Since 2021, all Trust and Company Service Providers (TCSPs), company formation agents and estate agents must actively assess Proliferation Financing (PF) risks under the UK Money Laundering Regulations (Regulation 18A and 19A).
PF = using funds, goods, or services to help develop, produce, or transport weapons of mass destruction (WMDs).
It may sound far-removed from everyday business services, but regulators like HMRC expect you to show clear, practical controls.
💡 Flex Tip: Add PF as its own section in your Business-Wide Risk Assessment (BWRA). A dedicated addendum makes it clear you’ve thought about the risks and documented your response.
What is Proliferation Financing?
Proliferation Financing (PF) is the funding or facilitation of activities that support the development, manufacture, or transport of weapons of mass destruction (WMDs).
🔗 For official government guidance, see HMRC’s Economic Crime Supervision Handbook – Proliferation Financing.
Why PF Matters for TCSPs & Estate Agents
- It’s a legal requirement under the MLR 2017 (Regulation 18A).
- It’s a regulatory focus: HMRC, OFSI, and international bodies like FATF expect firms to monitor PF risk.
- It’s a common audit question… HMRC inspectors often ask, “Where is PF covered in your BWRA?” If you’re not prepared, you risk non-compliance!
💡 Flex Tip: Many firms stumble on this during HMRC visits. Check out our guide on AML Compliance Checklist – Prepare for HMRC Inspections to see other common pitfalls.
PF Risk Matrix (4 Factors)
A simple but powerful way to evidence compliance is to use a PF Risk Matrix. This approach helps you quickly assess and record risk for every client.
| Factor | What to Check | Examples |
|---|---|---|
| Jurisdiction | Where is the client based? | DPRK, Iran, Russia, FATF high-risk list |
| Sector | What industry are they in? | Dual-use goods, shipping, logistics |
| Delivery Channel | How is the service delivered? | Remote onboarding, use of intermediaries |
| Client Behaviour | Are their answers clear & consistent? | Complex ownership, vague activity, odd payments |
💡 Flex Tip: Colour-code your risk matrix (green, amber, red). It makes risk scoring visual and easy to explain in an audit.
High-Risk Factors We Monitor
As part of PF compliance, your firm should monitor these high-risk categories:
High-Risk Jurisdictions
- North Korea (DPRK)
- Iran
- Russia
- Any country on the FATF High-Risk Jurisdiction List
High-Risk Sectors
- Dual-use goods (civilian + military application, e.g. chemicals, electronics, machinery)
- Shipping & logistics
- Trade finance
- Commercial contracts linked to high-risk goods or destinations
Delivery Channels
- Non face-to-face onboarding (remote clients, digital-only verification)
- Use of intermediaries or nominee services
Client & Transaction Behaviours
- Vague or inconsistent information about business activities
- Complex corporate structures masking beneficial ownership
- Transactions lacking clear rationale or business sense
💡 Flex Tip: Build a PF Risk Matrix in your BWRA. Columns: Jurisdiction, Sector, Delivery Channel, Client Behaviour. Quickly score each client’s exposure level.
Common PF Red Flags
- Client linked to DPRK, Iran, or Russia
- Technical goods (electronics, chemicals, circuit boards) with unclear end use
- Non-face-to-face onboarding for high-risk sectors
- Complex corporate ownership chains
- Mail/parcel activity inconsistent with business profile
Record-Keeping Requirements
Good record-keeping is essential to prove compliance and protect your firm in case of an HMRC inspection.
You should keep:
- PF risk assessments (firm-wide + individual clients)
- Training logs (date-stamped, content summaries, attendance records)
- Parcel handling logs (sender, recipient, contents, red flags noted)
- Escalation logs (records of concerns raised, even if no SAR filed)
- Audit trail of decisions (why you accepted/rejected clients or parcels)
- Client onboarding questionnaires (with PF-specific questions)
💡 Flex Tip: A simple spreadsheet or CRM field is often enough, HMRC just wants evidence of a consistent, repeatable process.
Practical PF Controls for Businesses
1. At Onboarding
- Ask: “What will your company actually do?”
- Screen for jurisdiction, sector, delivery channel, client behaviour
2. Mail & Parcel Handling
- Apply a Parcel Handling Policy
- Ban high-risk sectors from using parcel services
- Keep parcel logs for compliance checks
💡 Flex Tip: Add a No Parcel Handling clause in your T&Cs for certain clients.
