That the Grand Committee do consider the Money Laundering and Terrorist Financing (Amendment) Regulations 2026.

Relevant document: 57th Report from the Secondary Legislation Scrutiny Committee, Session 2024-26

I beg to move that the Committee considers this package of changes to the money laundering regulations. They are aimed at improving the effectiveness of the UK’s anti-money laundering and counter-terrorist financing regime.

The money laundering regulations sit at the heart of the UK’s preventive, risk-based approach to tackling illicit finance. They ensure that the UK’s modern and open economy cannot be exploited by criminals seeking to hide the proceeds of their crimes. By requiring banks and other regulated businesses to take reasonable, proportionate steps to detect and prevent money laundering and terrorist financing, the regulations protect the integrity of the UK’s financial system.

However, as new technologies emerge and criminals find new ways in which to launder illicit funds, the regulations must evolve with them. The changes before the Committee represent a significant update to the regime. They ensure that the regulations are focused on the highest-risk activities and threats to the UK system, while closing loopholes and making the regime clearer and easier to use.

This SI reflects the Government’s determination to ensure that regulations strike the right balance between managing risk and enabling growth, as set out in the modern industrial strategy and the regulation action plan published last year. These changes are part of a broader push under the economic crime plan 2023 to 2026 to build a more effective system that turns the tide on dirty money, including major changes that the Government are making to improve our anti-money laundering supervision regime.

Progress is already being made. In the year ending December 2025, there were 8,486 prosecutions for money laundering as a principal or non-principal offence, a 19% increase compared with the previous year. In the year ending March 2025, £285 million of criminal assets were recovered, a 15% rise compared with the previous year, with £47 million in compensation paid to victims out of confiscation order receipts—a six-year high.

I am aware that the Secondary Legislation Scrutiny Committee raised concerns about the timeliness of this legislation in its 57th report. I am grateful to the committee for its input. However, it is important to recognise the complex nature of some of the measures in the SI. Following the public consultation, further technical discussions with industry and anti-money laundering supervisors were necessary on a number of measures, including in relation to bank insolvency, pooled client accounts and crypto assets. I know the Committee will appreciate the importance of getting the drafting right first time to avoid unintended consequences.

This SI consists of measures on four core themes: making customer due diligence more proportionate and effective; strengthening system co-ordination; closing gaps in coverage; and reforming registration requirements for the trust registration service. There are also additional minor and technical changes that serve to improve consistency and ensure the UK complies with the standards set by the Financial Action Task Force, the global standard setter on anti-money laundering.

I turn first to the measures on customer due diligence. These aim to ensure the checks required on customers are proportionate to the risks. This includes the removal of the requirement for regulated businesses to apply enhanced due diligence checks on countries listed by the Financial Action Task Force as jurisdictions under increased monitoring. These are countries found by the FATF to have strategic deficiencies in their regimes. The FATF does not require these checks, and permitting more flexibility here recognises that being linked to a listed jurisdiction does not automatically make a customer high risk. The Government estimate that this change alone will generate savings of £178 million per year for regulated firms, which can then be reinvested in higher-value compliance activity that identifies genuinely suspicious activity. Other changes on customer due diligence include important measures to increase the availability of pooled client accounts for businesses with a legitimate need, and to facilitate continued access to banking services for customers in the event of a banking insolvency.

I turn to the system co-ordination. The SI makes changes to strengthen co-operation and information-sharing between anti-money laundering supervisors and other public bodies such as Companies House, which plays an increasingly integral role in the UK’s defences against illicit finance. To close gaps in coverage, the SI brings the activity of selling off-the-shelf firms within the scope of regulated activities. The SI also makes changes to ensure owners of crypto asset firms do not escape fit and proper checks by the Financial Conduct Authority.

I turn finally to the trust registration service. The SI makes a number of changes to close loopholes that could be leveraged to obscure asset ownership, improve transparency of beneficial ownership of trusts with significant UK connections and refine registration requirements for other types of trust.

The implementation of these measures will be swift, with the majority of measures coming into force 21 days after the SI is made. There are limited exceptions to this, such as for the measures on crypto assets, where a longer implementation period is necessary to give regulated businesses sufficient time both to adjust their systems and processes and to align with the introduction of the new financial services regulatory regime for crypto assets, which will come into force in October 2027. Safeguards have been built into the SI to mitigate risks in the interim period.

In conclusion, these regulations strengthen the UK’s defences against illicit finance by better targeting high-risk activity and closing loopholes in the regime. I beg to move.

