Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020

The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (hereafter the 2020 Amendment) are a key piece of UK legislation that reshapes the countrys antimoneylaundering (AML) and counterterrorist financing (CTF) framework following the United Kingdoms departure from the European Union. The Regulations amend the original Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to preserve the regulatory continuity that existed while the UK was an EU Member State and to ensure that the UK maintains a robust regime that meets international standards.

1. Why the Amendment Was Needed

When the UK left the EU, the direct applicability of EU directives particularly the Fourth Money Laundering Directive (4MLD) and the Fifth Money Laundering Directive (5MLD) would have ceased. To avoid a regulatory vacuum, Parliament enacted the 2020 Amendment to copy across the EUderived rules into domestic law, giving the UK the flexibility to diverge in the future while preserving the high level of protection required by the Financial Action Task Force (FATF).

2. Scope and Application

The Regulations apply to a wide range of obliged entities, including:

• Financial institutions (banks, building societies, credit unions, insurers, etc.)
• Designated nonfinancial businesses and professions (accountants, lawyers, estate agents, trust or company service providers)
• Cryptoasset service providers (exchanges, custodians, wallet providers)
• Highvalue dealers in goods such as precious metals, stones and artwork
• Gaming and gambling operators
• Money service businesses (currency exchange, money remittance)

These entities must comply with AML/CTF obligations, including customer due diligence (CDD), ongoing monitoring, recordkeeping, and the reporting of suspicious activity.

3. Key Changes Introduced by the 2020 Amendment

3.1 Incorporation of EUDerived Definitions

The Amendment imports EU terminology such as beneficial owner, politically exposed persons (PEPs) and highrisk third countries. This ensures that UK entities continue to use the same riskbased approach that was in place under EU law, facilitating crossborder cooperation and data sharing.

3.2 Expanded Due Diligence Obligations

New duties include:

• Enhanced scrutiny of transactions involving highrisk jurisdictions identified by the EU or FATF.
• Mandatory verification of the identity of beneficial owners for corporate customers, with a requirement to obtain full beneficial ownership information where the owner holds 25% or more of the shares or voting rights.
• Specific riskbased measures for virtual asset service providers (VASPs) a forwardlooking addition anticipating future regulatory approaches to cryptoassets.

3.3 Strengthened Reporting Requirements

Designated Supervisory Authorities primarily the Financial Conduct Authority (FCA) for financial services and HM Revenue & Customs (HMRC) for nonfinancial sectors receive the same reporting framework as before, but with clarified timelines for suspicious activity reports (SARs) and the introduction of a highrisk activity notification mechanism.

3.4 Updated Regulated Persons Register

A central register of regulated persons must now be kept uptodate, with the requirement that entities disclose any change in control within 30 days. This improves transparency for the government and for other businesses conducting duediligence checks.

4. RiskBased Approach and the Role of the FCA

The FCA is tasked with guiding businesses on the practical application of the riskbased approach. It has published several Supervisory Statements and guidance documents that explain how to:

• Identify and assess moneylaundering and terroristfinancing risks specific to the sector.
• Design internal controls, policies and procedures proportionate to the identified risk.
• Conduct effective staff training and maintain independent audit functions.

Failure to adopt a riskbased approach can result in enforcement action, including unlimited fines and reputational damage.

5. Impact on CryptoAsset Service Providers

One of the most notable aspects of the 2020 Amendment is its forwardcompatible treatment of cryptoassets. Although the EUs MiCA (Markets in CryptoAssets) framework was not yet in force, the UK preemptively required VASPs to:

• Register with the FCA and obtain a registration number.
• Implement robust KYC procedures, including sourceoffunds checks for highvalue transactions.
• Maintain the capacity to freeze or revert suspicious transfers where technically feasible.

This early alignment positions the UK as a leading AMLcompliant jurisdiction for digitalasset businesses.

6. International Cooperation and Information Sharing

The Amendment retains the UKs obligations under the Financial Action Task Force standards and the EUs Joint Money Laundering Information System (JMLIS) now mirrored by the UKs own informationsharing arrangements. The legislation confirms that:

• UK authorities can request and exchange AML/CTF data with EU Member States under the European Economic Area (EEA) agreements.
• Designated persons must preserve the confidentiality of SARs while facilitating lawful requests from foreign competent authorities.

7. Penalties for NonCompliance

Breaches of the 2020 Amendment can attract severe civil and criminal sanctions, including:

• Unlimited fines imposed by the FCA or HMRC.
• Criminal prosecution leading to up to 14 years imprisonment for serious moneylaundering offences.
• Potential disqualification of directors and senior managers.
• Public disclosure of enforcement actions, which can damage reputation and market standing.

8. Practical Steps for Businesses

1. Conduct a Gap Analysis Compare current AML/CTF procedures against the new definitions and duties.
2. Update Policies Revise customeronboarding, ongoing monitoring and recordkeeping policies to reflect enhanced CDD requirements.
3. Train Staff Ensure all relevant personnel understand the expanded risk categories, especially relating to highrisk jurisdictions and cryptoassets.
4. Review Technology Deploy transactionmonitoring systems capable of flagging the broader range of risk indicators introduced by the Amendment.
5. Maintain the Register Keep the internal register of regulated persons current and ensure any changes in ownership are reported within the statutory period.
6. Engage with Supervisors Seek clarification from the FCA or HMRC where uncertainty remains, and cooperate fully with any supervisory inspections.

9. Looking Ahead

While the 2020 Amendment captures the AML/CTF rules as they existed at the point of EU exit, the UK government has signalled that further reforms are likely. The forthcoming Financial Services and Markets Act (FSMA) review and the establishment of a new Financial Conduct Authority AML Oversight Unit suggest a move toward a more flexible, innovationfriendly regime that still meets global standards.

Businesses that proactively adapt to the current requirements will be better placed to navigate future changes, maintain regulatory goodwill, and protect themselves from the financial and reputational harms associated with money laundering and terrorist financing.

10. Useful Resources

• Full text of the 2020 Amendment (legislation.gov.uk)
• Financial Conduct Authority AML guidance
• HM Revenue & Customs Money Laundering Guidance
• Financial Action Task Force Recommendations