Draft Money Laundering Regulations Published for Technical Consultation

Following a public consultation on ‘Improving the Effectiveness of the Money Laundering Regulations’, the government is bringing forward targeted amendments to close regulatory loopholes, address proportionality concerns, and account for evolving risks in relation to money laundering and terrorist financing. The consultation highlighted specific weaknesses in the UK’s regime, including issues with pooled client accounts, trust registration, cryptoasset business regulation, and the practicalities of customer due diligence.

As one part of the response to those concerns, the government has published the draft Money Laundering and Terrorist Financing (Amendment and Miscellaneous Provision) Regulations 2025 for technical consultation, which contains amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) and related legislation. This is a draft and should not be treated as final

The government has also committed to improve sectoral guidance on AML/CTF compliance on a range of issues, and to publish separate guidance on the use of digital identity verification for AML/CTF purposes.

This technical consultation is closing on 30 September 2025.  Subject to feedback and Parliamentary scheduling, the final instrument is expected to be laid in early 2026 and will come into force 21 days after being made, with specific provisions for cryptoasset businesses aligned to the commencement of the FSMA cryptoasset perimeter.

The changes include:

• Making customer due diligence more proportionate and effective

• • Enhanced Due Diligence

• • • High-Risk Third Countries (Regulations 18(b) and 22)
      Updates when EDD is required in relation to a person or transaction linked to a specific country. Firms are currently required to apply EDD to transactions or customers involving “high-risk third countries”, which is in turn defined as any country on the FATF’s ‘increased monitoring’ and ‘call for action’ lists. The revisions narrow this to focus specifically on “FATF call for action countries”. i.e. only countries on the ‘call for action’ list. This ensures firms can direct their resources to jurisdictions which present the greatest risk to the UK.

• • • Complex and large transactions (Regulations 10,11 and 18(a))
      The MLRs currently require firms to apply EDD to all “complex or unusually large” transactions. However, this wording leads to confusion and, in some sectors, an overly cautious approach. The revised regulations clarify that enhanced due diligence is required only for transactions that are “unusually complex or unusually large” relative to what is typical for the sector or the nature of the transaction. This change does not introduce a new obligation but rather refines the existing requirement to ensure that firms can focus their compliance efforts on transactions that present genuinely higher risks, rather than expending resources on routine transactions that do not warrant additional scrutiny.

• Providing clarity on scope and registration issues

• • • Currency thresholds and definitions (Regulations 4(b) and (c), 7, 8, 9(b), 13(a) to (e), (g), (h)(ii) and (j), 21, 32 and 33). The draft regulations convert all monetary thresholds for customer due diligence, reporting, and transaction triggers from euros to sterling (e.g. €10,000 becomes £10,000), with some thresholds adjusted to ensure the UK continues to meet international standards set by the Financial Action Task Force.  It also updates the general interpretation regulation in the MLRs to reflect these changes.

• • • Registration and change in control for cryptoasset service providers (regulations 31, 37 and 38). Amends the registration and change in control thresholds for cryptoasset firms to align with thresholds in the Financial Services and Markets Act (FSMA), delivering consistency across the cryptoasset sector and ensuring owners of cryptoasset firms involving complex ownership structures are not missed from fit and proper checks.

Full details can be found on the HM Treasury website here.