AML for Insolvency Practitioners: Risks, Regulation 31 and the 2025 DAML Threshold

Insolvency work is not like most accountancy engagements. The client is often a failing company, the books may be incomplete, the people instructing you may be the directors who caused the failure, and money and assets move quickly. It is no surprise that the sector is treated as high risk for money laundering. This guide explains what the Insolvency Practitioners Association (IPA) and the 2025 National Risk Assessment say about the risks, how the Money Laundering Regulations 2017 apply when you cannot complete customer due diligence, what changed on 31 July 2025 for returning small amounts of criminal property, and how to set up practical controls. It draws on IPA publications, the text of regulation 31 on legislation.gov.uk and ICAEW's description of research into the sector. Rules and supervisor guidance change, so check the current text. This is general information, not legal advice.

Why insolvency is rated high risk

The IPA reports that the National Risk Assessment published on 17 July 2025 again rates insolvency services as a high-risk sector for money laundering, mainly because insolvency practitioners (IPs) serve clients across the economy and their processes can be misused. ICAEW has also noted that insolvency services are designated a high-risk sector and that there has been little research into the specific risks IPs face. It refers to ongoing work by researchers at the University of Leeds with stakeholders to identify the sector's AML priorities.

The IPA highlights particular risk factors:

• Members' voluntary liquidations. The IPA considers these high risk, because they can be used to disguise the origin of criminal funds.
• Creditors' voluntary liquidations. These are higher risk where books and records are lacking.
• Other factors. Cross-border work, complex structures and links to high-risk sectors.

Customer due diligence in an insolvency

The basic requirements are the same as for any other relevant person. You still need to identify and verify the client, understand the purpose and nature of the relationship, identify beneficial owners and rate the risk. What differs is timing and access: appointments can be urgent, and records may be poor. Our guide to the KYC checklist for new clients sets out the steps, and the IPA's advice is to keep carrying out CDD before transferring money or property to a client.

Regulation 31, which requires a firm to stop acting if it cannot complete CDD, has a specific carve-out for insolvency. According to the text on legislation.gov.uk, the cessation requirements do not apply to an IP appointed by the court as administrator or liquidator of a company, provided the practitioner has taken all reasonable steps to meet the CDD requirements and resigning would prejudice the company's creditors. It is a narrow exception. It applies to court appointments, it depends on you having taken all reasonable steps, and you should record those steps.

Ongoing monitoring during an appointment

The IPA's guidance on regulation 28(11) says the relationship must be monitored throughout. That means scrutinising transactions, including the source of funds where necessary, and keeping CDD information up to date. It gives examples of circumstances that may call for a fresh risk assessment, such as difficulty obtaining updated documentation, non-compliance, or a director or debtor going missing. It recommends that a review of AML documentation and the risk assessment is part of every file review, and that where updated documents cannot be obtained, you make a file note setting out the steps taken. Our guide to ongoing monitoring and periodic CDD review gives the wider picture.

Reliance on others

Insolvency work often involves other regulated professionals, such as solicitors or other IPs. The IPA explains that regulation 39 allows reliance on a third party in a regulated sector, but that you remain liable if their CDD is inadequate, you need to understand what work they did, and you should have an agreement, preferably in writing, requiring them to provide their documentation immediately on request. Our guide to relying on third parties for customer due diligence explains the limits.

The 31 July 2025 change to returning criminal property

The IPA reports that the Proceeds of Crime (Money Laundering) (Threshold Amount) (Amendment) Order 2025 raised a threshold from £1,000 to £3,000 with effect from 31 July 2025. Under section 339A(6A) of the Proceeds of Crime Act 2002, an IP can return criminal property to a client in order to terminate a business relationship without committing a money laundering offence if the value is £3,000 or less. The IPA stresses that:

• the higher threshold applies only where the return is for the purpose of terminating the relationship, so take legal advice if it is unclear whether a return falls within that purpose;
• CDD should still be carried out before transferring money or property to a client; and
• SARs must still be submitted where there is knowledge or suspicion of criminal property, regardless of value.

Practical steps for an insolvency practice

The IPA's suggested actions after the 2025 changes translate into a checklist:

1. Update your policies. AML, DAML and SAR policies should reflect the £3,000 threshold.
2. Train staff. Especially those who make reporting decisions.
3. Brief senior management. Explain the change and how it affects escalation.
4. Review your risk assessments. The IPA also advises reviewing your business-wide and CDD processes and training after its updated sector risk assessment, so read that assessment.
5. Keep CDD and SAR discipline. The threshold does not remove either duty.

See our CPD courses for AML training for your team.

Frequently asked questions

Is insolvency really high risk for money laundering?

The IPA says the 2025 National Risk Assessment again rated insolvency services as a high-risk sector.

Can an IP carry on if CDD is incomplete?

Regulation 31 contains an exception for court-appointed administrators and liquidators who have taken all reasonable steps and whose resignation would prejudice creditors. Record those steps.

What is the £3,000 threshold?

Following the 2025 order, an IP can return criminal property worth £3,000 or less to a client to end the relationship without committing a money laundering offence, according to the IPA.

Does the higher threshold remove the duty to report?

No. SARs must still be submitted where there is knowledge or suspicion of criminal property, regardless of value.