The UK’s anti-money-laundering regime is moving away from highly prescriptive rules towards a more risk-based approach that will require accountants to adapt their customer due diligence, risk assessment and transparency measures.
The reforms – driven by the latest National Risk Assessment, the Treasury’s response to its 2024 consultation on the Money Laundering Regulations (MLRs), and draft legislation published last month – have important implications for accountants.
They aim to reduce unnecessary compliance burdens – particularly for low-risk clients – while sharpening focus on areas of genuine risk such as complex ownership structures, high-risk jurisdictions and unusual funding sources.
‘These reforms represent an evolution rather than a fundamental shift,’ says Fraser Mitchell at AML software provider SmartSearch. ‘They refine risk assessment processes and provide clearer guidance without overhauling the regulatory framework.’
Practical burdens
When publishing the draft AML legislation, the Treasury said it will ‘close regulatory loopholes, address proportionality concerns, and account for evolving risks in relation to money laundering and terrorist financing.’ Specifically, the government is considering changes to customer due diligence, pooled client accounts, crypto-asset regulation and trust registration that may simplify some requirements but could add practical burdens for firms handling trusts and client funds.
John Binns, a partner at BCL Solicitors, says the most significant changes for accountancy firms redefine ‘the triggers for when enhanced due diligence is mandatory’ for certain customers and transactions.
‘Full compliance checks still need to be run on all new clients’
Firms are already required to conduct customer due diligence and apply enhanced checks in certain circumstances, such as where clients are based in high-risk third countries or have a complex ownership structure. The amendments narrow the number of high-risk countries for which firms must apply enhanced due diligence (EDD) to countries on the Financial Action Task Force’s ‘call for action’ lists: North Korea, Iran and Myanmar.
This ensures firms can direct their resources to jurisdictions that present the greatest risk to the UK. However, firms will still need to consider whether there is otherwise a high risk of money laundering in considering whether to apply EDD.
‘It will mean that you take that into account in your risk assessment so that you can make a judgment call,’ Binns says.
Size and complexity
In a further clarification, the government also tweaked the wording of the regulations so that EDD is required only for transactions that are ‘unusually complex or unusually large’ relative to what is typical for the sector or the nature of the transaction. The change does not introduce a new obligation but rather refines the existing requirement so that firms can direct compliance resources towards high-risk transactions, rather than routine transactions that do not warrant additional scrutiny.
‘If there are no other high-risk factors for those customers and transactions, they would fall out of that category,’ says Keith Williamson at Alvarez & Marsal. ‘Whether that is significant or not depends on the nature of your business and whether you have got customers in these locations and transactions.’
No shortcuts
According to a 2025 report by SmartSearch, 73% of accountants struggle with compliance complexities, and 34% cite red tape as a top-three business challenge, making streamlined simplified due diligence (SDD) a welcome flexibility. But this should not be seen as an excuse to shortcut essential checks, says Mitchell.
‘Full compliance checks still need to be run on all new clients – individual and corporate – at onboarding, and all clients need to be rechecked on a regular basis throughout the business relationship,’ he says.
Accountants should focus on preparing for a gradual shift
Despite the proposed reforms, the same core obligations remain in place. Accountants must still identify, assess and mitigate money laundering and terrorist financing risks through risk assessments, policies, controls and procedures.
Before making formal revisions, firms should await the legislation to be enacted, says Harriet Holmes at client due diligence platform Thirdfort. But she suggests that accountants should begin to focus on reviewing risk assessments, enhancing proportionality and preparing for a gradual shift towards smarter, more targeted compliance approaches.
‘Supervisors expect judgment, not box-ticking: the reforms deliberately narrowed “complex transactions” to “unusually complex transactions” to stop firms applying EDD indiscriminately,’ Holmes says. ‘Now the onus is on practitioners to think critically about what is “usual” in their client base.’
Sale of companies
The government also announced changes to tighten controls on the formation and sale of UK companies by bringing the sale of ‘off-the-shelf’ companies within the scope of regulated trust or company service provider activity.
This means that TCSPs selling off-the-shelf firms must now comply with AML obligations, including customer due diligence and ongoing monitoring.
At the same time, the government said it will close loopholes that could be used to obscure beneficial ownership of trusts by expanding the categories of trusts required to register on the Trust Registration Service.
The reforms tie in with a wider initiative by Companies House to enhance transparency regarding beneficial ownership.
Pooled accounts
The government is also changing the due diligence requirements in relation to pooled client accounts (PCAs). The draft regulations decouple PCAs from the SDD framework and introduce a new provision requiring them to take reasonable measures to understand the purpose of the PCA and consider imposing additional controls on the PCA where appropriate to manage risk.
‘The changes to the treatment of client accounts by banks could prove challenging’
Colette Best, director of anti-money laundering at Kingsley Napley LLP, says the ‘greater flexibility to apply a risk-based approach is certainly helpful, although the changes to the treatment of client accounts by banks could prove challenging for accountants’.
The government consultation ended in September, with the final legislation expected to be put forward in early 2026, while supervisors and regulators will update sector-specific guidance.
However, Best says the ‘more exciting’ consultation on the horizon for accountants is the government’s long-awaited plans to overhaul AML supervision for the sector, which has yet to be published.
