The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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EU Final Guidance on Implementation of EU And National Sanctions
November 14, 2024
The European Banking Authority has finalized two sets of guidelines setting common standards on the governance arrangements and the policies, procedures, and controls that financial institutions should have in place to be able to comply with EU and national restrictive measures. Restrictive measures applicable to financial institutions comprise targeted financial sanctions and sectoral measures, e.g., economic and financial measures. Both sets of guidelines will apply from December 30, 2025.
The first set of guidelines is addressed to all institutions within the EBA's supervisory remit, i.e., those regulated and supervised under the Capital Requirements Directive, the Payment Services Directive, and the Electronic Money Directive. These guidelines set out the governance and risk management systems that financial institutions should implement to address the risk of potentially breaching or evading restrictive measures.
The second set of guidelines is specific to restrictive measures under the Wire and Cryptoasset Transfer Regulation. The guidelines specify what payment service providers and crypto-asset service providers should do to be able to comply with restrictive measures when performing transfers of funds or crypto-assets. -
UK Home Office Publishes New Guidance on Failure to Prevent Fraud
November 6, 2024
The U.K.'s Home Office has published guidance on the new corporate criminal offense of failure to prevent fraud under the Economic Crime and Corporate Transparency Act 2023. Under the offense, large organizations may be held criminally liable where an employee, agent, subsidiary, or other "associated person" commits a fraud intending to benefit the organization. In the event of prosecution, an organization would have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time that the fraud was committed. The offense applies to all large, incorporated bodies and partnerships (including partnerships that are not bodies corporate).
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The UK Economic Crime and Corporate Transparency Act 2023 (Commencement No. 3) Regulations 2024 Published
November 6, 2024
The Economic Crime and Corporate Transparency Act 2023 (Commencement No. 3) Regulations 2024 have been published. The Regulations bring into force certain provisions of the Economic Crime and Corporate Transparency Act 2023. Regulation 2 brings measures relating to civil recovery of crypto-assets, which are already in force in England, Wales, and Northern Ireland, but only partially in force in Scotland, fully into force on November 7, 2024. Regulation 3 brings into force measures creating a new offense of failure to prevent fraud on September 1, 2025. -
Financial Action Taskforce Publishes Consultation on Changes to AML/CFT and Financial Inclusion Standards
October 28, 2024
The Financial Action Taskforce has published a consultation paper on revisions to its anti-money laundering and counterterrorism financing standards relating to financial inclusion. The consultation is part of FATF's program of work to address the unintended consequences of AML/CFT measures.
The revisions focus on recommendation 1 (assessing ML/TF risks and applying a risk-based approach) and its Interpretive Note, with corresponding changes to recommendations 10 (customer due-diligence) and 15 (new technologies) and related Glossary definitions. The proposed revisions aim to better promote financial inclusion through increased focus on proportionality and simplified measures in the risk-based approach, and to give countries, supervisors, and financial institutions greater confidence and assurance when implementing simplified measures.
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Outcomes from Financial Action Taskforce Plenary: October 2024
October 25, 2024
The Financial Action Taskforce has published the outcomes from its plenary meeting, which took place between October 23 and 25, 2024. Outcomes include:- the approval of the last two assessment reports in the FATF's fourth cycle of assessments. FATF will now focus on its new round which will deliver more focused, risk-based mutual evaluations;
- the release for public consultation of proposed revisions to the standards related to FATF's ongoing focus on financial inclusion (see update above). FATF also approved new guidance on national risk assessments to support countries to understand the illicit finance risks they face;
- discussing standards changes related to cross-border payment systems and progressing work to identify the latest terrorist financing and proliferation financing risks. FATF also commenced a project to review its processes to ensure that countries do not misuse the FATF requirements to restrict the activities of non-profit organizations;
- reporting on the value of the horizontal review of designated non-financial businesses and professional compliance related to corruption to support necessary reforms. FATF decided to continue discussing follow-up on this issue at its next meeting; and
- taking stock of actions taken to improve gender diversity in the FATF, discussing further proposals to strengthen this work. FATF plans to launch a second mentoring program to strengthen inclusivity and diversity within the FATF and Global Network, building on the WFGN initiative under the Singapore Presidency. The next FATF plenary will be held in February 2025.
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Outcomes from Financial Action Taskforce Plenary: October 2024
October 25, 2024
The Financial Action Taskforce has published the outcomes from its plenary meeting, which took place between October 23 and 25, 2024. Outcomes include:- the approval of the last two assessment reports in the FATF's fourth cycle of assessments. FATF will now focus on its new round which will deliver more focused, risk-based mutual evaluations; the release for public consultation of proposed revisions to the standards related to FATF's ongoing focus on financial inclusion (see update above). FATF also approved new guidance on national risk assessments to support countries to understand the illicit finance risks they face; discussing standards changes related to cross-border payment systems and progressing work to identify the latest terrorist financing and proliferation financing risks. FATF also commenced a project to review its processes to ensure that countries do not misuse the FATF requirements to restrict the activities of non-profit organizations; reporting on the value of the horizontal review of designated non-financial businesses and professional compliance related to corruption to support necessary reforms. FATF decided to continue discussing follow-up on this issue at its next meeting; and< taking stock of actions taken to improve gender diversity in the FATF, discussing further proposals to strengthen this work. FATF plans to launch a second mentoring program to strengthen inclusivity and diversity within the FATF and Global Network, building on the WFGN initiative under the Singapore Presidency. The next FATF plenary will be held in February 2025.
