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New UK anti money laundering rules to exempt most gambling providers

The UK government has confirmed that it intends to exempt all high-street and online gambling providers except casinos from anti money laundering (AML) rules.17 Mar 2017

The government published a consultation paper and draft updated AML regulations today which confirmed the exemption, provided for under EU AML rules, on the "basis of the proven low risk posed by the nature and, where appropriate, the scale of operations of such services".

The government took responses to a previous consultation into account, along with the UK National Risk Assessment which deems gambling to be low risk compared to other regulated sectors, it said.

The assessment was based on a number of factors, the government said, including the legislative framework, licence conditions in the UK, the role of the Gambling Commission and action that has been undertaken by the industry.

The Proceeds of Crime Act 2002 requires gambling operators to be alert to attempts by customers to gamble money acquired unlawfully, either to obtain legitimate or ‘clean’ money in return or simply using criminal proceeds. This obliges the gambling operator to continually assess and understand gambling activity by the same customer in different parts of the business, the government said.

Gambling operators also have to be licensed by the Gambling Commission, which sets conditions and conducts suitability checks on all persons relevant to a gambling business. Licence holders have to conduct an AML assessment of their business and develop and implement appropriate policies.

The Gambling Commission has a specific remit to keep gambling crime-free and the power to force the industry to take action. The gambling industry itself has taken steps to mitigate the risks of money laundering, including the creation of the Gambling Anti-Money Laundering Group to work with the Commission on good practice guidelines.

Gambling law expert Audrey Ferrie of Pinsent Masons, the law firm behind Out-Law.com, said: "I am surprised that the status quo has been maintained. The Gambling Commission had indicated that it intended to make out a case for very few, if any, exemptions. I believe that land-based bookmakers in particular will be pleased by this decision."

Christopher Rees-Gay, also of Pinsent Masons, said: "The news that the government will utilise the powers provided within the directive to exempt those sectors which are deemed low risk and therefore maintain the current position where only holders of casino operating licences will be affected will be welcomed by the industry. Had any other decision been made then the burden on operators to meet the requirements would have been very onerous."

The European Union’s 4th AML Directive allows each EU country to exempt all gambling providers other than casinos from the scope of the requirements where there is a "proven low risk posed by the nature and, where appropriate, the scale of operations of such services". The Treasury is responsible for making this determination on risk, advised by the Gambling Commission.

Economic secretary to the treasury Simon Kirby also announced plans to create a new AML watchdog to close loopholes used by criminals.

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) will sit within the Financial Conduct Authority (FCA) and will be launched by the start of next year, Kirby said.

Sectors at risk of AML and terrorist financing are currently supervised by 25 organisations, Kirby said. Having several organisations supervising the same sectors can lead to inconsistencies that criminals can exploit, he said.

OPBAS will set out how professional body AML supervisors should comply with their obligations in the new regulations and ensure they do so, with power to penalise any breaches of the regulations, Kirby said.

The government will develop one piece of AML guidance for each sector to simplify the guidance businesses need to follow, Kirby said. This guidance will complement the Joint Money Laundering Steering Group Guidance and the FCA crime guide, he said.

The updated regulations will also provide clarity for firms on how they should treat politically exposed persons (PEPs). The government has outlined steps to address concerns about the unjustified and disproportionate withdrawal or potential restriction of financial services from domestic PEPs, their families and close associates. The FCA will publish specific guidance on the treatment of low- and high-risk PEPs, Kirby said.