Money Laundering and Terrorist Financing (Amendment) Regulations 2026
(Limited Text - Ministerial Extracts only)
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Baroness Bennett of Manor Castle (GP)
My Lords, I thank the Minister for his expansive introduction to this SI. I wish to express concern about two elements of it: the change in the transactions and the change in the rules on trusts.
This all comes at a moment when the OECD and the Financial Action Task Force are pushing every major jurisdiction in the direction of having more transparency, more openness and more recording. It weakens the UK’s stance when we ask other countries to tighten their own procedures. Both the OECD and the FATF have been pushing countries to make registers of beneficial ownership more complete and more accessible. The message that is being sent is, “We need to widen the net”.
Of course, historically, the UK has held itself up as a leader in this area, however hard it might have been to justify that claim. One of my questions for the Minister is: how does this measure align with the Government’s 2025 anti-corruption strategy, which is supposedly aimed at driving dirty money out of the UK and strengthening national security?
I note that, in December, the City of London Police was awarded an extra £15 million to expand its anti-corruption efforts. The Justice Secretary then said that the UK
“will no longer be a haven for dirty money and dictators’ laundered assets”
and promised action to tackle “professional enablers”— the lawyers, bankers and estate agents who we know have been at the heart of some very murky, shall we say, transactions. As the Justice Secretary said at the time, all too often, the trail of dirty money “leads back” to London; he also noted that that is
“exploited by those Kremlin-linked elites who enable Putin’s aggression”.
I come to my two specific points. The greatest area of concern that I can identify—the Minister alluded to this—is the jurisdictions under enhanced monitoring. The SI replaces high-risk third countries with FATF “call for action” countries in the enhanced due diligence trigger. Therefore, we are picking up only countries that are blacklisted now: North Korea, Iran and Myanmar. Previously, the regulations that applied to so-called grey list countries, which called for increased monitoring, included the UAE, South Africa, Turkey, Nigeria and the Philippines.
UK firms transacting with counterparts in those jurisdictions will no longer be automatically required to imply the enhanced due diligence. This seems to place a great deal of trust in UK companies that do not have a great record; I cross-reference back to what the Justice Secretary said in December about dirty money flowing into London. So, in effect, this SI represents a substantial retreat at exactly the moment when we are supposed to be cracking down on illicit finance.
My second area of detailed concern is the register provisions. New paragraph 23A of Schedule 3A to the 2017 regulations will create the first-ever general sized-based exemption from the trust register. If a trust holds no UK land, has under £2,000 in current assets, has never held more than £10,000 over its lifetime and earns under £5,000 a year, it never has to register.
This anti-abuse rule stops only a single settler, but does not allow for the situation where a wealthy family spreads a pot across a spouse, parents, adult children and who knows who else with each acting as a settler. Regulation 25(3) removes stamp duty reserve tax as a registration trigger, quietly pulling share-owning trusts that would otherwise have appeared on the register out of the scope of the register.
For those who might be listening, stamp duty reserve tax is a 0.5% tax when you buy UK shares electronically, so if a trust buys £100,000 worth of UK shares, it pays £500 in SDRT. It is a tiny tax and a tiny tax liability, but at the moment that triggers the registration. There are express trusts that have to register because of what they are, but there are also a large number of trusts that have to register only because of this provision. Trusts that own UK-listed shares are exactly the kind of structure where transparency matters to cleaning up the dirty money and I think to the general public as well. They are how anonymous foreign money often holds stocks in UK companies. The current position means that any trust active in the UK equity market at any scale has been caught, regardless of where it is based or who set it up, so removing it punches a hole in the net specifically to oversee shareholding trusts. I would like to hear some more from the Minister on how the Government see this deregulation as being any kind of positive when we are trying to crack down on the flows of dirty money that the Government acknowledge are flooding into London.
Baroness Neville-Rolfe (Con)
My Lords, these regulations introduce a number of changes following the Government’s 2022 review and the 2024 consultation. I thank the Minister for his clear introduction and for emphasising the important principle of getting things right first time, which partly explains why these reforms have taken time to come in. Some of the changes appear to be sensible. Refining due diligence requirements so that enhanced due diligence applies to unusually complex transactions rather than all complex transactions seems a proportionate step. Likewise, reforming the trust registration service to close identified gaps, while creating an exemption for low-value, low-risk trusts, appears to strike a reasonable balance between maintaining safeguards and reducing unnecessary burdens. To that extent, His Majesty’s Opposition welcome the direction of travel.
However, these regulations also raise a wider and very important question about whether the current anti-money laundering regime is operating as effectively, proportionately and fairly as it should. It is right—indeed, it is essential—that we are robust in tackling money laundering, terrorist finance and financial crime, but it is also essential that the system does not impose excessive costs, drive firms into defensive behaviour or leave innocent customers and legitimate businesses without access to banking services.
The purpose of anti-money laundering regulation is, of course, to prevent crime, but there is growing evidence that the regime can also have a serious unintended consequence, and customers who have done nothing wrong are nevertheless finding themselves excluded from banking services because they are deemed too costly, too complex or too risky to serve. The IEA’s 2024 report, Debanked, argues that under the current regime certain categories of customer may present a higher initial risk profile, but that the cost of establishing whether they are, in fact, engaged in criminal activity can exceed the value of their business to the bank. The result is that some accounts are closed pre-emptively.