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UK Financial Conduct Authority Cracks Down on Illegal Financial Promotions by 'finfluencers'
October 22, 2024
The FCA has announced that it is interviewing 20 'finfluencers' under caution who may be touting financial services products illegally. 'Finfluencers' are social media personalities who use their platform to promote financial products and share insights and advice with their followers. Their target audience is often comprised of young people, who are increasingly being drawn into investment scams which may have been promoted on social media. The FCA states that it has also issued 38 alerts against social media accounts operated by finfluencers which may contain unlawful promotions. -
UK Joint Money Laundering Steering Group Finalizes Amendments to Guidance for Firms Operating in Wholesale Markets
September 30, 2024
The Joint Money Laundering Steering Group has published the amended version to Part II Sector 18 (wholesale markets) of its AML/CTF guidance for the financial services sector. Changes to the guidance include: (i) a new section relating to customer due diligence on authorized personnel acting on behalf of the customer. It includes a clarification that the identities of internal personnel who are authorized to sign contractual documents may be collected by a firm for AML/CTF purposes on a risk-based approach; and (ii) a new section on wholesale subscription finance in private capital funds. The revisions have been submitted to HM Treasury for Ministerial approval. -
UK Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 Published
September 12, 2024
The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (together with explanatory memorandum) have been laid in Parliament. The Regulations equip the soon to be launched Office of Trade Sanctions Implementation (OTSI) with its civil enforcement powers. Breach of trade, aircraft and shipping sanctions is already a criminal offence, but it is hoped the introduction of civil penalties will strengthen the U.K. government's enforcement capability. OTSI will be responsible for the civil enforcement of certain trade sanctions as they relate to U.K. services and overseas trade with a U.K. nexus. The office will be able to impose monetary penalties of up to £1 million, or 50% of the estimated value of the breach, whichever is higher. Where a civil monetary penalty can be imposed, breaches may be determined on a 'strict liability' basis. OTSI will also be empowered to make public disclosure of breaches. The Regulations introduce reporting obligations for relevant persons, and powers to request information. Failure to comply with either of these can amount to a criminal offence. The powers will come into effect on 10 October. To assist people in complying with the new regulations, the Department for Business and Trade has published statutory guidance. It covers the prohibitions and requirements imposed by the regulations and provides guidance on compliance, enforcement and the circumstances where they do not apply. -
UK Office of Financial Sanctions Implementation Annual Frozen Asset Review
September 11, 2024
The Office of Financial Sanctions Implementation has published a financial sanctions notice reminding firms of their annual frozen assets reporting requirement. Every year HM Treasury carries out a review to update its records to reflect any changes to these assets during the reporting period. As part of this review, HM Treasury requests all persons that hold or control funds or economic resources belonging to, owned, held, or controlled by a designated person, to provide a report to OFSI with the details of these assets. The deadline for submission is November 11, 2024. The report must include details of all funds or economic resources frozen in the U.K. as well as those overseas where these funds or economic resources are subject to U.K. financial sanctions legislation. Accounts blocked solely by other national authorities (e.g., Office of Foreign Assets Control) do not need to be reported. The report must include the value of all such assets as at close of business on September 30, 2024. Reports therefore must not be submitted before this date. Firms that submitted a report last year (other than a nil return) and no longer hold the frozen assets should submit a nil return. -
Financial Conduct Authority Talks about a Targeted and Outcomes-Based Approach to Tackling Financial Crime
September 5, 2024
The Financial Conduct Authority has published a speech by Sarah Pritchard, FCA Executive Director, Markets and International, on taking a targeted and outcomes-based approach to tackling financial crime. Points of interest in the speech include:- The FCA is using its powers more assertively than ever. In the last financial year, the FCA charged 21 individuals with financial crime offenses; the highest number of charges it has ever achieved in a single year.
- Using data and technology, the FCA has increased its ability to identify illegal financial promotions, including on social media.
- Using the FCA's own supervisory reach, the FCA has created a dedicated financial crime function within its Consumer Investments department—an area it has seen evolving threats of financial crime and fraud. Over the past 18 months the team has been out on unannounced spot visits, gathering evidence and intervening to prevent harm by, for example, imposing requirements on firm's permissions, compelling asset restrictions or banning firms from providing financial services.
