Bribery, fraud and anti-money laundering | UK Regulatory Outlook March 2024

Fraud

The Payment Services (Amendment) Regulations 2024

HM Treasury has published the draft Payment Services (Amendment) Regulations 2024. These aim to tackle push payment fraud by enabling banks and payment service providers to delay outbound payments processing in order to investigate suspicious payments where there are reasonable grounds to suspect fraud or dishonesty.

The government intends to lay the legislation before Parliament in summer 2024. See the policy note.

ECCTA 2023 explanatory notes

The government published explanatory notes on the Economic Crime and Corporate Transparency Act 2023. These cover the legal and policy background to it, and provide explanations of various provisions, including the new offence of failure to prevent fraud.

Government updates AI-powered fraud detection tool with sanctions data

The government has updated its AI-powered fraud detection tool, the Single Networks Analytics Platform (SNAP), which supports public sector organisations in detecting fraudulent claims on public funds.

The addition of UK and US sanctions data and debarment records will enable SNAP to better detect suspicious activity and users for investigation into organised crime and sanctions evasion.

The Public Sector Fraud Authority has also published the Government Counter Fraud Function Strategy 2024-2027, setting out the objectives for over 300 departments and government bodies in targeting fraud against the public sector. 

Anti-money laundering

Consultation on Money Laundering Regulations

HM Treasury has launched a consultation, with the aim of improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), which requires businesses to identify and prevent money laundering and terrorist financing.

Reform of the MLRs form part of the government's commitment to reducing money laundering as set out in its Economic Crime Plan 2023-2026.

The consultation seeks views from a range of stakeholders including regulated businesses, large firms and their customers. It closes on 9 June 2024, after which the government will publish a response outlining its next steps, which may include draft legislation where appropriate.

FCA 'Dear CEO' letter on AML control failings

On 5 March 2024, the FCA published a Dear CEO letter sent to Annex I financial institutions about common control failings in anti-money laundering (AML) frameworks. Broadly, Annex I financial institutions are financial services firms that are caught by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) and required to register with the FCA, but are not authorised under the Financial Services and Markets Act 2000.

The letter sets out details of common weaknesses the regulator has observed in assessments of Annex I financial institutions' AML frameworks, including the following:

• Discrepancies between firms' registered and actual activities, and the failure of financial crime controls to keep pace with business growth.
• Weaknesses in firms' business-wide and customer risk assessments.
• Insufficient detail in firms' customer due diligence and monitoring policies, resulting in ambiguity around the actions staff should take to comply with their obligations under the MLRs 2017.
• Lack of resources at firms relating to financial crime and inadequate financial crime training, and absence of a clear audit trail for financial crime-related decision-making, with a failure by some firms to document how they had responded to risks or why they had made decisions.

The FCA expects firms to complete a gap analysis against each of these weaknesses within six months, and take steps to close any gaps identified. The FCA is likely to ask firms to provide their findings, evidence of actions taken to address gaps, and progress on any remedial work and testing to show that policies, controls and procedures are effective and working as intended.

Updated HM Treasury advisory notice on money laundering and terrorist financing controls in high-risk third countries

On 26 February 2024, HM Treasury updated its Money Laundering Advisory Notice: High Risk Third Countries. The notice includes changes made to the list of high-risk third countries in Schedule 3ZA of the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).

The new list will continue to align with the Financial Action Task Force's (FATF) "Jurisdictions under increased monitoring" and "High-risk jurisdictions subject to a call for action". Schedule 3ZA consolidates these into a single list, as all countries included in either of the FATF lists have significant shortcomings in their anti-money laundering, counter-terrorist financing, and counter-proliferation financing controls. Each of the countries specified is now subject to the requirement of enhanced customer due diligence under the MLRs.

Barbados, Gibraltar, Uganda and the United Arab Emirates have been removed from the list of high-risk third countries; Kenya and Namibia have been added.

FATF guidance on beneficial ownership and transparency of legal arrangements

The Financial Action Task Force (FATF) has published updated risk-based guidance of interest to the public and private sectors that regulate, supervise, manage or administer trusts or similar legal arrangements.

The guidance seeks to enhance their understanding of how to assess the money laundering and terrorist financing risks associated with trusts and similar legal arrangements by identifying and identifying the beneficial owners of these arrangements. It is intended to be read alongside the FATF's Recommendation 24.