Draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022

Richard Fuller Excerpts

Monday 18th July 2022 General Committees

[The Economic Secretary to the Treasury (Richard Fuller)]

I beg to move,

That the Committee has considered the draft Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022.

It is a particular pleasure to serve under your chairmanship, Ms Ali. This Government recognise the threat posed to the United Kingdom by economic crime and are determined to do whatever it takes to combat money laundering and terrorist financing. Money laundering can undermine the integrity and stability of our financial markets and institutions. It is a global problem and represents a significant threat to the United Kingdom’s national security. It is a key enabler of serious and organised crime, which costs the UK at least £37 billion every year. Global leadership is vital and must be underpinned by strong action here at home. While our domestic action must be strong, it must also be proportionate in order to minimise the burden on legitimate customers and businesses. Striking that balance is the reason why the Government continue to review and amend the money laundering regulations.

In January 2020, the Government transposed the European Union’s fifth money laundering directive, which provided for the addition of art market participants, letting agents and cryptoasset businesses into the regulated sector, and set out discrepancy reporting requirements to improve the accuracy of the UK’s beneficial ownership registers. Since leaving the European Union, we have had the opportunity to ensure that the money laundering regulations go further in protecting the United Kingdom’s reputation as a safe place to conduct business. We made several changes to the money laundering regulations earlier this year in relation to high-risk countries and trusts, which allowed us to respond to the latest economic crime risks and protect the United Kingdom from overseas illicit finance flows. However, as we all know, there is more work to be done, which is why the Government are making further necessary updates to the money laundering regulations through today’s secondary legislation.

Anti-money laundering regulation must keep pace with the rate of technological change so that no part of our financial system is open to exploitation by criminals. This instrument therefore extends the Financial Action Task Force’s recommendation 16, known as the travel rule, to cryptoasset firms. It will require information on the identity of the originator and beneficiary of a transfer of funds or assets to be sent and recorded by the firms making that transfer. This supports the detection and investigation of money laundering and terrorist financing, as the transfers of cryptoassets will become subject to the same rigorous anti-money laundering requirements as bank transfers. We are also closing a gap in the regulations by requiring proposed acquirers of already registered cryptoasset firms to notify the Financial Conduct Authority ahead of such acquisitions. That will allow the FCA to object to such changes in control before they take place, enabling it to make sure unregistered firms cannot gain access to the United Kingdom.

The instrument also makes several other discrete, targeted changes that are intended to ensure that the regulations are appropriately aligned with updated risk assessments and new international standards. For example, it will ensure that we are aligned with the FATF standards on proliferation financing by introducing a requirement for supervised persons and the private sector to identify and assess risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing.

The instrument will go further by strengthening and clarifying how the anti-money laundering regime operates and by ensuring that the United Kingdom’s anti-money laundering supervisors have the right powers available to them to respond to new and emerging threats. For example, the instrument will expand the requirements in the regulations to report discrepancies between the information gathered by regulated firms and that held at Companies House, both in the course of ongoing business relationships and for entities in scope of the new register of overseas entities.

To support the objectives of upcoming limited partnership reform and to improve the transparency and integrity of the companies register, the instrument amends the definition of a trust and company service provider—TCSP—to cover the formation of all business arrangements, not just companies, that are required to register at Companies House and to ensure that customer due diligence is conducted for customers of TCSPs.

The instrument makes several technical and clarificatory changes to the regulations to ensure that they are up to date and continue to work in the best way possible. I hope that I have shed light on the main element of this instrument, and I thank hon. Members in advance for their examination of the issues. I hope they will join me in supporting the instrument, and I commend it to the Committee.

--- Later in debate ---

[Richard Fuller]

I thank the hon. Lady for her wise words about the import of the instrument we are considering and for the Opposition’s overall support for it. She asked a series of questions, and I will reply to them directly. If I miss any, she may want to come back on them.

The hon. Lady asked about the timetable and particularly about cryptoasset firm regulations. One reason why that is coming later is that firms require a technological solution, and in order to get robust solutions, we felt it was appropriate to give time. She also asked specifically about a risk from Russian kleptocrats, but I will write back to her on that point because it covers issues beyond the one I have just made. I will also get back to her on regulation 10.

On the bank account portal, the issue is that the UK has several pre-existing capabilities, such as customer information orders. However, the hon. Lady asked a specific question about the assessment of the costs. I will get back to her on that, but I think the issue has to be seen in the context of what is already in place, rather than an assumption that we have to build something from scratch. The hon. Lady also asked about working with our equivalents in the Crown dependencies and about a potential way around the regulations. That is an important point, and I will continue the normal dialogues with my equivalents in the Crown dependencies.

The hon. Lady asked about the issues around the timetable for the economic crime Bill. I am afraid I am not in a position to advise her any further on that today, but I am sure I will be able to as the Bill comes forward. I think I have answered most of the questions. If I missed any, the hon. Lady can advise me subsequently. On those that I have not answered today, we will respond in writing in due course.

--- Later in debate ---

[Richard Fuller]

The SNP spokesperson makes interesting points, some of which echo those made by the Opposition spokesperson. On the timetable, I will get back to him. He asked about the merits of two additional offences—failure to prevent sanctions evasion and conspiracy to commit sanctions evasion. I have no comment on that, but I would be interested in anything the hon. Gentleman has to send to me to look at.

The hon. Gentleman asked about a full Companies House reform, and he expressed some of the frustration that hon. Members on both sides of the House have expressed. He will be aware that the Treasury has provided Companies House with £60 million, I think, to begin those reforms, but he is right to draw the Committee’s attention to the issue and to hope that further reforms will be forthcoming. Some of those reforms feature in these regulations—for example, the further tightening of some of the restrictions, particularly around TCSPs.

Question put and agreed to.