Examining UK's KYC/AML Regulations: Straightforward Overview (2025)

In the UK, businesses are required to adhere to strict Anti-Money Laundering (AML) regulations to prevent financial crimes such as money laundering, terrorist financing, fraud, and other illicit activities. These regulations are enforced by several bodies, including the HM Revenue & Customs (HMRC), the Serious Fraud Office (SFO), the National Crime Agency (NCA), and the Financial Conduct Authority (FCA).

The cornerstone of AML compliance in the UK revolves around a risk-based approach, which includes customer due diligence (CDD), enhanced due diligence (EDD) in higher-risk situations, ongoing transaction monitoring, record keeping, and the appointment of a Money Laundering Reporting Officer (MLRO).

Risk Assessment

Firms must map their business lines, customers, and geographic exposures, assigning and documenting risk scores as a basis for AML measures. This risk assessment provides a foundation for implementing appropriate AML controls.

Customer Due Diligence (CDD)

Verifying client identities and understanding the nature and purpose of business relationships is mandatory. This process includes screening against Politically Exposed Persons (PEPs) and sanctions lists. CDD processes should be proportionate to the assessed risk.

Enhanced Due Diligence (EDD)

EDD is required when higher risks are identified, such as complex or unusually large transactions, and geographic or product risks. The definition of EDD is being refined to focus on “unusually complex” to avoid overly broad application.

Transaction Monitoring

Ongoing monitoring of transactions should be risk-based, with more frequent checks for higher-risk customers. For instance, high-risk customers may require daily checks, while medium-risk customers might be monitored monthly.

Record Keeping

AML records, including customer identification, due diligence documentation, and suspicious activity reports, must be retained for at least 5 years in the UK.

Appointment of MLRO

Regulated firms, including legal services, must designate a Money Laundering Reporting Officer responsible for internal compliance and reporting.

Trust Registration and Transparency

The UK has tightened requirements on trust registration with HMRC, including non-UK trusts interested in UK land needing to register, enhancing transparency measures.

Supervisory Oversight

Firms are subject to supervision by professional bodies or regulatory authorities that enforce risk-based supervisory functions, guided by national risk assessments.

These requirements reflect ongoing reforms aimed at balancing effectiveness with proportionality in the AML regime, incorporating clearer guidance and greater emphasis on practical risk assessments.

Key Service Providers

A KYC (Know Your Customer) service provider must be registered with the Information Commissioner's Office and have access to a wide range of information sources.

Regulatory Bodies

The FCA is the UK's primary AML regulator, mainly overseeing financial institutions such as banks, crypto businesses, and other firms in the financial services industry. Under the Proceeds of Crime Act 2002, businesses must report any suspicious activity to the NCA.

Businesses should understand their organizational structure in relation to combating financial crimes and appoint a nominated officer and a Money-Laundering Reporting Officer (MLRO). They should also have effective and up-to-date screening systems to check customers against various watchlists, including the UK government's financial sanctions list and trade sanctions list.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and its amendments are the main AML requirements in the UK. As of September 2022, all UK and certain non-UK express trusts are subject to AML regulations and need to register with the HMRC.

In summary, UK AML compliance mandates a comprehensive risk-based framework focusing on customer verification, monitoring, transparency, and structured oversight with evolving regulatory reforms to improve precision and implementation.

Businesses in the UK must assign and document risk scores as part of conducting a thorough risk assessment, which serves as a foundation for implementing appropriate Anti-Money Laundering (AML) controls. Verifying client identities, understanding the nature and purpose of business relationships, and maintaining up-to-date screening systems to check customers against various watchlists are all essential steps in this process. The Financial Conduct Authority (FCA), as the UK's primary AML regulator, enforces these regulations on businesses and financial institutions, ensuring that they adhere to strict measures to prevent financial crimes such as money laundering, terrorist financing, fraud, and other illicit activities in the business sphere.