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HMRC internal manual

Money Laundering Regulations: Compliance

Our risk based approach to supervision: Background and principles

The Money Laundering Regulations 2007 implement the EU Third Money Laundering Directive. This in turn is based on recommendations produced by the Financial Action Task Force (FATF) which is an inter-governmental policy making body for combating money laundering and terrorist financing.

The FATF recommendations support the adoption of a risk-based approach to combating money laundering and terrorist financing. The FATF produced guidance on the high-level principles and procedures to be adopted by financial businesses and public authorities in 2007 following international consultation with both public and private sectors. You can view the FATF website for further information.

The UK Money Laundering Regulations 2007  guidance provided by HMRC and other supervisory bodies implement the risk-based approach in the UK.

The reason for the risk-based approach is to allow financial institutions and designated non-financial businesses covered by the Regulations to apply measures to prevent or mitigate money laundering and terrorist financing that are in line with the risks they are exposed to.

The risk based approach helps businesses to implement the requirements of the MLR 2007 in a way that is most cost-effective and focuses resources where they will have most impact in preventing money laundering and terrorist financing.