techUK responds to government consultation on improving money laundering regulations

techUK has presented its response to the Treasury’s consultation on improving the effectiveness of money laundering regulations.

On 11 March 2024, HM Treasury (HMT) published a consultation on Improving the Effectiveness of the Money Laundering, Terrorist Financing and Funds Transfer (Reminer Information) Regulations 2017 (“MLR”), which imposes requirements on a range of businesses to identify and preventing money laundering and terrorist financing.

With the development of new technologies and the continuing global threat from economic crime and illicit financing, it is more important than ever that businesses have access to the appropriate tools to identify and prevent money laundering and terrorist financing.

Baroness Vere of Norbiton, Parliamentary Secretary to HM Treasury, said:

“The UK’s money laundering laws (MLR) provide an important safeguard against the proceeds of crime entering the UK financial system. With the development of new technologies and the continuing global threat of economic crime and illicit financing, it is more important than ever to ensure that businesses have the right tools to identify and prevent money laundering and terrorist financing. A sustainable and effective AML/CTF (anti-money laundering and counter-terrorism financing) regime protects the UK’s reputation as a modern and safe place to do business and protects the integrity of the financial system. As a global issue, it is vital that the UK continues to play a leading role in the fight against economic crime, raising standards around the world and engaging the private sector as an active partner.”

Digital identity

Digital ID technology is becoming a powerful tool in the fight against money laundering in the UK. By providing safe, efficient and cost-effective ways to identify people, it can significantly increase the effectiveness of anti-money laundering measures. Digital ID technology offers a more robust solution, enabling financial institutions to perform customer due diligence (CDD) and Know Your Customer (KYC) checks more accurately and efficiently. This can help identify suspicious activity more quickly, reducing the risk of money laundering.

The potential benefits of digital identification technology in combating money laundering are clear. Thanks to digital identification technology, the processing of such reports could become more efficient and accurate. The Department of Science, Innovation and Technology (DSIT) has created a “Digital Identity and Attribute Management Framework” (also known as the “Trust Framework”) that regulates private sector digital verification service providers. This framework sets out the rules for the future use of digital identities.

The Department of Science, Innovation and Technology (DSIT) has created a “digital identity and attribute management framework” (also known as the “trust framework”) that regulates private sector digital verification service providers. This framework sets out the rules for the future use of digital identities. techUK is pleased that this consultation includes a section dedicated to strengthening the role that digital identity can play in helping government, regulators and law enforcement agencies to combat money laundering.

Key recommendations from techUK

Strengthen understanding of digital ID: HMT should work with techUK to help build awareness and trust in the use of digital ID for anti-money laundering purposes.
The implementation of a fiduciary framework could significantly assist anti-money laundering efforts: HMT should refer to the DSIT Trust Framework for Digital ID in its MLR.
Digital ID and the robustness of trust frameworks: HMT should work with DSIT to ensure the trusteeship framework is urgently enshrined in law.
Digital ID and the effectiveness of trust frameworks: HMT should work with DSIT to ensure that the trust framework regulates the public sector and industry, ensuring robust, effective and seamless anti-money laundering activities.

Digital resources

Digital assets aim to disrupt traditional finance and payment models, driving change in the broader financial ecosystem. Examples of digital assets are cryptocurrencies and tokenization.

Digital assets have seen rapid growth, with 516 million cryptocurrency users worldwide and a daily trading volume of $116.61 billion per 24 hours. As of May 31, 2024, the global cryptocurrency market capitalization was approximately $2.37 trillion.

However, many of the benefits of cryptocurrencies pose problems for governments, regulators and financial institutions due to their anonymity and ease of use when creating a wallet. The UK has taken a proactive approach to addressing the issues posed by digital assets such as cryptocurrencies, particularly those related to money laundering. These initiatives were led by the Financial Conduct Authority (FCA), the national financial regulator.

Key recommendations from techUK

TechUK members have expressed a desire for MLR levels to be implemented proportionately: HMT should ensure a proportionate approach to the MLR review, introducing new requirements only if they add value and deliver the desired results.
Sharing information: HMT should consider how MLRs can help facilitate wider information sharing across all sectors where digital assets can be leveraged to provide a much fuller picture of trends and intelligence.
National risk assessments: HMT and regulators should work with industry to better understand solutions that can help provide real-time risk analysis beyond national risk assessments.

Click here to download the full techUK answer.

To find out more about our digital identity program, click here or email [email protected]

If you would like to become more involved with techUK’s work focused on digital identity, you can join the Digital Identity Working Group. By registering, you will receive regular updates on upcoming events, opportunities and calls to action to engage with the group’s performance.

If you would like more information about our financial services program or national security program, please contact [email protected] and [email protected]