Anti-money laundering regulations and lenders

Anti-money laundering (AML) regulations in the UK are designed to prevent money laundering and terrorist financing activities, so they play an important role in fighting crime.

These regulations apply to all financial institutions, including lenders, and require them to implement robust AML policies and procedures.

Lenders are particularly vulnerable to money laundering as they are involved in the flow of funds. This is why it is crucial for them to have effective AML measures in place to identify and prevent suspicious activity.

But in today’s ever evolving and digital world, this can prove to be tricky and time-consuming.

How do the AML regulations apply to lenders?

The regulations for lenders are set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).

These regulations require lenders to apply due diligence measures to their customers when establishing a business relationship.

But it doesn’t end there; they must also carry out ongoing monitoring, and report suspicious activity to the relevant authorities.

Customer Due Diligence (CDD) involves verifying the identity of the borrower, assessing the risk associated with the relationship, and monitoring the relationship on an ongoing basis.

Lenders are required to carry out due diligence before establishing a business relationship with a borrower, which means that they must obtain and verify the borrower’s identity, as well as understanding the nature of their business and how funds will be used.

Ongoing monitoring is also required to ensure that lenders are able to identify and report suspicious activity. Keeping records of business relationships and transactions, as well as reviewing them regularly to identify any unusual activity, is just another part to the process.

In addition to CDD and ongoing monitoring, lenders are required to report suspicious activity to the National Crime Agency (NCA).

This includes any activity that may be indicative of money laundering or terrorist financing, such as large cash transactions, unusual patterns of activity, or attempts to conceal the identity of the borrower.

Summing up

Overall, the UK’s AML regulations for lenders are designed to prevent money laundering and terrorist financing activities and protect the financial system from abuse. By implementing robust AML policies and procedures, lenders can help to ensure that they are complying with the regulations and protecting themselves and their customers from financial crime.