What are the implications of Brexit on Anti-Money Laundering legislation
and KYC requirements in the UK?
On 29th March 2017, the United Kingdom started the process of withdrawing from the EU. Whilst the leaving process is expected to be complete by March 2019, many decisions will be made before then that will determine what a post-EU UK looks like. Let’s have a look at what the implications of Brexit will be on AML and KYC requirements in the UK.
UK no longer tied to EU AML requirements
When the UK withdraws from the EU, it will no longer have to comply with the EU’s anti-money laundering requirements. The UK could implement intentional divergence between their legislation and the EU’s anti-money laundering legislation. However, this would mean that international companies that are active in both the UK and the EU would have to comply with two different systems, which is costly and time-consuming.
UK tied to international AML requirements
There are many aspects of the international anti-money laundering regulation system that suggest that Brexit won’t have a significant impact on UK AML regulation—at least in the short term.
In Europe, AML requirements are established by three entities—firstly, by the Financial Action Task Force (FATF). FATF is an inter-governmental organization responsible for the development of the international anti-money laundering framework. FATF has 36 members, including the EU and the UK. Secondly, by the EU, and finally by the states themselves.
In practice, the EU adopts directives which respect the FATF requirements and states then transcribe those directives into their national law. The EU directives are minimum harmonization directives which means that member states have to follow this common threshold but can also impose stricter requirements on their territory.
Given that the legislations from the FATF is a common framework for the EU and the UK, both will continue to comply with these requirements in the future. As a result, AML legislations should evolve in a similar way in the UK and EU.
For the UK economy, it would be in best the interest of the UK to keep their KYC requirements similar to the EU. If the UK does not maintain its EEA membership after Brexit, then when UK financial institutions transact with EU financial institutions, they will be subject to the EU’s anti-money laundering legislation and if there is a large variation between legislations it would have a negative impact on the UK economy.
In conclusion, while there could be some differences between the UK and EU anti-money laundering legislations in the long term, we expect that the UK will maintain legislations similar to the EU in the short-term.