The same report also estimates that compliance with anti-money laundering regulations costs UK banks £34 billion a year. That is a very significant burden and one that is ultimately borne by consumers and businesses. That is a huge multiple of the £178 million of savings in compliance costs which I think the Minister mentioned. To put it into context, the sums spent on some of the enforcement agencies are also relatively small. Nearly £100 million is spent on the Serious Fraud Office and £195 million on the Insolvency Service. Police funding, because police are very important in money laundering, costs nearly £20 billion, but that includes the excellent efforts of the City of London Police in this area, which were mentioned by the noble Baroness, Lady Bennett.
What assessment have the Government made of the impact of the current AML regime on access to banking services? Are the considerable costs—the £34 billion I mentioned—imposed by this regime being matched by clear evidence of a proportionate reduction in financial crime, drawing on the resources I have described? Will the Government consider a broader review not merely of whether the system is functioning according to its own internal processes but whether it is delivering the right outcomes in the real world and whether the enforcement regime is fit for purpose? The Minister has mentioned the economic crime plan.
I turn to the issue of complexity. An anti-money laundering and sanctions regime must be clear if it is to be effective. I know this from my experience of trying to enforce the law in the business area. Professional advisers and regulated entities struggle to understand their obligations. If this happens, the result will naturally be worse enforcement. I was slightly concerned to hear that the Solicitors Regulation Authority has described the UK sanctions regime as “complex and challenging”. That should give us pause for thought. If professionals whose work depends on understanding and applying the law find the regime difficult to navigate, we should not be surprised when banks and firms respond by taking the safest possible course—even when that means withdrawing services from customers who may pose no real risk.
Can the Minister confirm whether organisations such as the SRA were consulted before these regulations were laid? Can he explain whether the regulations will materially reduce the complexity in the system? Do the Government intend to bring forward wider reforms to make the regime easier to understand, easier to apply and therefore more effective in achieving its core purpose and preventing financial crime?
Finally, I turn to redress. The consequences of debanking can be severe. A person or business whose account is closed may be left unable to receive payments, pay staff, meet obligations or even operate normally. Yet the process for challenging these decisions can be slow, opaque and deeply frustrating. In 2024, the APPG on Fair Business Banking published a report which found that thousands of customers were being debanked each month, often as a result of financial, regulatory and reputational pressures on banks. Shortly afterwards, the Treasury Committee published data showing that debanking-related complaints to the Financial Ombudsman Service had risen by 44% from 2023. These figures should concern us as they suggest a more systemic problem.
There are also particular groups that appear to be disproportionately affected: individuals with links to higher-risk jurisdictions, politically exposed persons such as ourselves, small businesses, charities and organisations with international connections—at a time when we are trying to encourage overseas investment. A further group the Government should examine closely is defence companies. A survey by ADS, the trade body representing 1,500 small defence companies, found that nearly three-quarters had struggled to access basic banking services, with respondents citing reputational concerns as a key factor behind that trend. I think I will return to this subject when we come to debate the financial services Bill.
These groups are not necessarily illegitimate customers yet, in practice, they seem to be treated, with the way in which the current regime operates, as though they are inherently suspect. Given the Government’s stated priorities of driving economic growth and increasing defence spending, this is surely an issue to which the Minister should be paying close attention. What consideration have the Government given to the impact of the AML regime on these groups? What steps are being taken to ensure that banks do not respond to regulatory pressure by simply excluding legitimate customers? Does the Minister accept that, if increasing numbers of affected customers are turning to the Financial Ombudsman Service, there is a strong case for looking at not just individual complaints but the structure of the regime itself? I asked that question at the beginning of my remarks.
Lord Wilson of Sedgefield (Lab)
First, this is not a weakening of the regulation but a balanced approach that we take in this whole area. I will set out the arguments in greater form for the noble Baroness and write to her with the specifics.
Baroness Neville-Rolfe (Con)
I come back to the issue of debanking. The Minister said some very useful things. This is debanking. We talked about defence companies and I look forward to hearing the results of that active engagement. I have talked in the APPG to individual defence companies that have had difficulties in this respect and we need to be supporting our defence companies, especially the innovative ones, given the change in the nature of weapons and so on at this difficult time.
The banks are required to offer basic banking and give 90 days’ notice if they want to close an account. When you are given notice of the closing of an account, you then have to go to another bank and go through the whole system of being approved by it. I have tried to set up a new bank account at Metro to complement my account with one of the major four banks. Frankly, I gave up. Once you are in the system, it is absolutely fine. My bank knows about me: I have been banking there for years. But, if you try to go to a new bank, it is quite complicated: a lot of questions are asked and you give up.
This all links to what the Minister is trying to do, which is to make it easier for citizens who do not necessarily have a good credit record to have a bank account, because it is important for them to be able to operate an account, save, have a card and so on. I wanted to emphasise that point and say that the Government’s work is important. If more progress is made in that area, I should be very interested to hear about it.
Lord Wilson of Sedgefield (Lab)
In response to the noble Baroness, there is the 90 days’ notice and the access to basic bank accounts, et cetera. There is ongoing work in this area. I can write to her and let her know exactly where we are up to in all of this, so she will have some awareness of where the Government intend to go.