Report: HM Treasury Policy Note and Draft SI on Amendments to the Money Laundering Regulations
- James Ross
- Sep 4
- 4 min read
1. Executive Summary
On September 2, 2025, HM Treasury published a draft Statutory Instrument (SI) proposing key amendments to the UK's Money Laundering Regulations (MLRs). The changes, expected to take effect in early 2026, aim to create a more effective, risk-based, and proportionate anti-money laundering (AML) framework.
Key proposals include narrowing the scope of mandatory Enhanced Due Diligence (EDD) for high-risk countries to focus on the highest threats, clarifying rules for complex transactions, and strengthening oversight of cryptoassets by aligning control definitions with the Financial Services and Markets Act (FSMA) and mandating counterparty due diligence.
Further amendments close loopholes in the Trust Registration Service (TRS) concerning UK land ownership and introduce several technical updates, including the conversion of all monetary thresholds to Pound Sterling (£). These changes have significant operational implications, requiring all regulated firms to conduct a comprehensive review and update of their policies, systems, and procedures to ensure compliance.
2. Introduction and Background
On September 2 2025, HM Treasury published a draft Statutory Instrument (SI) proposing significant amendments to the UK's Money Laundering Regulations (MLRs). This follows a previous consultation aimed at enhancing the effectiveness and proportionality of the UK's anti-money laundering (AML) framework.
The proposed changes are targeted at closing identified loopholes, clarifying regulatory obligations, and improving the overall efficiency of the AML regime by reinforcing a risk-based approach. HM Treasury is currently seeking technical feedback on the draft rules.
3. Timeline
Consultation Closes (Technical Feedback): September 30, 2025
Final Regulations Laid Before Parliament: Expected early 2026
Effective Date: 21 days after the final regulations are laid
4. Summary of Key Proposed Amendments
The draft SI introduces several critical amendments across various aspects of the MLRs:
4.1 Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)
The amendments refine the application of due diligence measures to focus resources on higher-risk areas:
High-Risk Countries: The requirement for mandatory EDD will be narrowed. It will now only apply to countries listed on the Financial Action Task Force (FATF) "call for action" list, removing the requirement for countries on the broader "increased monitoring" list.
Complex Transactions: The trigger for EDD has been clarified from "complex or huge" transactions to "unusually complex or huge" transactions, focusing scrutiny on genuinely abnormal activity.
Bank Insolvency Exception: A new provision will allow credit institutions to onboard customers from an insolvent bank and verify their identity after opening the account. This is intended to ensure continuity of service, provided verification is completed as soon as practicable.
Pooled Client Accounts (PCAs): The automatic link between PCAs and simplified due diligence is removed. Institutions must now take reasonable measures to understand the purpose of any PCA and assess its risks. PCA holders will be required to provide information on underlying clients upon request.
4.2 Cryptoassets
The SI introduces changes to strengthen the oversight of the cryptoasset sector and align it more closely with traditional finance:
Change of Control and Registration: The "fit and proper" test for individuals controlling a cryptoasset firm will be aligned with the broader Financial Services and Markets Act (FSMA) definition of a "controller," replacing the narrower "beneficial owner" test. This ensures more comprehensive vetting of influential stakeholders.
Correspondent Relationships: Cryptoasset providers must conduct EDD on their counterparties (other crypto firms), similar to correspondent banking requirements. Relationships analogous to "shell banks" are prohibited.
4.3 Trust Registration Service (TRS)
Amendments to the TRS scope aim to increase transparency while adjusting administrative burdens:
UK Land Loophole Closed: The registration scope is expanded to include trusts that acquired UK land before October 6, 2020, and continue to hold it.
SDRT Trigger Removed: A trust's liability to pay Stamp Duty Reserve Tax (SDRT) will no longer automatically trigger a requirement to register.
4.4 Other Technical Amendments
Currency Conversion: All monetary thresholds within the MLRs will be converted from Euros (€) to Pound Sterling (£).
"Off-the-Shelf" Companies: The sale of pre-formed "off-the-shelf" companies by Trust or Company Service Providers (TCSPs) will become a regulated activity, requiring full MLR compliance.
Information Sharing: The duties of information sharing are expanded to include Companies House and the Financial Regulators' Complaints Commissioner.
5. Firm Implications
The proposed amendments have significant implications for all businesses regulated under the MLRs, necessitating proactive updates to policies, procedures, and systems.
5.1 All Regulated Firms
Systems and Training: The conversion of monetary thresholds from EUR to GBP requires immediate updates to transaction monitoring systems, internal guidance, and staff training to ensure accurate reporting.
Risk Assessments and EDD: Policies must be amended to reflect the narrowed scope for high-risk countries and the clarified definition of "unusually complex or large" transactions, allowing firms to refocus compliance resources.
5.2 Financial Institutions
Insolvency Onboarding: Banks must develop specific, compliant procedures for the rapid onboarding of customers displaced by bank insolvency. This includes protocols for post-onboarding verification and notification to the Financial Conduct Authority (FCA).
PCA Management: The new PCA rules require a fundamental shift. Banks must implement robust risk assessment frameworks for all PCA customers and establish procedures for requesting information on underlying beneficial owners.
5.3 Cryptoasset Businesses
Stricter Control Regime: The alignment with FSMA's "controller" definition means a broader range of investors and stakeholders will be subject to FCA approval for changes in control. Firms must review their ownership structures.
Counterparty Due Diligence: Crypto firms face a significant new operational requirement to build and implement frameworks for assessing the AML controls of other virtual asset service providers they transact with.
5.4 Trust and Company Service Providers (TCSPs)
Expanded Scope: TCSPs engaged in selling "off-the-shelf " companies must now apply their complete AML framework to this activity, including conducting CDD on purchasers.
5.5 Trustees
TRS Obligations: Trustees of trusts holding UK land acquired before October 2020 must prepare to register with the TRS. Conversely, trusts registered solely due to an SDRT liability may be eligible for de-registration, reducing administrative burden.
6. Conclusion
These amendments represent a significant evolution of the UK's AML framework, emphasising a more targeted approach while addressing vulnerabilities in areas like cryptoassets and trust registration. Regulated firms should closely review the draft SI, consider submitting technical feedbaSeptember 30ber 30, 2025, and begin preparations for implementation in early 2026.
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