The Treasury is to abolish more than 24 criminal penalties that can currently be imposed on law firms and other businesses for failing to comply with money-laundering regulations.

Civil penalties will remain however, and regulators may be given the power to impose additional penalties.

The changes, contained in HM Treasury’s response to the review of the Money Laundering Regulations 2007, will allow firms to implement a fully risk-based approach, making their own assessment of the risks they face and implementing appropriate systems and controls.

The Treasury added that small businesses with annual turnover below £13,000 may be excluded from the regulatory regime altogether or required to comply with fewer of the regulations.

The consultation will not affect criminal penalties for money laundering under the Proceeds of Crime Act 2002 or the obligations of firms to report suspicious activity to the Serious Organised Crime Agency.

When the Gazetteoriginally reported HM Treasury’s planned review of the regulations, Law Society chief executive Desmond Hudson said: ‘While firms will still need to conduct due diligence and report suspicions of money laundering, they will no longer need to fear a criminal conviction if a passport they have on file goes out of date, or if they did not get the right number of utility bills or bank statements for every director of a company they are instructed by.

‘We believe (the review) will help law firms take a more risk-based approach so that they allocate resources more effectively, rather than slavishly following a tick-box approach.’

Announcing the publication of the consultation on 7 June, HM Treasury commercial secretary Lord Sassoon said: ‘It is essential that the UK’s money-laundering regulations make the UK a hostile environment for money laundering and terrorist finance.

'But improvements can be made and we must consider the impact of these regulations on British business.

‘We believe that we can make the regulations more effective and proportionate by removing a range of criminal penalties on all businesses and by lifting the burdens on the smallest businesses.

'This will reduce the burden on business, without damaging the fight against money laundering.’

Read the consultation.