Anti-Money Laundering Rules — Do They Apply to You?

Anti-money laundering. It sounds like something that happens in spy films — shadowy figures moving illicit cash through offshore accounts. Surely it has nothing to do with your small business?

For many sole traders, that's probably true. But for a significant number of small businesses and self-employed professionals, anti-money laundering (AML) regulations are very much something you need to take seriously. If you operate in certain sectors, you have legal obligations to help prevent your business from being used to launder the proceeds of crime — and the penalties for non-compliance are severe.

Let's look at who's affected, what the rules require, and what you actually need to do.

What Is Money Laundering?

Money laundering is the process of making money that was obtained illegally — through fraud, drug trafficking, tax evasion, bribery, or other criminal activity — appear to come from a legitimate source. It typically involves three stages:

1. Placement — introducing the criminal money into the legitimate financial system (depositing cash, purchasing goods)
2. Layering — moving the money through a series of transactions to obscure its origin (transfers between accounts, currency exchanges, buying and selling assets)
3. Integration — the money re-enters the economy as apparently legitimate funds (used to buy property, invest in businesses, etc.)

The UK's anti-money laundering framework is designed to make this process as difficult as possible by requiring businesses in certain sectors to verify the identity of their clients, monitor transactions for suspicious activity, and report anything concerning to the authorities.

The Legal Framework

The main pieces of legislation governing AML in the UK are:

• The Proceeds of Crime Act 2002 (POCA) — creates the criminal offences of money laundering and establishes the duty to report suspicious activity
• The Terrorism Act 2000 — similar provisions relating to terrorist financing
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the "MLR 2017") — sets out the specific obligations for businesses in the regulated sector

The MLR 2017 were amended in 2019 and 2022 to implement the EU's 5th and 6th Anti-Money Laundering Directives. Despite Brexit, the UK has retained and in some cases strengthened its AML framework.

Does AML Apply to Your Business?

This is the crucial question. AML obligations under the MLR 2017 apply to businesses operating in the "regulated sector." This includes:

Financial Services

Banks, building societies, insurance companies, investment firms, payment service providers, and e-money institutions. If you're operating in financial services, you'll already be regulated by the Financial Conduct Authority (FCA) and subject to extensive AML requirements.

Accountants and Tax Advisers

If you provide accountancy services, tax advice, or tax returns preparation as a business, you're in the regulated sector. This applies whether you're a qualified accountant or simply someone who prepares tax returns for others. Accountancy bodies like ICAEW, ACCA, and AAT supervise their members for AML compliance.

If you're a sole trader who does your own bookkeeping, that doesn't make you subject to AML rules — it's only when you provide these services to others as a business. But if you're doing bookkeeping or tax returns for other people, even informally, you may well be caught.

Legal Professionals

Solicitors, barristers, conveyancers, and notaries are all in the regulated sector. Their professional bodies (SRA, BSB, CLC) act as AML supervisors.

Estate Agents

If you act as an estate agent — which under the MLR 2017 includes anyone involved in buying and selling land or property as an intermediary — you're subject to AML obligations. This covers traditional high-street estate agents, online agents, and property sourcing agents.

Letting Agents

Since the 2020 amendments to the MLR 2017, letting agents who handle transactions involving a monthly rent of €10,000 (approximately £8,500) or more are also in scope.

High-Value Dealers

If your business accepts cash payments of €10,000 (approximately £8,500) or more in a single transaction or series of linked transactions, you're classified as a high-value dealer and subject to AML requirements. This could apply to car dealers, jewellers, art dealers, antiques traders, and others who deal in high-value goods.

Trust or Company Service Providers

If you provide services like forming companies, acting as a company director or secretary, or providing a registered office address, you're in the regulated sector.

Art Market Participants

Since 2020, businesses that buy, sell, or act as intermediaries in the sale of works of art valued at €10,000 or more are subject to AML requirements.

Cryptoasset Businesses

Businesses that exchange, transfer, or provide custodian wallets for cryptoassets must register with the FCA and comply with AML obligations.

Who Is NOT Covered?

If you're a sole trader operating outside these sectors — a plumber, a graphic designer, a personal trainer, a photographer — you're generally not subject to the specific AML obligations under the MLR 2017. However, everyone has a general obligation under POCA not to become involved in money laundering, and there's a duty to report suspicions of money laundering if you encounter them in the course of business.

What Are Your AML Obligations?

If your business falls within the regulated sector, here's what you're required to do.

1. Register with a Supervisory Authority

You must be registered with or supervised by an appropriate AML supervisory authority. For many small businesses, this will be:

• HMRC — for accountants, tax advisers, estate agents, letting agents, high-value dealers, trust or company service providers, and art market participants who aren't supervised by a professional body
• FCA — for financial services firms and cryptoasset businesses
• Your professional body — for accountants (ICAEW, ACCA, AAT, etc.) and legal professionals (SRA, BSB, etc.)