My Lords, I thank the Minister for his expansive introduction to this SI. I wish to express concern about two elements of it: the change in the transactions and the change in the rules on trusts.

This all comes at a moment when the OECD and the Financial Action Task Force are pushing every major jurisdiction in the direction of having more transparency, more openness and more recording. It weakens the UK’s stance when we ask other countries to tighten their own procedures. Both the OECD and the FATF have been pushing countries to make registers of beneficial ownership more complete and more accessible. The message that is being sent is, “We need to widen the net”.

Of course, historically, the UK has held itself up as a leader in this area, however hard it might have been to justify that claim. One of my questions for the Minister is: how does this measure align with the Government’s 2025 anti-corruption strategy, which is supposedly aimed at driving dirty money out of the UK and strengthening national security?

I note that, in December, the City of London Police was awarded an extra £15 million to expand its anti-corruption efforts. The Justice Secretary then said that the UK

“will no longer be a haven for dirty money and dictators’ laundered assets”

and promised action to tackle “professional enablers”— the lawyers, bankers and estate agents who we know have been at the heart of some very murky, shall we say, transactions. As the Justice Secretary said at the time, all too often, the trail of dirty money “leads back” to London; he also noted that that is

“exploited by those Kremlin-linked elites who enable Putin’s aggression”.

I come to my two specific points. The greatest area of concern that I can identify—the Minister alluded to this—is the jurisdictions under enhanced monitoring. The SI replaces high-risk third countries with FATF “call for action” countries in the enhanced due diligence trigger. Therefore, we are picking up only countries that are blacklisted now: North Korea, Iran and Myanmar. Previously, the regulations that applied to so-called grey list countries, which called for increased monitoring, included the UAE, South Africa, Turkey, Nigeria and the Philippines.

UK firms transacting with counterparts in those jurisdictions will no longer be automatically required to imply the enhanced due diligence. This seems to place a great deal of trust in UK companies that do not have a great record; I cross-reference back to what the Justice Secretary said in December about dirty money flowing into London. So, in effect, this SI represents a substantial retreat at exactly the moment when we are supposed to be cracking down on illicit finance.

My second area of detailed concern is the register provisions. New paragraph 23A of Schedule 3A to the 2017 regulations will create the first-ever general sized-based exemption from the trust register. If a trust holds no UK land, has under £2,000 in current assets, has never held more than £10,000 over its lifetime and earns under £5,000 a year, it never has to register.

This anti-abuse rule stops only a single settler, but does not allow for the situation where a wealthy family spreads a pot across a spouse, parents, adult children and who knows who else with each acting as a settler. Regulation 25(3) removes stamp duty reserve tax as a registration trigger, quietly pulling share-owning trusts that would otherwise have appeared on the register out of the scope of the register.

For those who might be listening, stamp duty reserve tax is a 0.5% tax when you buy UK shares electronically, so if a trust buys £100,000 worth of UK shares, it pays £500 in SDRT. It is a tiny tax and a tiny tax liability, but at the moment that triggers the registration. There are express trusts that have to register because of what they are, but there are also a large number of trusts that have to register only because of this provision. Trusts that own UK-listed shares are exactly the kind of structure where transparency matters to cleaning up the dirty money and I think to the general public as well. They are how anonymous foreign money often holds stocks in UK companies. The current position means that any trust active in the UK equity market at any scale has been caught, regardless of where it is based or who set it up, so removing it punches a hole in the net specifically to oversee shareholding trusts. I would like to hear some more from the Minister on how the Government see this deregulation as being any kind of positive when we are trying to crack down on the flows of dirty money that the Government acknowledge are flooding into London.

My Lords, these regulations introduce a number of changes following the Government’s 2022 review and the 2024 consultation. I thank the Minister for his clear introduction and for emphasising the important principle of getting things right first time, which partly explains why these reforms have taken time to come in. Some of the changes appear to be sensible. Refining due diligence requirements so that enhanced due diligence applies to unusually complex transactions rather than all complex transactions seems a proportionate step. Likewise, reforming the trust registration service to close identified gaps, while creating an exemption for low-value, low-risk trusts, appears to strike a reasonable balance between maintaining safeguards and reducing unnecessary burdens. To that extent, His Majesty’s Opposition welcome the direction of travel.

However, these regulations also raise a wider and very important question about whether the current anti-money laundering regime is operating as effectively, proportionately and fairly as it should. It is right—indeed, it is essential—that we are robust in tackling money laundering, terrorist finance and financial crime, but it is also essential that the system does not impose excessive costs, drive firms into defensive behaviour or leave innocent customers and legitimate businesses without access to banking services.

