The National Risk Assessment 2025 (NRA)

Lime supports retail financial companies that are not financial institutions. Think Pawnbrokers, Bureau de Change, Cheque-Cashers, Money Transmitters and High Value Dealers. These companies are in scope for Money Laundering Regulations just like Banks.

The National Risk Assessment is a joint production of His Majesty's Treasury and the Home Office and is a legal requirement from the Money Laundering Regulations. It is important for all sorts of reasons, not least in that it informs the approach that government, law enforcement and regulators take to the interpretation, implementation and enforcement of the regulations and guidance around money laundering, terrorist financing and proliferation financing.

This note doesn't review and consider the substance of the NRA, but rather focuses on some of the language that document uses, particularly around non-bank regulated entities.

Cash

Sections 3.37 to 3.50 are all about cash.

Take 3.41 below.

"Cash deposits at the Post Office continue to rise, despite a general societal move to use cash less, with between £2-3 billion deposited every month - a 10% year on year increase. Whilst the exact amount of criminal cash withing this total is unknown, estimates indicate it could be the hundreds of millions of pounds."

The theme of cash usage declining comes up often in these sections and is presented in a very specific light without a proper reference to the source of data. "Legitimate" transactions are down, yet circulation is up. The implication is that cash is increasingly nefarious.

Hang on.

There are multiple potential reasons that cash persists. Distrust of banks. Distrust of digital. A desire to live within one's means. The unbanked. Casual labour. I don't doubt that cash is attractive to criminals, but it is overly simplistic to assume that the ONLY reason people use cash is criminal.

For our purposes, the important thing here is that any business dealing in cash is going to attract more scrutiny from regulators and enforcement. Large cash movements are going to make partners, like Banks, nervous.

Section 5

Section 5 is "Sector-specific", and my eye is automatically drawn to the sections on Money Service Businesses (5.108 - 5.125) and High Value Dealers (5.126 - 5.134).

Money Service Businesses

Good news. The NRA acknowledges that the term Money Service Business covers a diverse portfolio of firms, providing currency exchange, money transmission and cheque cashing.

5.113 however, is less encouraging for money transmitters and currency exchanges.

The clause notes that money remitters allow money to be moved quickly and cheaply to foreign jurisdictions. This makes it high risk.

More worryingly, the clause intimates that currency exchange is the same. Customers can convert small denomination notes into large denomination notes which can easily be moved across borders.

Far be it from me to contradict HMT and HO, but the ability to send money anywhere in the world in minutes is not the same as turning up at a bureau de change and getting large denominations.

In the first transaction the money is almost instantly gone. In the second, it is still in the criminal's pocket, inside the UK.

The problem, I think, is the term "Money Service Business". It includes huge household names like Western Union and Travelex and one man bands in small British towns. It even includes a corner shop acting as an agent for a huge multi-national. Also, it includes small companies formed specifically and inclusively to facilitate money remittance to one country or region. Lumping this diversity together makes a nonsense of sector statistics and applies the wrong yardsticks to businesses.

Some large forex companies facilitate the purchase of properties abroad by British buyers. They get the right amount of the right currency to the right country at the right time. Their average transaction is in the hundreds of thousands, and the money is moved from bank account to bank account.

Big brand money remittance average transactions were around £650. That may have changed in the last few years, but not substantially, I’d imagine. Destination countries tend to map closely with immigrant population around the send location. Polish convenience stores in London tended to send the majority of transactions to Poland.

A retail bureau de change's average transaction is £400. They've provided some spending money to a couple going to Paris for the weekend. They might have been paid with a debit card or (clutch your pearls) £20 notes.

Each of these transactions is legitimate. Each contains an element of risk, but they are not the same. They're not even similar.

However, the NRA concludes that, if you have less than five branches, you apparently make little or no profit and are the highest risk of non-compliance. So there.

De-banking

The Assessment acknowledges that money laundering risks at MSBs are exacerbated by a lack of appetite in the banks to provide banking services to the MSB sector. In fairness, the Banks are responding to the signals given to them by the government through mechanisms such as the NRA.

Conclusions

The NRA exists within a framework of legislation and regulation, a framework that is increasing distant from reality. HMT and HO know this, and even mention it in the report.

"The retail sector is increasingly shifting away from cash transactions, embracing electronic payment methods such as smartphone-based payments and gift cards. This transition has the potential to alter the regulatory landscape, as the UK's MLRs primarily focus on cash transactions." (5.132)

Or put another way, where regulations are written to make the use of cash difficult, less cash is used, by businesses, citizens and criminals alike.

To suggest that selling 500 euros to a family going on holiday represents the same risk as somebody sending £5,000 to Colombia is nonsensical. The catch-all bucket of Money Service Business needs to be consigned to history.

According to Box 5.B the NRA believes that the following sectors are high risk...brace yourself.

Retail Banking. Wholesale Banking and Markets. Wealth Management. Electronic Money Institutions and Payment Service Providers. Cryptoasset Businesses. Money Service Businesses.

Doesn’t leave much, does it?