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EU Report on Payment Fraud
August 1, 2024
The European Central Bank and the European Banking Authority have published a joint report on payment fraud data. The report assesses payment fraud reported by the industry across the EEA and covers semi-annual data reported for the three reference periods H1 2022, H2 2022 and H1 2023, with a focus on the payment instruments of credit transfers, direct debits, card payments (from an EU/EEA issuing perspective), cash withdrawals and e-money transactions. Payment fraud amounted to EUR4.3bn in 2022 and EUR2.0bn in H1 2023.
The report examines the total number of payment transactions and the subset of fraudulent transactions in terms of value and volume. In addition to the aggregated values, the report also presents data based on volumes and sorted by type of payment instruments. The data shows that SCA-authenticated transactions featured lower fraud rates than non-SCA transactions, especially for card payments, both in terms of values and volumes. Furthermore, fraud shares for card payments, both in terms of values and volumes, were ten times higher when the counterpart is located outside the EEA, where the application of SCA is not legally required and may therefore not have been requested. The report considers this proof of the beneficial impact of the SCA requirements. The report also finds that losses due to frauds were distributed differently among liability bearers depending on the payment instrument.
The EBA and the ECB will continue to monitor fraud data and going forward will publish the aggregate data on an annual basis. -
UK Financial Markets Standard Board Publishes Spotlight Review on Pre-Hedging Practices
July 26, 2024
The Financial Markets Standard Board has published a spotlight review on pre-hedging practices. The FMSB is examining the practice as it considers, in principal markets, that there remains uncertainty as to how and when pre-hedging may be undertaken, the rationale and client benefits deriving from the activity as well as the distinction between inventory management, pre-hedging and front running. The spotlight review considers trading practices, across the size and liquidity spectrum, in fixed income, FX and exchange traded funds. It also considers evolving risk management practices around new issuances.
The spotlight review supplements existing FMSB guidance applicable to pre-hedging deriving from the FMSB's Standard for the execution of Large Trades in FICC markets with a series of considerations, derived from case studies, debated by FMSB's Pre-Hedging Working Group. The spotlight review is intended to advance the industry debate on pre-hedging but not codify standards of behavior. In due course, the FMSB will determine if standard-setting would be beneficial in this area, also taking into account international regulatory developments with regard to pre-hedging. -
UK Financial Conduct Authority Consults on Amendments to Guidance on Treatment of Domestic PEPs
July 18, 2024
The Financial Conduct Authority has published the findings of its multi-firm review into the treatment of Politically Exposed Persons and launched a consultation on proposed amendments to its related guidance. The review was required under the Financial Services and Markets Act 2023, following concerns from U.K. Parliamentarians that firms were not effectively applying the FCA's guidance. The FCA found that most firms in its review did not subject PEPs to excessive or disproportionate checks and none would deny them an account based on their status. However the FCA has identified areas for improvement and has called on firms to, among other things: (i) ensure their definition of a PEP, family member or close associate is tightened and in line with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs) and the FCA's guidance; (ii) review the status of PEPs and their associates promptly once they leave public office; (iii) communicate to PEPs effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible; (iv) effectively consider the actual level of risk posed by the customer, and ensure that information requests are proportionate to those risks; and (v) improve the training offered to staff who deal with PEPs. The FCA has provided detailed feedback to the firms that were reviewed and in a small number of cases, has instigated an independent and more detailed review of firms' practices.
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European Banking Authority Announces Anti-Money Laundering Priorities for 2024/25
June 26, 2024
The European Banking Authority has published a press release welcoming the entry into force of the new EU framework establishing the Anti-Money Laundering and Countering the Financing of Terrorism Authority. The EBA also published a factsheet on how it is preparing for AMLA. Going forward, the EBA will retain its AML/CFT powers and mandates until December 2025 to minimize disruption and provide continuity, and it will also be working closely with AMLA. In particular, after transferring the powers that are specific to AML/CFT to AMLA, the EBA will remain responsible for addressing ML/TF risk across its prudential remit. The EBA will also be providing the European Commission with technical advice on important aspects of the future EU AML/CFT framework to ensure that AMLA can begin to operate efficiently and effectively as of its establishment. The EBA plans to provide this advice in October 2025. In the press release the EBA sets out its AML and CTF priorities for 2024/25, which include: (i) a methodology for selecting financial institutions for direct EU-level AML/CFT supervision; (ii) a common risk assessment methodology; (iii) information necessary to carry out customer due diligence; and (iv) criteria to determine the seriousness of a breach of AML/CFT provisions. -
Directive on Cross-Border Law Enforcement Access to Bank Account Registries Published in Official Journal of the European Union
June 19, 2024
