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UK seeks to improve AML regulations, Credas CEO shares insights

UK seeks to improve AML regulations, Credas CEO shares insights

In the UK, HM Treasury has published a consultation on improving AML regulations. The CEO of Credas spoke on improving AML on Today’s Conveyancer Podcast.

Consultation on improving AML regulations

In March, HM Treasury released a consultation on improving Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs), a series of requirements for businesses, as a follow up to the Treasury’s broader commitment to reduce money laundering as set forth in the Economic Crime Plan (2023-26).

The consultation, which will close on June 9th, primarily covers issues that have already been identified in previous reviews like one in 2022 that found a number of technical changes that could be made to improve effectiveness and proportionality for firms and customers.

“Where there is room to find a better balance between what we ask of regulated firms and customers, and the risk of money laundering and terrorist financing, then we want to seek to address this,” said Treasury Minister Baroness Vere according to Legal Futures.

The Treasury asks if regulation 27 sets out clear conditions for customer due diligence (CDD) trigger points so firms can understand their obligations. It also considers bespoke guidance on regulations regarding digital identity verification. This guidance could include how firms could leverage the UK Digital Identity and Attributes Trust Framework (DIATF) for checks.

For enhanced due diligence, firms were asked whether they used the risk factors in regulation 33(6) such as whether the customer is the beneficiary of a life insurance policy, or whether a transaction involves goods of cultural or religious value, in identifying suspicious activity.

The Treasury notes that it is not required by law to conduct EDD when a customer meets these factors, rather that the risks posed by the factors are considered. Still, firms reported that complying with requirements for customers and transactions in third countries that are deemed high-risk were “expensive and burdensome.” Others found that some factors were not particularly useful to identifying suspicious activity.

The consultation also asks about registration requirements for custodial wallet providers, given the unique risk factors of the crypto sector.

Also of note, the Solicitors Regulation Authority, who issued a warning notice on widespread AML noncompliance in October 2023, pitched to be the sole AML supervisor for legal services shortly after. Baroness Vere said the government will make a decision on the matter “in the coming months.”

Credas CEO discusses AML compliance

Tim Barnett, CEO of identity and AML verification company Credas discussed streamlining and improving AML and customer due diligence on Today’s Conveyancer Podcast.

Conveyancers and the property profession more broadly play an important economic and societal role in maintaining legitimate transactions, and while this can be cumbersome to do, identity verification services like Credas can reduce the administrative burden while maintaining effectiveness.

Document verification, for instance, involves analyzing 72 subjects on the document. “We call it IDV, but really it’s dozens of mini-checks that go into confirming somebody’s identity,” explains Barnet. Credas leverages a number of data sources from credit reporting agencies and databases of deceased people to perform AML, resulting in more certainty than what can be provided by a bank statement – which can easily be faked.

He emphasizes that firms are often “not compliant when they believe they are.”

If a firm’s process “involves the emailing of ID documents, like a driver’s license or passport” or “typing in a passport number into a system, that will almost certainly not meet the levels required by legislation to be compliant.” Firms are also not compliant if they’re not regularly rerunning checks throughout the duration of their relationship with a client.

While AI can be leveraged as part of AML verification, generative AI poses a serious threat to security, creating an “AI battle…where fraudsters are using AI to create fake documents, and we’re using AI in order to be able to stop them,” he says. AI makes generative fake IDs substantially easier, but it also facilitates identifying even the most convincing fakes.

The DIATF sets a standard for digital identity providers, allowing the UK to regulate digital identity documents without the government having centralized control. Credas is a certified IDSP under the DIATF.

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