Registration with HMRC for AML supervision is a separate requirement from registering for self-assessment or as self-employed. You need to apply specifically for AML supervision and pay the applicable fee.

2. Conduct a Business-Wide Risk Assessment

You must assess the money laundering and terrorist financing risks your business faces. This involves considering:

• The types of clients you work with
• The countries or geographic areas you operate in
• The products and services you offer
• The delivery channels you use (face-to-face, remote, online)
• Any other relevant risk factors

Your risk assessment should be documented, reviewed regularly, and used to inform your AML policies and procedures.

3. Implement Policies, Controls, and Procedures

Based on your risk assessment, you must implement proportionate AML policies and procedures covering:

• Customer due diligence (CDD)
• Reporting suspicious activity
• Record-keeping
• Internal controls
• Staff training (if you have staff)
• Screening of employees (if applicable)

For a sole trader, this doesn't need to be a 100-page compliance manual. A clear, practical document that sets out how you identify and verify clients, what red flags you look for, and what you do if something seems suspicious is usually sufficient.

4. Carry Out Customer Due Diligence (CDD)

CDD is the process of verifying who your clients are before you start working with them. At a minimum, this means:

• Identifying your client — obtaining their full name, date of birth, and address (for individuals) or company name, registration number, and registered office (for companies)
• Verifying their identity — checking their identity against reliable and independent sources (typically a passport or driving licence for individuals, Companies House records for companies)
• Understanding the purpose and intended nature of the business relationship — knowing what the client wants from you and why

For higher-risk clients — such as politically exposed persons (PEPs), clients from high-risk countries, or unusually complex transactions — you need to carry out enhanced due diligence (EDD), which involves more thorough checks.

5. Report Suspicious Activity

If you know or suspect that a client or transaction involves money laundering or terrorist financing, you must file a Suspicious Activity Report (SAR) with the National Crime Agency (NCA). This is a legal obligation, not a discretionary one.

Crucially, you must not "tip off" the client that you've made a report or that an investigation is underway. Tipping off is a criminal offence.

6. Keep Records

You must keep records of your CDD checks and any supporting documentation for at least five years after the end of the business relationship. You should also keep records of any transactions that triggered enhanced due diligence or were the subject of a SAR.

Keeping your records well organised is essential for AML compliance. If you're already using a tool like Accounted for your financial records, you'll be familiar with the value of having everything in one place — apply the same principle to your AML documentation.

7. Provide Training

If you have employees, you must ensure they receive appropriate AML training. As a sole trader without staff, this obligation is limited to keeping your own knowledge up to date. Your supervisory authority may offer guidance and training resources.

What Happens If You Don't Comply?

The penalties for non-compliance with AML regulations are serious:

• Criminal prosecution — failing to report suspicions of money laundering is a criminal offence under POCA, punishable by up to five years in prison and/or an unlimited fine
• Civil penalties — HMRC and other supervisors can impose civil penalties for failures to comply with the MLR 2017
• Regulatory action — your supervisor can impose conditions, issue warnings, or ultimately remove you from the register, preventing you from operating

Beyond legal penalties, being involved in money laundering — even inadvertently — can destroy your reputation and your business.

Practical Tips for Small Businesses

Start with Your Risk Assessment

If you're in the regulated sector, your risk assessment is the foundation of everything else. Take the time to do it properly. HMRC and professional bodies provide templates and guidance that can help.

Keep CDD Simple but Effective

For most small businesses, CDD doesn't need to be elaborate. Taking a copy of a client's passport or driving licence, verifying their address, and keeping a note of the purpose of the engagement is usually sufficient for standard-risk clients. The key is to do it consistently and to document it.

Trust Your Instincts

If something feels wrong — a client is evasive about their identity, they want to pay unusually large sums in cash, they're reluctant to provide basic documentation, or the transaction doesn't make commercial sense — take it seriously. You don't need to prove money laundering to file a SAR. You just need a suspicion.

Stay Updated

AML regulations evolve, and HMRC updates its guidance periodically. Make sure you stay current with any changes that affect your sector. Your supervisory authority will typically communicate important updates, but it's worth checking proactively too. If you're registering as self-employed for the first time and your work falls into the regulated sector, make AML registration part of your setup checklist.

Don't Panic, But Don't Ignore It

If your business falls within the regulated sector, AML compliance is a serious legal obligation that you need to address. But for most small businesses, the practical requirements are manageable — a risk assessment, identity checks on clients, keeping good records, and knowing when and how to report suspicions.

If you're not in the regulated sector, you don't need to lose sleep over AML regulations. But it's still worth understanding the basics, because the general obligation to avoid involvement in money laundering and to report suspicions applies to everyone.

Accounted helps UK sole traders stay on top of their bookkeeping and tax. Start your free 30-day trial at getaccounted.co.uk

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Related reading:

• How to Register as Self-Employed with HMRC
• GDPR for Sole Traders — What You Actually Need to Do
• Client Contracts — Why You Need One and What to Include

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