected by the move to a digital environment."

The Savings and Investments Policy project (TSIP), a coalition of 50 entities from across the financial services industry established by the Tax Incentivised Savings Association (TISA), is in the process of developing a new 'digital passport' for financial services customers.

A digital passport can help remove the need for consumers to have to continually submit authentication documents, such as utility bills and passport details, when wishing to open new accounts or purchase a financial product, and also help cut the "real costs" associated with the processing of that information, David Dalton-Brown, director general of TISA, has said. Validating the identity of customers is a necessary part of financial services companies' operations as a result of their 'know your customer' (KYC) and anti-money laundering obligations.

Earlier this summer the Financial Action Task Force (FATF) said that new digital identity systems could be used to combat money laundering and terrorist financing risks linked with the use of virtual currencies.

"These systems could, for instance, involve third-party digital identity custodians and/or other entities’ creating, authenticating, and maintaining digital identity solutions for specific CDD (customer due diligence), monitoring, and reporting purposes, in response to requirements imposed by national AML/CTF laws implementing the international standards," FATF said. "Third party digital identity custodians would themselves need to be regulated to ensure identification/verification integrity."

New EU rules on AML and CTF came into effect in June. The fourth Anti-Money Laundering (AML) Directive needs to be implemented into the national laws of EU countries by 26 June 2017.

The Directive applies to a range of businesses, from banks and other financial institutions to auditors and accountants, to gambling operators and any other kinds of businesses involved in making or receiving cash payments for goods worth at least €10,000, regardless of whether payment is made in a single, or via a series of linked, transactions.

The new regime will, among other reforms, bring into force new customer due diligence checking requirements, together with new obligations to report suspicious transactions and maintain records of payments.