High-Risk Jurisdictions and MSB Compliance — What UK Firms Must Know

The Challenge of High-Risk Jurisdictions

Money services businesses frequently operate remittance corridors to countries that international bodies have identified as having weak anti-money-laundering and counter-terrorist-financing (AML/CFT) frameworks. For UK MSBs, managing this geographic risk is one of the most significant compliance challenges — and one of the primary areas of FCA supervisory focus.

This guide explains the regulatory framework for high-risk jurisdiction management, the enhanced due diligence requirements that apply and practical strategies for maintaining compliant operations.

Understanding the Risk Lists

UK MSBs must navigate multiple overlapping risk classifications:

FATF High-Risk Jurisdictions (Black List): The Financial Action Task Force identifies jurisdictions with strategic AML/CFT deficiencies subject to a call for action. Currently, North Korea, Iran and Myanmar are on this list. The MLR 2017 requires UK firms to apply countermeasures to transactions involving these jurisdictions — which in practice means most MSBs should not accept business from them.

FATF Jurisdictions Under Increased Monitoring (Grey List): These are countries that have committed to addressing identified AML/CFT weaknesses within agreed timeframes. The grey list changes regularly — recent additions and removals have included South Africa, Nigeria, Turkey, the UAE and the Philippines. MSBs must apply enhanced due diligence to business involving grey-listed jurisdictions.

UK High-Risk Third Countries (Schedule 3ZA): The UK maintains its own statutory list of high-risk third countries under Schedule 3ZA of the MLR 2017. This list broadly mirrors the FATF lists but may diverge — particularly following Brexit, as the UK is no longer bound by EU delegated acts on high-risk countries. MSBs must check this schedule independently.

Sanctions lists: Separate from AML risk lists, HM Treasury and OFSI maintain consolidated sanctions lists. MSBs must screen all customers and transactions against these lists. Operating a remittance corridor to a jurisdiction subject to comprehensive sanctions (e.g., Russia, Syria) requires extreme caution and specialist legal advice.

Enhanced Due Diligence Requirements

Under Regulation 33 of the MLR 2017, enhanced due diligence is mandatory for any business relationship or transaction involving a high-risk third country. For MSBs, this means:

• Source of funds — the firm must establish the source of funds for every transaction involving a high-risk jurisdiction, not just those that appear unusual. Documentation such as payslips, bank statements or sale proceeds should be obtained and verified
• Source of wealth — for ongoing or high-value relationships, the firm should also understand the customer's overall source of wealth
• Purpose of the transaction — the firm must obtain and document a credible explanation for why the customer is sending money to the high-risk jurisdiction
• Senior management approval — the decision to establish or continue a business relationship involving a high-risk jurisdiction must be approved by senior management
• Enhanced ongoing monitoring — transactions involving high-risk jurisdictions should be subject to more frequent and intensive monitoring than standard-risk business

Managing Correspondent Banking Relationships

One of the most significant practical challenges for MSBs is maintaining banking relationships. Over the past decade, major UK banks have significantly reduced their exposure to the MSB sector — a process known as "de-risking." Banks cite the high money-laundering risk associated with MSBs, particularly those operating corridors to high-risk jurisdictions, as the primary reason for account closures.

To maintain banking relationships, MSBs should:

• Demonstrate strong AML controls — provide your banking partner with copies of your BWRA, AML policies, most recent compliance monitoring report and SAR filing statistics
• Be transparent about your business model — banks are more likely to maintain relationships with MSBs that provide clear, accurate information about their customer base, transaction volumes and geographic corridors
• Engage proactively — do not wait for your bank to request information. Provide regular updates on your compliance programme and any material changes to your business
• Diversify banking relationships — reliance on a single banking partner creates existential risk. Consider establishing relationships with multiple banks or exploring partnerships with e-money institutions as alternative settlement channels
• Consider FCA engagement — the FCA has publicly stated that wholesale de-risking of MSBs is undesirable and can push remittance flows into unregulated channels. If you are experiencing difficulty maintaining banking access despite strong compliance, the FCA may be willing to engage

FCA Supervisory Expectations

The FCA's supervisory approach to MSBs with high-risk jurisdiction exposure includes:

Thematic reviews: The FCA periodically conducts sector-wide reviews of MSB AML compliance. Recent reviews have focused specifically on firms operating corridors to East Africa, South Asia and the Middle East. Firms selected for thematic review should expect detailed information requests covering transaction data, CDD samples and risk assessment documentation.

Risk-based supervision: MSBs are categorised by the FCA based on their inherent risk profile. Firms with significant high-risk jurisdiction exposure, high cash volumes or a history of compliance concerns are classified as higher risk and receive more intensive supervisory attention — including more frequent reporting requirements and potential on-site visits.

Skilled person reports: Where the FCA has concerns about an MSB's AML controls, it may commission a skilled person report under section 166 of FSMA 2000. The cost of the report is borne by the firm. Skilled person reports typically involve a detailed assessment of the firm's AML framework by an independent compliance consultancy.

Practical Compliance Strategies

Map your corridors. Create a comprehensive map of every remittance corridor you operate, with risk ratings for each destination country based on FATF status, UK Schedule 3ZA status, sanctions exposure and your own operational experience. Review and update this map quarterly.

Apply a corridor-specific risk framework. Generic EDD procedures applied uniformly across all high-risk corridors are unlikely to satisfy the FCA. Tailor your EDD measures to the specific risks of each corridor. For example, a Somalia remittance corridor raises different risk indicators than a corridor to Russia or Pakistan.

Invest in staff training on geographic risk. Front-line staff must understand which jurisdictions are high-risk, what additional questions to ask customers sending to those jurisdictions and when to escalate concerns. Scenario-based training using real transaction examples is more effective than generic e-learning.

Maintain comprehensive records. For every transaction involving a high-risk jurisdiction, retain records of the CDD conducted, the source of funds evidence obtained, the rationale for proceeding with the transaction and any senior management approval. These records are the primary evidence the FCA will review during supervisory assessments.

Engage with industry bodies. Organisations such as the Money Services Alliance and the Electronic Money Association can provide sector-specific guidance, facilitate dialogue with banks and represent MSB interests in regulatory consultations.

Regulatory Outlook

The UK government's 2024 Economic Crime Plan includes several initiatives relevant to MSBs operating in high-risk corridors:

• Expansion of information-sharing gateways between MSBs, banks and law enforcement
• Potential introduction of a centralised MSB transaction database to improve suspicious activity detection
• Review of the Schedule 3ZA high-risk country list methodology to ensure it remains current and risk-sensitive
• Exploration of a safe harbour framework to protect banks that maintain MSB accounts from disproportionate regulatory risk

MSBs should engage with these consultations to ensure the regulatory framework supports — rather than undermines — legitimate remittance services to underserved markets.