Directive (EU) 2024/1654 has been published in the Official Journal of the European Union, amending Directive (EU) 2019/1153 regarding access by national regulators to centralized bank account registries through the interconnection system and technical measures to facilitate the use of transaction records. The amending Directive aims to ensure more effective investigations into illicit finance by making it easier to retrieve data across borders from centralized bank registries. It mandates EU Member States to ensure that the information from centralized registries is available through an access point to be developed and operated by the European Commission. The Directive enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to bring into force the laws, regulations, and administrative provisions necessary to comply with the Directive by July 10, 2027, with the exception of Article 1(4) and (5), which relates to the bank account registers interconnection system, in respect of which member states are required to bring into force the necessary measures by July 10, 2029. -
Package of EU Anti-Money Laundering Legislation Published
June 19, 2024
A package of anti-money laundering legislation has been published in the Official Journal of the European Union, which includes:- the Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Regulation (EU) 2024/1624) (AML Regulation), which enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. It will apply from July 10, 2027, except in relation to football agents and certain transactions conducted by professional football clubs, to which it will apply from July 10, 2029;
- the Regulation establishing the Anti-Money Laundering Authority (Regulation (EU) 2024/1620) (AMLA Regulation), which enters into force on June 26, 2024, seven days after publication in the Official Journal of the European Union. It will apply from July 1, 2025, with the exception of Articles 1, 4, 49, 53 to 55, 57 to 66, 68 to 71, 100, 101, and 107, which will apply from June 26, 2024, and Article 103, which will apply from December 31, 2025.; and
- the Sixth Money Laundering Directive (MLD6) (Directive (EU) 2024/1640), which enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to bring into force the laws, regulations, and administrative provisions necessary to comply with MLD6 by July 10, 2027, with the exception of Article 74, for which the transposition deadline is July 10, 2025; Articles 11 to 13 and 15, for which the transposition deadline is July 10, 2026; and Article 18, for which the transposition deadline is July 10, 2029. MLD4 will be repealed with effect from July 10, 2027.
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European Commission Report on Extension of Powers to Adopt Delegated Acts under the EU Market Abuse Regulation
June 17, 2024
The European Commission has published a report, addressed to the European Parliament and the Council of the European Union, on the delegation of power to adopt delegated acts conferred on the Commission under the EU Market Abuse Regulation. Under Article 35(2), the power to adopt delegated acts is conferred on the Commission for an initial period of five years, ending on December 31, 2024. In the report, the Commission explains why it considers that there is a clear need for the extension of this empowerment for a further period of five years. This is due to there being delegated acts that have not yet been adopted by the Commission—those under Articles 6(6) (extending the exemption from MAR to certain third-country designated public bodies that have entered into an agreement under the EU Emissions Trading Scheme Directive) and 38 (adjusting certain thresholds relating to reporting thresholds) of MAR. The Commission provides reasons as to why these have not yet been adopted and refers to the Listing Act legislative proposal for a Regulation containing amendments to MAR, in which co-legislators have agreed to renew the delegation of powers for a period of five years. -
European Securities and Markets Authority Statement on Good Practices for Pre-Close Calls
May 29, 2024
The European Securities and Markets Authority has published a statement on good practice in relation to "pre-close calls" (i.e. communication sessions between an issuer and analysts who generate reports on the issuer's financial instruments). The statement seeks to remind issuers about the applicable legislative framework for pre-close calls and encourages them to follow good practices when engaging in such calls, with the goal of maintaining fair, orderly, and effective markets. Following recent media reports suggesting a connection between episodes of high volatility in share prices and pre-close calls, ESMA reminds issuers that any disclosure of inside information should only take place in accordance with the EU Market Abuse Regulation. Consequently, issuers should only share non-inside information during these pre-close calls.
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European Banking Authority Reports on Virtual IBANs
May 24, 2024
The European Banking Authority has published a report on the issuance of virtual IBANs (vIBANs). The report summarizes the EBA's observations from its fact-finding exercise on the issuance and use by payment service providers of vIBANs. It highlights risks and challenges that vIBANs may present to consumers, financial institutions, national competent authorities and to the integrity of the overall EU financial system, based on the six most common vIBAN use cases in the EU. Uses of vIBANs include the automation of payment reconciliation and overcoming IBAN discrimination by associating the vIBAN with a particular Member State's IBAN country code.
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Court of Justice of the European Union Annuls Sanctions Measures
04/11/2024
The Court of Justice of the European Union has decided that the reasons for the EU sanctions measures designating Mr Fridman and Mr Aven (two of the shareholders of LetterOne) were not sufficiently substantiated and their inclusion on EU sanctions lists was not justified (Judgments T-301/22 and T-304/22). The ECJ has annulled the acts that subjected Mr Fridman and Mr Aven to sanctions for the period from February 28, 2022 to March 15, 2023.
Despite this judgment, these two individuals remain subject to EU sanctions. This is because they have also been sanctioned under Council Decision (CFSP) 2023/572 and Council Implementing Regulation (EU) 2023/571, which are more recent and so were not at issue in these proceedings. The two individuals have now separately challenged their designations under that legislation, but those cases remain to be heard (pending cases, Aven v Council, T-283/23, and Fridman v Council, T-296/23).
