- July 18, 2025
- Posted by: FCS Compliance
- Category: News, Property Market
On 17 July 2025, HM Treasury published its official response to the consultation on improving the effectiveness of the UK’s Money Laundering Regulations (MLRs). This is the most substantial set of proposed AML reforms since the UK’s departure from the EU, and although the changes have yet to be formally implemented, the direction of travel is now clear.
At its core, the government’s intention is to make the MLRs more targeted, proportionate, and risk-based, reducing administrative burdens where appropriate, while focusing on higher-risk areas. For estate agents and letting agents, there are a number of important implications that should be understood and planned for ahead of formal legislative updates and revised sector guidance.
Clarification on when a business relationship begins
One of the most welcome developments is the proposed clarification around when a business relationship begins. This has long been a grey area for letting agents in particular, with differing views on whether Customer Due Diligence (CDD) must be completed before accepting a holding deposit, issuing a memorandum of let, or executing a tenancy agreement. These upcoming changes should make it easier for firms to align compliance requirements with operational realities, and to ensure that CDD checks are completed at the correct point in the transaction, without unnecessarily delaying progress.
Threshold to move from Euros to Pounds
Another area of change is the decision to redenominate thresholds currently expressed in euros into pounds sterling. While this is largely symbolic, it simplifies matters for UK businesses who previously had to monitor exchange rate fluctuations and convert values to determine whether a threshold had been triggered. In practical terms, most property businesses are unlikely to be directly impacted by this, but it does form part of the government’s broader move to localise and simplify post-Brexit regulation.
Changes to EDD requirements
Enhanced Due Diligence (EDD) requirements are also being recalibrated. EDD will only be mandated for transactions involving jurisdictions on the FATF “Call for Action” list (also known as the Black List), in other words, countries subject to the highest levels of international AML concern. This is a welcome refinement. The previous blanket requirement to apply EDD to all “Grey List” countries has now been removed, and firms are expected instead to adopt a proportionate, risk-based approach when dealing with such jurisdictions. It is important, however, to ensure that staff understand the difference between FATF Black List and Grey List countries, and that risk assessments reflect the revised expectations.
Of note too is the government’s plan to issue clearer guidance on what constitutes an “unusually complex transaction”, another trigger for mandatory EDD. Another term that has caused uncertainty in the past, property professionals should expect a focus on structures or arrangements that conceal beneficial ownership, involve multiple layers of entities, or obscure the true source of funds. It is important to note, as with all these changes, that formal clarification is still to come.
Guidance on Source of Funds Checks
Alongside this, HM Treasury has committed to providing practical guidance on when and how to undertake source of funds checks during ongoing monitoring, particularly relevant in longer-term relationships or transactions that evolve over time. While this may have less impact on single residential sales, it is especially pertinent for letting agents with long-standing landlord clients or those managing large portfolios.
Digital ID Verification
A potentially transformative development is the government’s endorsement of digital ID verification. A new framework, supported by formal guidance, will set out the standards and assurance levels expected of digital ID tools used to meet AML requirements. For estate and letting agents, this presents an opportunity to improve both compliance and client experience by integrating verified, secure digital ID solutions into onboarding processes, but only where those solutions meet the government’s forthcoming criteria. Firms should begin reviewing their existing providers and consider whether changes or upgrades may be needed.
Wait for Revised Guidance
Finally, all of these regulatory updates will need to be reflected in revised guidance from supervisory bodies. For most property firms, this means keeping a close eye on updates from HMRC, which is expected to publish refreshed Estate Agency and Letting Agency Guidance in the coming months. Once that happens, businesses will need to revise their AML policies and procedures, firm-wide risk assessments, training materials, and client-facing documentation to ensure consistency.
While the legislative timetable is still to be confirmed, the government has indicated that implementing legislation and sector guidance updates will follow shortly. For now, firms would be wise to review their current practices against the announced direction of reform, and to begin preparing for updates, particularly in relation to risk assessment processes, digital ID integration, and staff training.
Key Takeaways
- CDD Timing: Expect clear rules on when the business relationship begins, especially useful for letting agents managing pre-tenancy stages.
- EDD Focus: EDD will only be mandatory for FATF “black list” countries or unusually complex transactions. Grey list countries no longer trigger EDD automatically.
- Source of Funds: Additional guidance is expected on when to revisit source of funds checks during ongoing client relationships.
- Currency Thresholds: Existing euro-denominated thresholds will be converted to pounds, simplifying interpretation for UK-based businesses.
- Digital ID Verification: New government-backed standards will provide greater clarity and assurance for using digital identity tools.
- Supervisory Guidance: HMRC will update sector-specific guidance, this will require firms to review and revise internal AML documentation and training accordingly.
These changes offer an opportunity for firms to enhance compliance while streamlining operations. Those who stay ahead of the curve will not only be prepared for regulatory changes but will also build trust with clients by demonstrating robust, modern AML practices.
If you’d like help reviewing your AML processes or preparing for these updates, our team is here to support you. Contact us by email at info@fcscompliance.co.uk or call us on +44 (0)20 7924 7979
