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What has happened? 

In a significant move that promises to sharpen up financial crime risk management, the UK Government has introduced an amendment to the Money Laundering Regulations (MLRs), set to take effect on January 10, 2024.  

The catalyst for this change can be traced back to the Nigel Farage/Coutts news, which prompted a comprehensive review of the treatment of domestic Politically Exposed Persons (PEPs). The outcome of this scrutiny has led to a pivotal amendment to Regulation 35, focusing on enhanced customer due diligence concerning domestic PEPs. 

Key amendments and what you will need to action

The core of the amendment lies in its impact on the risk assessment of domestic PEPs, differentiating them from their non-domestic counterparts.  

Here are the key points: 

• Alterations to Regulation 35: The amendment specifically targets Regulation 35, which deals with enhanced customer due diligence for Politically Exposed Persons. Financial institutions will need to carefully navigate these changes to ensure compliance. 
  
  
• Lower Risk Assessment for Domestic PEPs: The updated regulation mandates that the starting point for risk-assessing domestic PEPs should be at a lower level compared to their non-domestic counterparts. This nuanced approach recognises distinctions in risk profiles, reflecting a tailored response to the characteristics of domestic PEPs. 
  
  
• Scaled-Down Enhanced Due Diligence Measures: In cases where no other enhanced risk factors are identified, the extent of enhanced due diligence measures applied to domestic PEPs should be less stringent than those applied to non-domestic PEPs. This recognises the need for a more proportionate response based on the assessed risk. 

Implications for financial institutions: 

Whilst the change is ultimately in line with former guidance issued by the Financial Conduct Authority, the impending changes carry substantial implications for financial institutions, requiring them to ensure their existing frameworks are refined. Here's what these amendments mean in practical terms: 

• Customer Risk Assessment Updates: Financial institutions will need to revisit and potentially revise their customer risk assessment processes to align with the lowered risk profile for domestic PEPs. This entails a recalibration of risk parameters and thresholds. 
  
  
• Financial Crime Business-wide Risk Assessment Overhaul: The amendments also necessitate a thorough review of financial crime business-wide risk assessments. Institutions must ensure that the revised risk assessments encompass the nuances introduced by the amendment and accurately reflect the adjusted risk landscape. 

• Changes to CDD and EDD Measures: The impact extends to the onboarding process as well as ongoing monitoring. Financial institutions must update their Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) measures to reflect the new regulatory framework, ensuring a balanced and effective approach in managing risks associated with domestic PEPs. 

As the financial industry gears up for the implementation of these amendments, institutions must prioritise a seamless transition to ensure compliance with the updated Money Laundering Regulations. The changes underscore the importance of a nuanced and adaptive approach to regulatory compliance, reflecting the ever-evolving landscape of financial crime prevention. Staying abreast of these developments will be crucial for financial institutions seeking to maintain the highest standards of integrity and security in their operations. 

How can Thistle Initiatives help? 

Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so. 

Contact our specialist Financial Crime team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.