The Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022 introduced a requirement for proliferation financing to be considered in Anti-Money Laundering (AML) risk assessments with effect from 1 September 2022.
What is proliferation financing?
The term ‘Proliferation Financing’ (PF) relates specifically to the proliferation of weapons of mass destruction. This involves financing the manufacture, acquisition, development or exporting of nuclear, chemical or biological weapons and related goods and services supporting them. PF has attracted international attention in recent years, mainly due to the high-profile actions of countries such as North Korea and Iran.
The UK already has measures in place to combat PF, such as the implementation of sanctions against North Korea and Iran, but the UK Government now deems it to be an added threat that all regulated entities should incorporate into their money laundering and terrorist financing risk assessments and due diligence policies. This obligation came into effect from 1 September 2022.
Guidance updates
The FCA rules on systems and controls against money laundering require firms to follow the guidance for the UK financial sector issued by The Joint Money Laundering Steering Group (JMLSG).
JMLSG has recently opened a consultation to amend its guidance, requiring firms to:
- Include proliferation financing in their financial crime risk assessments
- Ensure staff are made aware of the risks of proliferation financing and are trained on how to recognise and deal with transactions potentially involving proliferation financing
What now?
While we expect this to be a low-risk area for our clients, the new obligations require all firms to include proliferation financing into their money laundering and terrorist financing risk assessments, including sectors which pose a low PF risk.
For financial services, the sector likely to be most at risk is firms undertaking trade finance. This is a complex global sector with large trade volumes utilising multiple currencies. In September 2021, the FCA and PRA sent trade finance firms a Dear CEO letter requiring these firms to carry out a financial crime risk assessment.
Make sure you have up-to-date policies, procedures, training and so on.
LHI Consulting can help you with this and many other areas, please click here to see how we can help you achieve your goals.