The purpose of anti-money laundering regulation is, of course, to prevent crime, but there is growing evidence that the regime can also have a serious unintended consequence, and customers who have done nothing wrong are nevertheless finding themselves excluded from banking services because they are deemed too costly, too complex or too risky to serve. The IEA’s 2024 report, Debanked, argues that under the current regime certain categories of customer may present a higher initial risk profile, but that the cost of establishing whether they are, in fact, engaged in criminal activity can exceed the value of their business to the bank. The result is that some accounts are closed pre-emptively.

The same report also estimates that compliance with anti-money laundering regulations costs UK banks £34 billion a year. That is a very significant burden and one that is ultimately borne by consumers and businesses. That is a huge multiple of the £178 million of savings in compliance costs which I think the Minister mentioned. To put it into context, the sums spent on some of the enforcement agencies are also relatively small. Nearly £100 million is spent on the Serious Fraud Office and £195 million on the Insolvency Service. Police funding, because police are very important in money laundering, costs nearly £20 billion, but that includes the excellent efforts of the City of London Police in this area, which were mentioned by the noble Baroness, Lady Bennett.

What assessment have the Government made of the impact of the current AML regime on access to banking services? Are the considerable costs—the £34 billion I mentioned—imposed by this regime being matched by clear evidence of a proportionate reduction in financial crime, drawing on the resources I have described? Will the Government consider a broader review not merely of whether the system is functioning according to its own internal processes but whether it is delivering the right outcomes in the real world and whether the enforcement regime is fit for purpose? The Minister has mentioned the economic crime plan.

I turn to the issue of complexity. An anti-money laundering and sanctions regime must be clear if it is to be effective. I know this from my experience of trying to enforce the law in the business area. Professional advisers and regulated entities struggle to understand their obligations. If this happens, the result will naturally be worse enforcement. I was slightly concerned to hear that the Solicitors Regulation Authority has described the UK sanctions regime as “complex and challenging”. That should give us pause for thought. If professionals whose work depends on understanding and applying the law find the regime difficult to navigate, we should not be surprised when banks and firms respond by taking the safest possible course—even when that means withdrawing services from customers who may pose no real risk.

Can the Minister confirm whether organisations such as the SRA were consulted before these regulations were laid? Can he explain whether the regulations will materially reduce the complexity in the system? Do the Government intend to bring forward wider reforms to make the regime easier to understand, easier to apply and therefore more effective in achieving its core purpose and preventing financial crime?

Finally, I turn to redress. The consequences of debanking can be severe. A person or business whose account is closed may be left unable to receive payments, pay staff, meet obligations or even operate normally. Yet the process for challenging these decisions can be slow, opaque and deeply frustrating. In 2024, the APPG on Fair Business Banking published a report which found that thousands of customers were being debanked each month, often as a result of financial, regulatory and reputational pressures on banks. Shortly afterwards, the Treasury Committee published data showing that debanking-related complaints to the Financial Ombudsman Service had risen by 44% from 2023. These figures should concern us as they suggest a more systemic problem.

There are also particular groups that appear to be disproportionately affected: individuals with links to higher-risk jurisdictions, politically exposed persons such as ourselves, small businesses, charities and organisations with international connections—at a time when we are trying to encourage overseas investment. A further group the Government should examine closely is defence companies. A survey by ADS, the trade body representing 1,500 small defence companies, found that nearly three-quarters had struggled to access basic banking services, with respondents citing reputational concerns as a key factor behind that trend. I think I will return to this subject when we come to debate the financial services Bill.

These groups are not necessarily illegitimate customers yet, in practice, they seem to be treated, with the way in which the current regime operates, as though they are inherently suspect. Given the Government’s stated priorities of driving economic growth and increasing defence spending, this is surely an issue to which the Minister should be paying close attention. What consideration have the Government given to the impact of the AML regime on these groups? What steps are being taken to ensure that banks do not respond to regulatory pressure by simply excluding legitimate customers? Does the Minister accept that, if increasing numbers of affected customers are turning to the Financial Ombudsman Service, there is a strong case for looking at not just individual complaints but the structure of the regime itself? I asked that question at the beginning of my remarks.

My Lords, I thank the noble Baronesses for their questions. They were many in number so we will scour Hansard and, if there are any that I do not answer, we will of course respond with letters.