This ECJ judgment does not impact the U.K. sanctions regime, under which the two individuals remain sanctioned. -
HM Treasury Consults on Amending the Money Laundering Regulations
04/04/2024
HM Treasury has launched a consultation with proposals to improve the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs). The consultation is wide-ranging, covering proposals to:- Ensure customer due diligence is more proportionate and effective.
- Strengthen system coordination to ensure continued coordination in the face of new and emerging threats, technological change and legislative changes.
- Clarify the scope of the MLRs, including as regards changing thresholds from Euro to Pound Sterling.
- Revise registration requirements for the Trust Registration Service to enhance transparency of higher risk trusts.
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UK Legislates on Differentiating Risk of Domestic Politically Exposed Persons
12/22/2023
The Money Laundering and Terrorist Financing (Amendment) Regulations 2023, which amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs), come into force on January 10, 2024. The Financial Services and Markets Act 2023 imposed on HM Treasury a duty to use its powers under the Sanctions and Anti-Money Laundering Act 2018 to amend the MLR customer due diligence measures required where a customer is a domestic (U.K.) politically exposed person (i.e., a PEP entrusted with prominent public functions by the U.K. government, as opposed to a foreign government). The Amendment Regulations fulfil that obligation, providing that unless there are other enhanced risk factors, the due diligence measures applicable to a domestic PEP are reduced compared to those applicable to a non-domestic PEP. The change follows concerns by many members of Parliament that banks and other financial institutions were imposing overly burdensome requirements for information and, in some instances, denying accounts to U.K. politicians and their family members, and also follows the furore over the de-banking by NatWest Bank of the prominent U.K. politician Nigel Farage, which led to the resignation of its CEO.
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Draft UK Legislation on Revised Payment Service Contract Termination Rules Expected Before 2024
10/13/2023
HM Treasury has published a further policy statement on payment service contract termination rule changes, setting out its approach to implementation, timing and next steps. This latest policy statement follows the government's July policy statement in which it confirmed that it would bring forward legislation to enhance the requirements governing payment account terminations. This issue has become topical in light of the "de-banking" of higher risk or less profitable clients by several institutions and recent scandals in the U.K. involving account terminations of some politicians. The main changes being brought forward are:- A requirement for payment account providers to provide clear and tailored explanatory reasons to an account user for the termination. The requirement would not apply where it would be unlawful to provide such information, for example, under U.K. financial crime and anti-money laundering legislation.
- A 90-day notice period before a payment account is terminated by a provider, subject to situations where there is a serious and uncorrected breach by the payment user of the terms applying to the account. It would also be clarified that reasons such as brand protection would not be sufficient justification for a shorter notice period.
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UK Joint Money Laundering Steering Group Publishes Guidance on Travel Rule for Cryptoasset Exchange Providers and Custodian Wallet Providers
09/14/2023
The Joint Money Laundering Steering Group has published revisions to its Sector 22 Guidance on Cryptoasset exchange providers and custodian wallet providers along with a new Annex I, setting out guidance on the U.K. Travel Rule for cryptoassets. The Travel Rule was introduced under the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and requires certain identification information on the sender and recipient to accompany a transfer of a cryptoasset. The Travel Rule requirements have applied since September 1, 2023.
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FCA Reviews Treatment of Politically Exposed Persons
09/14/2023
The U.K. Financial Conduct Authority has launched a review of the treatment by regulated financial services firms of Politically Exposed Persons based in the U.K. Firms are currently obliged, under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, to conduct enhanced due diligence when dealing with PEPs. The FCA has existing Guidance on the treatment of PEPs for these purposes, which makes clear (amongst other things) that firms should adopt a proportionate and risk-based approach to the application of the MLRs. The FCA has been mandated to review this guidance under the Financial Services and Markets Act 2023, including an investigation into how firms are applying the guidance and consideration as to whether any amendments are needed. We discuss this mandate and the FSMA 2023 more generally in our client note, A Boost for UK Financial Services: The UK Financial Services and Markets Act 2023.
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UK Joint Money Laundering Steering Group Proposed Cryptoasset Travel Rule Guidance
08/14/2023
The U.K. Joint Money Laundering Steering Group opened a consultation on July 28, 2023 on guidance on the U.K. travel rule for cryptoasset transfers. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 introduced the cryptoasset travel rule by amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, and firms will need to comply with the requirements from September 1, 2023. The travel rule requires certain identification information on the sender (originator) and recipient (beneficiary) to accompany a transfer of a cryptoasset. The JMLSG is proposing to add a new annex setting out guidance on the U.K. travel rule for cryptoassets, covering scope, information requirements, batch transfers, returns, unhosted wallet transfers, wallet attribution, linked transactions and use of a layer-2 solution such as the Lightning Network. The guidance also states that firms should consider communications from the Financial Conduct Authority on the sunrise issue, which refers to the impact of jurisdictions implementing the travel rule at different times. Firms may encounter issues when dealing with counterparties in jurisdictions that have not implemented the travel rule for cryptoassets, for example, when dealing with EU counterparties for which the EU travel rules for cryptoasset transfers will only apply from December 30, 2024. Responses to the JMLSG consultation may be submitted until August 25, 2023. -
UK Publishes Insider Dealing Offence Legislation
06/05/2023
On May 25, 2023, the final Insider Dealing (Securities and Regulated Markets) Order 2023 and its related explanatory memorandum were published. The Order will enter into force on June 15, 2023.
