HM Treasury has published its response to the consultation on Customer Due Diligence (CDD) and the UK’s Money Laundering Regulations (MLRs), proposing targeted reforms aimed at proportionality and effectiveness. Meanwhile, the Financial Conduct Authority (FCA) has finalised new guidance recalibrating the regime for politically exposed persons (PEPs), reducing compliance burden for domestic PEPs and clarifying procedural obligations for firms.
What Are the Latest Steps Announced by HM Treasury on Money Laundering?
As reported by Ropes & Gray, on 17 July 2025, HM Treasury released the outcome of its consultation into the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, also known as the Money Laundering Regulations (MLRs). According to Ashurst, this decision is part of the governing strategy to boost financial services competitiveness and respond to industry concerns about the regulatory burden.
The government’s Economic Crime Plan 2023-2026 underpins this approach, with the latest reforms specifically seeking to clarify and strengthen the requirements around Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) in the UK.
Key Features of HM Treasury’s Response
As outlined by Ropes & Gray and echoed by ICAEW, the response identifies a critical need for proportional and effective due diligence. Some organisations had highlighted that mandating EDD for every “complex or unusually large” transaction was excessive, especially for industries like mergers and acquisitions where complexity is the norm. In reply, HM Treasury confirmed it would adjust guidance to focus on “unusually complex” transactions while urging firms to maintain vigilance regarding wider risk factors, including geographic and customer-based risks.
The consultation also covered CDD triggers for non-financial firms. As the UK Government’s consultation response published on 17 July 2025 reveals, most respondents were satisfied that existing CDD triggers were clear, but those who disagreed sought additional sector-specific guidance and preferred financial thresholds set in sterling rather than euros.
Reforms for Accountants and Professional Services
Mike Miller, Economic Crime Manager at ICAEW, told ICAEW News that these changes represent an “era of heightened expectations” for the accountancy sector. The regulations aim both to close loopholes and streamline processes, ensuring a risk-focused application, especially when dealing with trusts, companies, or client money.
Key proposals:
- Enhanced dual obligation for high-risk third countries, particularly aligning with jurisdictions under Financial Action Task Force Calls for Action.
- Clarification of requirements around pooled client accounts for improved access and safeguards.
- Extension of anti-money laundering oversight to the sale of “off-the-shelf” companies, which will now be within regulated activities for company service providers.
- Greater scrutiny of cryptoasset activities among advisors and auditors, requiring more vigilance in risk assessment for these novel sectors.
Timelines and Practical Considerations
According to ICAEW and solicitorsjournal.com, the government intends to introduce a draft statutory instrument with formal legal amendments later in 2025, following a short period of technical consultation. Parallel updates to sector-specific guidance by professional bodies and the Joint Money Laundering Steering Group will be published to ensure clarity and workable compliance.
Why Did the FCA Update Guidance on Politically Exposed Persons (PEPs)?
As reported by Charles Russell Speechlys, on 7 July 2025, the FCA published its Finalised Guidance FG 25/3, significantly altering how firms treat PEPs under the revised UK regime.
This reform follows amendments to Regulation 35 of the MLRs, enacted on 10 January 2024, which create a clear distinction between domestic and foreign PEPs. In practice, domestic PEPs – such as UK politicians and civil servants – and their close associates or family members are now presumed to pose a lower risk of money laundering.
What Changes Has the FCA Made to Domestic PEPs Classification?
Charles Russell Speechlys and TLT (Sam Omozusi) confirm that under the recalibrated approach, firms are no longer required to apply automatic EDD simply because an individual is a domestic PEP. Instead, enhanced steps must only be taken if there are additional risk factors present, such as:
- Connections to a high-risk jurisdiction.
- Adverse media coverage indicating possible financial crime.
- Involvement in international financial activity or irregular wealth accumulation.
The FCA also specifies that non-executive directors (NEDs) of UK civil service bodies should not be considered PEPs, resolving previous uncertainty. When a PEP, or their related parties, no longer qualify under the definition, their status must be removed promptly.
Requirements for Firms and Senior Management Responsibility
The FCA—cited by TLT and ugiCompliance—has affirmed that senior management must still approve PEP relationships, but clarifies that ‘senior’ means anyone with adequate knowledge and authority regarding the customer, not necessarily C-suite executives. Firms must maintain clear documentation of their risk assessments and update customer classifications periodically, reflecting a risk-based, proportionate approach.
Sam Omozusi at TLT notes that these revisions have been welcomed by industry for tempering previous overreach—in particular,
“the focus on proportionality and clarity for treating domestic PEPs”.
However, industry remains cautious about interpretation at the firm level, especially regarding timely declassification and maintaining fair treatment under the FCA’s Consumer Duty.
Industry and Regulatory Feedback
According to FCA’s feedback statement outlined by Charles Russell Speechlys, industry representatives had pushed for more list-based EDD criteria and fixed timeframes for PEP declassification. The FCA declined, citing the need for flexibility and a risk-driven regime, but encouraged prompt, evidence-based reviews when individuals cease to be PEPs.
How Will These Measures Impact Different Professionals and Sectors?
Accountants and Legal Professionals
As flagged by ICAEW and Law Society representatives (quoted by Juliet Shaw, Solicitors Journal), these reforms may increase the workload for professionals dealing with client money or corporate structures, especially where beneficial ownership is complex. Training and procedural updates will be essential to meet the higher expectations for risk-based monitoring.
Financial Services Firms
According to Ropes & Gray and Sam Omozusi, financial services firms must adjust internal frameworks, staff training, and governance processes to ensure compliance with both HM Treasury’s updates and the FCA’s finalised PEPs guidance. Senior management should take a direct role in reviewing high-risk relationships and overseeing EDD processes.
What Are The Next Steps for Implementation?
As reported by Ashurst and ICAEW, before the new legal instrument comes into force, a short technical consultation will precede Parliamentary approval. In parallel, regulators and industry supervisory bodies will develop updated guidance capturing the new requirements and sector-specific needs. The FCA has requested feedback on certain procedural aspects and will report on progress regarding Consumer Duty for wholesale firms by 30 September 2025.
How Has the Legal Profession Reacted to the Reforms?
According to Solicitors Journal, Juliet Shaw reports that the Law Society expressed “disappointment” that the consultation outcome did not do more to address over-complexity and perceived gaps in the supervision framework. However, there is broad agreement across titles that the move towards greater proportionality and sector-specific guidance is welcomed, provided it does not add further ambiguity.
The UK government, through HM Treasury and the FCA, is pursuing targeted, proportionate reforms to strengthen the country’s anti-money laundering defences while reducing unnecessary compliance burdens for lower-risk cases. The focus on a risk-based approach, practical enhancements for professional services, and a recalibrated framework for domestic PEPs together signal a new phase in the country’s financial crime strategy. As industry adapts to these changes, ongoing engagement with supervisors and diligent review of forthcoming technical guidance will be essential.