Money Laundering in the age of Fintech: Emerging risks and regulatory responses

Money laundering remains a pervasive issue, posing significant challenges to economies worldwide, and the UK is no exception.

Broadly, money laundering is the process by which illicit proceeds are transformed into assets of an apparently legitimate origin, enabling criminals to retain or reinvest these funds into further illegal activities. It is estimated that the UK economy loses over £100 billion annually to money laundering, underscoring the urgency of robust anti-money laundering (AML) measures.

Historically, popular vehicles for money laundering were ‘fronts’, cash-intensive sham businesses disguised as legitimate ones. These are still widely used across the UK, although law enforcement continues to closely monitor and take action against such businesses, as the raids on 265 barbers, sweet shops and vape stores across England and Wales in April 2025, part of the National Crime Agency’s Operation Machinize.

However, with significant advancements in the financial services  and payments sector in recent years, criminals have seized the opportunity to diversify their money laundering methods - just as consumers and legitimate businesses have modernised their own approach to making payments and adoption of banking services.

As fintech continues to evolve rapidly, new opportunities for illicit financial flows have emerged, necessitating innovative regulatory and industry responses. The increasing adoption of crypto-assets as a storage of value and a means of transferring value or making payments  has introduced new avenues for money laundering, making detection more challenging. The UK remains the second-largest fintech hub globally, making it attractive to both businesses and organised crime, and reinforcing the need for a robust regulatory framework to mitigate these risks.

What exactly is money laundering?

Traditional money laundering comprises three stages:

• Placement is when criminal proceeds (money obtained from criminal acts) is first introduced into the financial system.
• Layering involves using multiple transactions to hide where the money came from, making it harder to trace its illegal sources. In complex cases, funds might pass through numerous banks, businesses, or even different countries to further obscure their origin; the more times transactions are layered on top of each other, the harder it will be for law enforcement to trace the illicit funds.
• Integration is when these seemingly legitimate funds are brought back into the economy, allowing criminals to use them as if they were legally earned.

Fintech innovations have blurred their boundaries by enabling faster, more anonymous, and cross-border transactions. This has further complicated traditional detection and enforcement efforts.

Regulatory Framework in the UK

Money laundering in the UK is primarily governed by two key legislative instruments:

1. Proceeds of Crime Act 2002 (POCA): This Act lays the foundation for money laundering offences, defining "criminal property" and empowering authorities to seize illicit assets. It forms the cornerstone of the UK's anti-money laundering legislation. One consequence of POCA which is not always obvious is that the receipt of any funds stemming from crime triggers an offence. Practically, this means that a company which receives a bribe, or the proceeds of fraud or insider dealing (which are not always easy to spot) will fall foul of the money laundering offences. It is often this angle which is pursued by law enforcement; it can be easier to prove the movement of criminal proceeds than proving the underlying offence which gave rise to those proceeds.
2. Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017: These regulations impose compliance obligations on businesses within the ‘regulated sector’, including financial services, real estate, legal services, and accounting (effectively, businesses which by their nature receive significant sums of money for or on behalf of their clients, which could all too easily form part of the ‘placement’ or ‘layering’ stages without robust anti-money laundering programmes put in place by the firms). Requirements include conducting customer due diligence, monitoring and reporting suspicious transactions, performing enhanced due diligence on high-risk clients, and maintaining transaction records. 

New Money Laundering Techniques in an Evolving Financial Landscape

As criminals adopt these new finance technologies, they still rely on the common money-laundering stages (placement, layering, and integration). However, the layering phase grows increasingly complex when funds are moved through multiple digital transactions, cross-border transfers, or cryptocurrency services, blending illegal proceeds within legitimate flows and making the origins exceptionally difficult to trace.

• The increasing adoption and use of cryptocurrencies has introduced new risk factors in the realm of financial crime. Unlike traditional money laundering processes, which involve placement, layering, and integration, cryptocurrency simplifies this by eliminating the placement stage due to its anonymity. This reduces detection risk during the most vulnerable stage of money laundering. Additionally, cryptocurrencies enable large-scale laundering schemes through automated transfers, making them an attractive option for criminals seeking to exploit digital currencies. A key aspect of cryptoassets is the anonymity inherent in the development, decision-making and validation processes, which holds significant attraction to criminals looking to disguise the proceeds of crime. This is not to say that tracing cryptoassets transactions is impossible, it is just a further complication for law enforcement officials.
• NFTs present novel money laundering opportunities, often through inflated sales. By overpaying for an NFT, launderers can transfer funds under the guise of legitimate transactions, making illicit income appear as proceeds from digital asset sales. Alternatively, creating and selling NFTs to oneself or accomplices at inflated prices can create a complex web of transactions, further obscuring the illicit origins of funds.
• Circular ownership structures pose significant risks for money laundering due to their ability to obscure the true beneficial ownership of companies. In such arrangements, Company A might own a substantial stake in Company B, which in turn holds a stake in Company A. This structure often extends beyond two entities, creating a complex network that facilitates the concealment of beneficial ownership and fund movements. This structure of money laundering is common in India, China, and Russia, with recent reports identifying over 15,000 Indian companies flagged for suspicious circular ownership patterns in November 2023.
• Money mules are recruited to move criminal proceeds, traditionally through personal bank accounts or crypto self-custodial wallets. Recruiting mules has become easier, often through online advertisements and social media. Cifas (a UK fraud prevention service) estimates that in 2023, 37,000 bank accounts exhibited behaviours indicative of money muling. The FCA also collects data in relation to money muling, and in January 2025 reported that, according to its data, 25 financial services firms had closed the accounts of 194,084 money mules between January 2022 and September 2023.
• Professional enablers in the legal, accounting, and financial services sectors may unwittingly, or sometimes deliberately, facilitate money laundering schemes. Sham litigation, involving fabricated legal disputes to disguise the movement of funds, has become more sophisticated with digital case management and online dispute resolution platforms.
• Smurfing, or structuring, involves breaking down large sums of illicit money into smaller, less conspicuous amounts for separate deposits, evading detection. While structuring typically involves a single individual, smurfing employs a network tasked with depositing smaller sums. This method has been increasingly exploited through the rise in digital ‘challenger banks’. These banks, known for rapid onboarding and automated verification, have become prime targets for money launderers due to weaker AML controls. The FCA’s £28.9 million fine against Starling Bank in 2024 highlighted failures in transaction monitoring, customer due diligence, and enhanced due diligence for high-risk accounts. This case underscores growing regulatory concerns over challenger banks’ vulnerabilities. 