I turn first to the points made by the noble Baroness, Lady Bennett; I hope to cover them all, though not necessarily in the order in which she made them. She mentioned enhanced due diligence as far as high-risk jurisdictions, especially the likes of Russia and China, are concerned. The money laundering regulations contain specific provisions requiring enhanced due diligence in relation to geographic risk, which are unchanged by this SI. Firms must still assess and manage geographic risk as part of their overall risk-based approach and apply EDD wherever high risk is identified, in line with the requirements set out in the regulations. Firms will be expected to consult government guidance, such as the National Risk Assessment of Money Laundering and Terrorist Financing 2025, which provides a more UK-focused, nuanced and sector-specific view of the risks. Jurisdictions that present a risk in the UK but are not currently listed by the Financial Action Task Force, such as Russia, China and the UAE, are referred to in the national risk assessment for the UK.

On the changes to the due diligence requirements, some countries on the FATF’s increased monitoring list are recognised as presenting more of a regional risk than an international one, perhaps due to the lack of specialised and international-facing financial sector or strict currency controls. The Financial Action Task Force recommends enhanced due diligence to be mandatory only for countries on the separate “call for action” list, which will continue to be the case following this change.

The noble Baroness asked a question on asset recovery. The 2026-29 ECP will set out the Government’s next whole-system approach to tackling economic crime. It will consolidate key strategies, including the fraud and anti-corruption strategies and the forthcoming anti-money laundering and asset recovery strategy, into a single coherent framework for delivery. The plan will focus on strengthening cross-system prioritisation and deliver grip and the long-term funding and capabilities needed to respond to evolving economic crime threats.

On reforms to the trust registration service, the Government are making targeted changes to particular categories of trusts to ensure that requirements to register remain proportionate to the risk. Recognising that registration must be proportionate to risk, certain types of trusts are excluded from the requirement to register on the grounds that they either pose an inherently low risk of money laundering or are already regulated elsewhere.

On the database for trust registration, trusts are frequently established for legitimate and highly personal reasons, such as to hold assets for children or vulnerable adults. The Government believe that placing the information held on the trust register into the public domain would infringe the privacy rights of individual beneficial owners, the vast majority of whom are not involved in any money laundering activities. The information held on the register is available on request to law enforcement agencies and other relevant parties to assist with anti-money laundering investigations. The Government believe that this approach strikes the right balance between the conflicting demands of transparency and privacy.

The noble Baroness, Lady Bennett, made a point about stamp duty reserve tax. In taking a risk-based approach, the Government consider that the role of stamp duty reserve tax in enabling and detecting money laundering or terrorist financing is not proportionate to the administration placed on trusts by this requirement. The current regulatory framework focuses on those entities with significant links to the UK. The Government consider that a liability to stamp duty reserve tax is not, in isolation, indicative of a significant link to the UK. Entities with significant links to the UK are more likely to be those with significant property assets or liabilities for income, capital gains and inheritance tax. The collection of stamp duty reserve tax is already administered by the Government, and the sale of shares already sits within a broader regulatory environment.

I welcome the approval of the general thrust of the SI from the noble Baroness, Lady Neville-Rolfe. She raised several issues that I hope I can answer. The money laundering regulations form a core part of the UK’s defence against economic crime. They aim to ensure that attempts to launder money through banks and other regulatory businesses are prevented or detected and flagged to law enforcement. The SI is part of a wider suite of government action on money laundering and economic crime in general. This includes the publication of the National Risk Assessment of Money Laundering and Terrorist Financing 2025 in July 2025, the delivery of two economic crime plans—2019-22 and 2023-26—with a further economic crime plan in the pipeline, the new anti-corruption strategy in December 2025, the new fraud strategy in March 2026 and anti-money laundering supervision reform.

At Budget 2025, the economic crime levy, which is paid by businesses regulated under the money laundering regulations, was raised to generate an additional £110 million for initiatives to tackle economic crime. In my opening speech, I mentioned some of the benefits from what we have achieved and are going on to achieve. The Government have committed to recruit 475 new roles by September 2026 to help clamp down on money laundering; £284.5 million of criminal assets were recovered in the year to March 2025; and there have been nearly 8,500 prosecutions and 3,892 convictions for money laundering as a principal and non-principal offence. This is a big increase, of nearly 20%, from before.

On refusal to open bank accounts, the FCA requires banks to treat customers and prospective customers fairly, to take proportionate and non-discriminatory account opening decisions and to apply the consumer duty across the full onboarding journey. Where someone is dissatisfied with how a decision has been handled, they can complain to the firm and escalate the matter to the Financial Ombudsman Service, which can assess whether the firm has acted fairly. In addition, where an individual is denied access to a standard current account, the UK’s nine largest personal current account providers are legally required to offer basic bank accounts.