The legislation aligns the scope of trading venues covered by the U.K.'s criminal insider dealing regime under the Criminal Justice Act 1993 with the civil regime under the U.K.'s Market Abuse Regulation, and updates the criminal regime. Details of the amendments are discussed in our separate blog. -
UK Criminal Insider Dealing Offence Legislation to be Updated
05/10/2023
On April 20, 2023, the draft Insider Dealing (Securities and Regulated Markets) Order 2023 was published (the draft Order). The draft Order will generally align the scope of the U.K.'s criminal insider dealing regime under the Criminal Justice Act 1993 with that of the civil regime under the U.K.'s Market Abuse Regulation and update the criminal regime. The draft Order, which will come into effect 21 days after it is made, will revoke the outdated Insider Dealing (Securities and Regulated Markets) Order 1994 (the 1994 Order).
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EU Travel Rule for Crypto-Assets Set to Apply from January 2025
05/02/2023
On April 20, 2023, the European Parliament announced that it had formally endorsed the draft Regulation on information accompanying transfers of funds and crypto assets (referred to here as the EU Travel Rule Regulation). The draft Markets in Crypto-Assets (MiCA) Regulation has also been adopted.
The existing EU Wire Transfer Regulation (EU WTR) requires EU Payment Service Provider to ensure that information on the payer and the payee accompanies a transfer of funds. The funds can be in any currency, and comprise banknotes and coins, scriptural money and electronic money.
The EU Travel Rule Regulation will extend the requirements to crypto assets and crypto-asset services providers (CASPs), (both as defined under the draft MiCA Regulation) with information on the originator and the beneficiary being required to accompany any transfers in crypto assets, regardless of whether they are domestic or cross-border. The requirements will not apply to person-to-person transfers of crypto assets where a CASP is not involved, or when both the originator and the beneficiary are providers of crypto-asset transfers acting on their own behalf.
The EU Travel Rule Regulation must still be published in the Official Journal of the European Union before it comes into effect. This is likely to be around July this year. At that time, the EU Travel Rule Regulation will repeal the EU WTR, however, the existing requirements on information accompanying transfers of funds will carry over to the new Regulation. The EU Travel Rule Regulation will apply from the same date that the MiCA Regulation applies, which is expected to be January 2025. -
UK Money Laundering Regulation Changes Announced for September 2022
06/15/2022
Following its 2021 consultation on targeted amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs), the U.K. government has published a consultation response which summarises the feedback to the consultation and sets out the government's approach to making changes to the statutory instrument. The amendments will be made in the draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, which are intended, for the most part, to take effect from September 1, 2022. A summary of the changes is set out below. The government will also soon publish its response to the call for evidence on the U.K.'s anti-money laundering and counter terrorist financing regulatory and supervisory regime, which covered the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime.
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Government Details Proposed Financial Services and Markets Bill
05/10/2022
Following the Queen's speech yesterday, the government has published a briefing pack setting out details of the bills that it intends to introduce, including the so-called Brexit Freedoms Bill as well as key legislation relevant to financial services. The government will introduce a Financial Services and Markets Bill, which will, among other things:- Introduce new statutory objectives for the financial services regulators to support growth and international competitiveness.
- Implement the changes to the wholesale markets arising out of the Wholesale Markets Review. HM Treasury confirmed in March of this year that the changes that will be made by legislation and where powers will be delegated to the financial services regulators for rules to be made. Among the changes are the removal of the share trading obligation and the double volume cap, changes to the derivatives trading obligation, taking OTC derivatives that are economically equivalent to exchange traded commodity derivatives out of the position limits regime, and the establishment of a consolidated tape.
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Queen’s Speech Confirms Government Will Proceed with Brexit Freedoms Bill
05/10/2022
Prince Charles, Prince of Wales, delivered the Queen’s speech in which he announced that the government will be introducing the so-called Brexit Freedoms Bill, which was first announced by Prime Minister Boris Johnson on January 31, 2022, and is intended to make it easier to amend or remove retained EU laws to better suit the U.K.’s circumstances and policies. The Brexit Freedoms Bill will work in tandem with a government drive to reform, repeal and replace EU laws that are seen as outdated, cumbersome or otherwise not in the U.K.’s national interest.
