Law Commission review of the suspicious activity report regime

The commission’s view was the regime was not working as well as it could because:

• the UK Financial Intelligence Unit (UKFIU) receives far more SARs than initially envisaged
• large numbers of SARs are of limited use to law enforcement
• UK reporting thresholds are lower than most countries

Law Commission proposals

The Law Commission published its final report on 18 June 2019. It ultimately made 19 recommendations, including creating an advisory board to:

• oversee the drafting of guidance
• measure the effectiveness of the reporting regime
• recommend improvements
• input into SARs analysis

It also recommended:

• keeping the consent regime, with some improvements
• issuing universal guidance on key legal concepts in part 7 of the Proceeds of Crime Act 2002 (POCA)
• using prescribed forms to improve the quality of SARs
• creating an exemption in POCA 2002 to allow credit and financial institutions to ring-fence the portion of the account tainted by suspected criminal property rather than the whole account

Read the final report on the Law Commission website

Government response

The government published its response to the Law Commission's recommendations on 12 February 2024.

Of the 19 recommendations, the Home Office rejected six and accepted or pat-accepted 13.

The accepted/part-accepted recommendations include:

• retaining the current DAML regime
• ongoing work to improve the quality of SARs
• the creation of an advisory board with expert representatives from the reporting sector, law enforcement and government
• maintaining the "all-crimes" approach to reporting suspicious activity
• amending part 7 POCA to define 'suspicion'
• banks not to have to seek consent to repay funds to a victim of fraud, with statutory guidance to assist the reporter in complying with their obligations
• the obligation to lodge a required disclosure should remain
• maintaining the approach to authorised disclsoures on international criminality
• amending sections 327, 328 and 329 POCA to provide that no criminal offence is committed by an individual under specific listed circumstances, with reference to the Economic Crime and Corporate Transparency Act 2023 on handling mixed assets
• statutory guidance on the operation of the ringfencing provision

The rejected recommendations include:

• amending part 7 POCA to provide for guidance on the suspicion threshold, appropriate consent and reasonable excuse
• amending POCA to require the secretary of state to issue guidance on suspicion
• issuing statutory guidance on appropriate consent (part 7 POCA) and arrangements with prior consent (section 21ZA Terrorism Act 2000)
• retaining the existing regime on low-value transactions
• amending POCA to allow funds to be released by a Crown Court judge for reasonable living expenses where an application is made to extend the moratorium

Read the government's full response 

What this means for solicitors

While the government has not accepted all the Law Commission’s recommendations and the wholesale reform it called for, this will still see significant changes to the SARs regime, in particular

• changes on handling mixed assets
• the drive for greater quality of SARs
• the amendments of POCA to define suspicion

What we’re doing

February 2024 – the government published its response to the Law Commission’s recommendations

July 2019 – the Law Commission published its report on the findings of the consultation

November 2018 – we responded to the consultation (PDF), recommending two major changes 

July 2018 – the Law Commission launched its consultation on some aspects of AML legislation