I turn to derisking and bank account closure. Economic crime, including money laundering, poses a rapidly growing and increasingly complex threat to the UK’s national security and prosperity. It fuels the serious organised crime that damages the fabric of society. In the face of this threat, the Government believe that due diligence checks, applied proportionately, are an essential tool to protect firms and their customers from fraud and other financial crime, as well as assisting law enforcement in investigating criminal activity.

On the SRA and sanctions, the original consultation received hundreds of responses. The legal sector, as the noble Baroness pointed out, expressed some concerns, but changes made following the technical consultation are expected to address most of those. Financial services and most other sectors have welcomed the shift away from tick-box compliance, particularly the reforms to increase flexibility around enhanced due diligence. Civil society and anti-corruption organisations supported the measures to close loopholes and improve system co-ordination, while expressing measured concern about EDD changes. A recent blog by Spotlight on Corruption stated that most of the measures in the SI were “unambiguously positive”.

On debanking, banking services fulfil a vital role for millions of people. The Government have legislated to ensure customer protection in cases where their bank account is terminated by the provider. Payment service providers are required to give customers at least 90 days’ notice before closing their account under new rules which came into force in April 2026. Providers will also need to provide a clear explanation to customers in writing so that they are able to challenge decisions, such as through the Financial Ombudsman Service.

I turn to the difficulties facing SMEs in accessing a bank account. Access to banking services is obviously vital and the Government have introduced new rules to require banks to give customers 90 days’ notice. These new rules will ensure more transparent and predictable access to banking, and the Government will continue to monitor wider access to bank account provision.

On the difficulties facing charities in accessing a bank account, charities and community groups make a valuable contribution to society. UK Finance, banks and charity representative groups have worked together to provide the voluntary organisation banking guide, aimed at supporting charities and community groups to access banking services. We will continue to monitor wider access to bank account provision while recognising that it is largely a commercial matter.

The noble Baroness mentioned defence companies and their access to bank accounts. Access to finance is a significant issue for defence firms, particularly SMEs. No company should ever be denied access to financial services solely on the basis of its work in the defence sector. The banking sector should never take a blanket approach to any one sector. The Government are actively engaging with banks to ensure that they understand the importance of the defence sector. The FCA has worked to understand why banks might close or reject accounts. Where it has found areas where firms need to improve customer outcomes, the Government expect firms to consider its findings.

I have just been musing on something that the noble Lord said that I think I wrote down correctly: namely, that stamp duty reserve tax liability does not indicate a significant link to the UK. We need to consider that statement in the context of how much UK infrastructure and its essential services have been privatised. I am thinking of water companies and infrastructure construction: indeed, large-scale defence companies in foreign ownership. I will understand if the Minister wants to write to me. I am not necessarily asking for a direct answer now, but what provisions do the Government have to make sure that this weakening of the regulation does not open up the ownership of some of those things that in the current geopolitical climate are of grave concern from a security aspect?

First, this is not a weakening of the regulation but a balanced approach that we take in this whole area. I will set out the arguments in greater form for the noble Baroness and write to her with the specifics.

I come back to the issue of debanking. The Minister said some very useful things. This is debanking. We talked about defence companies and I look forward to hearing the results of that active engagement. I have talked in the APPG to individual defence companies that have had difficulties in this respect and we need to be supporting our defence companies, especially the innovative ones, given the change in the nature of weapons and so on at this difficult time.

The banks are required to offer basic banking and give 90 days’ notice if they want to close an account. When you are given notice of the closing of an account, you then have to go to another bank and go through the whole system of being approved by it. I have tried to set up a new bank account at Metro to complement my account with one of the major four banks. Frankly, I gave up. Once you are in the system, it is absolutely fine. My bank knows about me: I have been banking there for years. But, if you try to go to a new bank, it is quite complicated: a lot of questions are asked and you give up.

This all links to what the Minister is trying to do, which is to make it easier for citizens who do not necessarily have a good credit record to have a bank account, because it is important for them to be able to operate an account, save, have a card and so on. I wanted to emphasise that point and say that the Government’s work is important. If more progress is made in that area, I should be very interested to hear about it.

In response to the noble Baroness, there is the 90 days’ notice and the access to basic bank accounts, et cetera. There is ongoing work in this area. I can write to her and let her know exactly where we are up to in all of this, so she will have some awareness of where the Government intend to go.