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European Banking Authority Publishes Report on Non-Bank Lending Sector
05/04/2022
The European Banking Authority has published a report on the EU non-bank lending sector i.e., the growing number of financial intermediaries operating outside the EU financial services regulatory perimeter, including BigTech firms (e..g, Meta, Amazon and Google) and FinTech firms, which develop innovative technology for financial services.
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UK Financial Conduct Authority Acts to Improve Financial Crime Issues at Challenger Banks
04/22/2022
The U.K. Financial Conduct Authority has published the findings of its multi-firm review into financial crime controls at challenger banks. The FCA undertook the review in 2021 in response to the 2020 National Risk Assessment of money laundering and terrorist financing, which highlighted the risk that quick onboarding processes advertised by challenger banks could appeal to criminals. The FCA's review revealed that technology is being used well to identify and verify customers quickly and that there are not many differences between the financial crime risks facing challenger banks and those posed to traditional retail banks. However, there are several areas where improvements can be made, at the onboarding stage and beyond. The FCA has requested all challenger banks to review its findings and implement the changes necessary to mitigate the risk of financial crime. As firms grow, their financial crime control resources, processes and technology should be appropriately adapted.
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Financial Action Task Force Publishes Report on Effectiveness of FATF Standards
04/19/2022
The Financial Action Task Force has published a report on the effectiveness of FATF member states' efforts to tackle money laundering and counter terrorism financing. The report is part of the FATF's 2019 Strategic Review which aims to improve the FATF's processes to make FATF mutual evaluations more effective. Mutual evaluations assess the extent to which FATF member countries have implemented the FATF's 40 Recommendations.
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UK Financial Regulators' Statement on Suspension of Nickel Trading on London Metal Exchange
04/04/2022
The U.K. Financial Conduct Authority, Prudential Regulation Authority and Bank of England have published a joint statement on the London Metal Exchange's suspension of nickel trading between March 8-16, 2022. Trading was suspended due to challenging commodity market conditions following Russia's invasion of Ukraine.
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UK Regulators Publish Statement on Sberbank CIB (UK) Limited Administration
04/01/2022
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Economic Crime (Transparency and Enforcement) Act 2022
03/15/2022
The Economic Crime (Transparency and Enforcement) Act 2022 has received Royal Assent. The Act is designed to increase transparency and enhance the U.K.'s mitigation of money laundering and sanctions evasion. The Act will establish a register for overseas entities and their beneficial owners who own land in the U.K., enhance the sanctions regime and reform measures on unexplained wealth orders. The government has also published a white paper, "Corporate Transparency and Register Reform", setting out its proposals for enhancing the Registrar's powers with a view to improving the transparency and accuracy of the Companies House Register.
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UK Amends License for 30-Day Wind Down of VTB Bank Positions
03/07/2022
The U.K. Office of Financial Sanctions Implementation has published a revised General License under the Russia (Sanctions) (EU Exit) Regulations 2019. The License was first published on February 25, 2022, and allows individuals and entities to wind down transactions involving VTB Bank, including by closing out any positions. In addition, the License permits regulated financial institutions (authorized banks and investment firms, authorized or registered payment services firms and e-money institutions) and financial market infrastructure (recognized U.K. CCPs and CSDs and U.K.-recognized overseas CCPs and CSDs) to take reasonably necessary steps to effect such wind-downs. The revised license expands the definition of "subsidiary of VTB Bank" from VTB Capital plc (and any entity owned or controlled by VTB Capital plc incorporated in the U.K.) to include "an entity owned or controlled by" VTB Bank.
The License took effect from February 25, 2022, and expires on March 27, 2022. HM Treasury has power to amend, vary or revoke the License. OFSI has the power to issue General Licenses for country sanctions regimes under the Sanctions and Anti-Money Laundering Act 2018. -
UK Economic Crime Bill Introduced to Parliament
03/01/2022
The Economic Crime (Transparency and Enforcement) Bill has been introduced into Parliament, following the initial publication yesterday. The Bill is designed to increase transparency and enhance the U.K.'s mitigation of money laundering and sanctions evasion. The Bill will establish a register for overseas entities and their beneficial owners who own land in the U.K., enhance the sanctions regime and reform measures on unexplained wealth orders. On the same day, the government published a white paper, "Corporate Transparency and Register Reform", setting out its proposals for enhancing the Registrar's powers with a view to improving the transparency and accuracy of the Companies House Register.
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European Supervisory Authorities Publish Report on Digital Finance
02/07/2022
The European Supervisory Authorities (the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority) have published a joint report on digital finance and related issues, in response to the European Commission's Call for Advice on digital finance, which was published in February 2021. The Call for Advice sought input to advance the EU Digital Finance Strategy, which was launched in September 2020 and set out the EU's plan to review the EU financial services legislative framework in light of developments in digital finance in order to safeguard financial stability and protect consumers.