Enforcement

The FCA serves as the principal regulator overseeing compliance with AML regulations within the UK's financial sector. A separate category of firms which form part of the ‘regulated sector’ under the UK AML regime (including estate agents and so-called ‘high value dealers’ such as art galleries or luxury watch sellers) are supervised by the UK tax authority, HMRC. Professional services firms are supervised for money laundering purposes by their own regulator; for example, the Law Society is responsible for overseeing the AML policies and procedures of law firms.

Whilst a number of regulators are responsible for AML supervision, it is the FCA which has most recently whetted its enforcement appetite, conducting deep dives into a number of high-risk areas and activities. The FCA's role in AML enforcement encompasses several key areas:

• Supervision and Monitoring: The FCA supervises firms to ensure adherence to AML requirements, including customer due diligence, transaction monitoring, and suspicious activity reporting. This proactive oversight is crucial for identifying and mitigating financial crime risks.
• Enforcement Actions: The FCA has the authority to impose fines and penalties on firms that fail to comply with AML regulations. Recent enforcement actions against Mako Financial Markets Partnership LLP and Arian Financial LLP demonstrate the FCA's commitment to penalising non-compliance and safeguarding the financial system.
• Guidance and Standards: The FCA issues guidance and sets standards for AML practices, helping firms understand their obligations and implement effective compliance measures. The updated guidance published in January 2025 reflects the FCA's focus on capital markets and the risks they pose in facilitating financial crime.

Key Trends in Enforcement 

1. Heightened scrutiny of capital markets

Recent FCA guidance has drawn attention to the high transaction volumes and rapid clearing times in capital markets, conditions that create fertile ground for money laundering bringing greater focus to the AML controls and processes of investment firms such as brokers. Capital markets could be used to disguise the origins of financial gains from criminal activities. For example, customers purchasing securities or entering into financial contracts using illicit funds and selling or exiting those contracts. Introducing or agency brokers handle customer interactions and pass orders to clearing brokers, who may lack complete visibility of the underlying customers; wholesale brokers which lack understanding and resource for monitoring and combatting financial crime have been identified as a particular concern. The FCA has cited that global transactional flows, speed of transactions, ease of converting holdings into cash and complex transaction chains are potential vulnerabilities to allowing financial crime. Investment firms are required to conduct comprehensive business-wide risk assessments and customer risk assessments  The FCA expects investment firms trading on capital markets to implement robust controls and risk mitigations at each stage of the customer and transaction journey, including effective monitoring, detailed firm-specific risk assessments, collaboration between front and middle office teams, and sharing intelligence and suspicions with other firms. One of the key areas of focus for the FCA is appropriate transaction monitoring; the FCA has made clear that it expects firms to conduct sufficient monitor to ensure that transactions are consistent with the firm’s knowledge of the customer, the customer’s business and risk profile.

2. Increasing focus on governance and financial crime controls 

Robust governance and well-resourced compliance functions are critical in the fight against money laundering, as recent enforcement actions against firms like Mako Financial Markets LLP (which received a fine of over £1.6 million) and Arian Financial LLP (which was fined just under £300,000) have shown. These cases underscored significant deficiencies in internal controls, risk assessments, and the independence of compliance teams. The fines imposed on these firms were a direct response to their failure to implement adequate governance structures that could effectively identify and mitigate AML risks.

3. Technological innovation and AI

AI and data analytics hold significant promise for revolutionising AML efforts by detecting suspicious patterns at scale. However, uptake remains modest, with the FCA urging firms to embrace these advanced solutions to enhance monitoring and SAR reporting. The FCA is placing ever greater importance on the use of AI (in a responsible and proportionate way), using machine learning tools as part of its own enforcement operations to identify and take action against online scams. It has repeatedly encouraged firms to consider using AI for purposes such as trade surveillance and to establish stricter onboarding controls; for example, firms could use AI to reduce false positives which arise from transaction monitoring, or to spot forged documents or photographs provided for KYC purposes.

4. Suspicious Activity Reporting

The FCA has flagged low Suspicious Activity Reporting rates in the financial services sector underscoring the importance of timely and accurate disclosure of suspicious activities; for context, firms across the ‘regulated sector’ are required by law to submit a report to the NCA whenever they have a reasonable suspicion of money laundering, and it is a criminal offence to fail to do so. Inadequate reporting mechanisms not only expose firms to regulatory penalties but also hinder the broader fight against financial crime.

The evolving fintech landscape has not only transformed traditional money laundering practices but also intensified the regulatory risk appetite for enforcement. As Fintech and web3 services create both opportunities and vulnerabilities, regulators such as the FCA are adopting a more aggressive stance, evidenced by landmark fines and stricter guidance, to ensure robust AML compliance. This decisive commitment to proactive oversight underscores that firms must continuously enhance their compliance frameworks, invest in advanced detection technologies, and strengthen governance structures to navigate an increasingly stringent enforcement environment.

With thanks to Charlotte Edmondson and Davina Gami for their contributions to this article.