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European Securities and Markets Authority Publishes Final Report on Guidelines for Disclosure of Inside Information and Interactions with Supervisors
01/05/2022
The European Securities and Markets Authority has published its final Market Abuse Guidelines on the disclosure of inside information and interactions with national prudential regulators under the EU Market Abuse Regulation. The final guidelines implement the changes to the existing guidelines as proposed in ESMA's July 2021 consultation, with minor amendments.
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European Banking Authority Publishes Opinion on Detrimental Impact of De-Risking by Financial Institutions
01/05/2022
The European Banking Authority has published an Opinion and related report on the detrimental impact of financial institutions' "de-risking" decisions under the EU Fourth Money Laundering Directive. De-risking involves financial institutions refusing to enter into, or terminating, business relationships with counterparties who are associated with higher money laundering or terrorist financing risk, in order to comply with requirements under MLD4. MLD4 mandates that financial institutions should establish policies and procedures to manage the risks to which they are exposed, including ML/TF risks. However, the EBA has found evidence of de-risking of entire categories of customers, without considering individual risk profiles. This can have detrimental effects, including on the EU's objectives on fighting financial crime and the stability of financial systems of EU Member States, as well as reducing financial inclusion.
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European Securities and Markets Authority Issues Statement on Investment Recommendations on Social Media
10/28/2021
The European Securities and Markets Authority has issued a statement on the requirements under the EU Market Abuse Regulation for firms and individuals that make investment recommendations on social media. ESMA is concerned about the potential harm to retail investors who may base their investment decisions on information made available on social media sites, in particular in situations such as the Gamestop case. The EU rules, which are designed to prevent the misleading of investors, apply to anyone based in or outside the EU that distributes information proposing an investment decision about EU financial instruments listed in the EU or financial instruments that depend on or effect the price or value of a listed financial instrument.
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UK Government Launches Review of UK’s Anti-Money Laundering and Counter Terrorist Financing Regime
07/22/2021
The U.K. government has launched a review of the U.K.’s anti-money laundering and counter terrorist financing regulatory and supervisory regime with the publication of a call for evidence. The government is assessing the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime. On the same day, the government also published a consultation on proposed targeted changes to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, referred to as the MLRs. That consultation is focused on the changes needed to ensure the U.K. regime meets international standards. Responses to the call for evidence may be submitted until October 14, 2021. A final report on the findings of the review and, where relevant, possible reform will be published no later than June 26, 2022, in line with the review requirement in the MLRs.
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UK Government Consults on Targeted Amendments to the Money Laundering Regulations
07/22/2021
The U.K. government has opened a consultation on proposed targeted changes to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, referred to as the MLRs. The consultation focuses on the time-sensitive changes that are needed to ensure that the U.K. requirements meet international standards set by the Financial Action Task Force and to strengthen the overall requirements. The government has also opened a call for evidence on the U.K.’s anti-money laundering and counter terrorist financing regulatory and supervisory regime, which is considering the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime. Responses to the MLRs’ consultation may be submitted until October 14, 2021. These MLR amendments will be implemented through secondary legislation due to be laid in Spring 2022.
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European Securities and Markets Authority Launches Consultation on Revised Guidelines for Disclosure of Inside Information Under EU Market Abuse Regulation
07/08/2021
The European Securities and Markets Authority has launched a consultation on proposed revisions to the Guidelines for when issuers can delay the disclosure of inside information in accordance with the EU Market Abuse Regulation. Responses to the consultation should be submitted by August 27, 2021. ESMA intends to publish a final report including its amended Guidelines at the end of 2021.
Issuers of financial instruments that fall within the scope of the EU MAR must publicly disclose, as soon as possible, inside information that directly concerns them. "Inside information" is information that: (i) is not public; (ii) directly or indirectly relates to one or more issuers of financial instruments; (iii) is of a precise nature; and (iv) is likely, if made public, to have a significant effect on the relevant prices of those financial instruments or related derivative financial instruments.
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UK Financial Services Act 2021 Published
04/29/2021
The U.K. Financial Services Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the Financial Services Act 2021. Some provisions of the Act came into force on the date of Royal Assent, with a limited number following on June 29, 2021. The majority of the Act will come into force on a date specified in regulations yet to be made by HM Treasury.
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European Banking Authority Publishes Opinion on Money Laundering Risks
03/03/2021
The European Banking Authority has published its latest biennial opinion on money laundering and terrorist financing risks affecting the EU financial sector. Key risks relate to: (i) virtual currencies; (ii) the provision of financial products and services through FinTech firms; (iii) weaknesses in counter-terrorism financing systems and controls; (iv) "de-risking" by firms which leads to riskier customers resorting to alternative payment channels; (v) supervisory divergence; (vi) crowdfunding platforms; (vii) divergent approaches to tackling tax-related crimes; and (viii) the COVID-19 pandemic.
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