3. Staff Training
- Add PF modules to AML training
- Include case studies (e.g. circuit boards with unclear use)
- Test staff with short quizzes
4. Escalation & Reporting
- Escalate PF concerns to your MLRO
- Consider a SAR or DAML SAR where needed
- Never ignore vague or inconsistent client information
Proliferation Financing Risks for Estate Agents
Estate and letting agents are firmly within HMRC’s AML supervision. While you may focus on property transactions and client funds, PF risk applies to you too.
Key PF Risks for Estate Agents
- Property as a cover – using high-value property deals to disguise PF-related funds.
- Clients linked to high-risk jurisdictions (DPRK, Iran, Russia, FATF grey-listed countries).
- Complex ownership structures – offshore SPVs or nominee directors buying property.
- Unusual payment methods – rapid transfers, multiple intermediaries, or no clear economic rationale.
💡 Flex Tip: During source of funds checks, ask if funds originate from industries linked to dual-use goods, shipping, or high-risk regions.
What Estate Agents Must Do
- Include PF in your BWRA – HMRC will expect to see it clearly listed.
- Screen clients & beneficial owners against sanctions and high-risk jurisdiction exposure.
- Scrutinise corporate structures – don’t accept vague shell companies.
- Escalate suspicions – record concerns internally and consider a SAR.
- Train staff – negotiators and sales teams must be able to spot PF red flags.
💡 Flex Tip: Add one PF scenario to your AML training – e.g. “A buyer linked to a sanctioned electronics firm purchases through a nominee company. What should you do?”
PF vs. Money Laundering vs. Terrorist Financing
Adding clarity by comparison helps both staff and regulators understand PF’s distinct risks.
| Factor | Proliferation Financing (PF) | Money Laundering | Terrorist Financing |
|---|---|---|---|
| Purpose | WMD-related activities | Hiding criminal funds | Funding terrorism |
| Key Risks | Dual-use goods, high-risk jurisdictions | Property, luxury goods | Cash-intensive businesses, NGOs |
| HMRC Expectation | BWRA addendum, PF red flag awareness | CDD, SARs, risk-based controls | Sanctions checks, source of funds |
💡 Flex Tip: Use this table in staff training, it’s a simple way to show that PF, ML, and TF must be assessed separately in your BWRA.
Proliferation Financing FAQs
What is proliferation financing under UK law?
Funding or facilitating activities that support WMDs, regulated under the MLR 2017 (Regulation 18A).
Who must monitor PF risk?
A: All HMRC-supervised TCSPs, company formation agents, estate agents, and serviced office providers.
What are the high-risk jurisdictions for PF
DPRK, Iran, Russia — plus any FATF-designated high-risk countries.
What records should I keep?
Risk assessments, training logs, parcel logs, and escalation records.
How do I evidence compliance?
A PF addendum in your BWRA, clear training, client screening, and a record of decisions.
Free Download: Proliferation Financing (PF) Policy Example
We know PF can feel like a complex new layer of compliance. To make life easier, we’ve created a Free PF Policy Example you can download today.
👉 Inside you’ll find:
- A ready-to-use PF Risk Addendum for your BWRA
- A Parcel Handling Policy clause (for TCSPs)
- A PF red flags checklist for estate agents and company formation providers
- A staff training scenario to use with your team
💡 Flex Tip: Keep this policy on file, adapt it to your business, and show HMRC you’re proactively addressing PF risk.
Download your FREE Proliferation Financing (PF) Policy Example below!
Want to go deeper? Explore our other compliance resources:
- Sanctions Compliance Blog – PEP & Sanctions for TCSPs
- ID Verification Guide – AML Compliance Tips
- AML Risk Assessment Template – Free Resource
Final Thoughts
Proliferation Financing isn’t just for banks or defence contractors, it’s now part of everyday compliance for TCSPs and estate agents. By embedding PF into your BWRA, policies, training, and record-keeping, you’ll stay one step ahead of regulators and protect your business.
💡 Flex Tip: Don’t overcomplicate it. Start with our free PF Policy Example, customise it for your services, and build confidence from there.
Next Step: Book a free 15-min consultation with Flex AML to discuss how PF applies to your business.
Note: This page is updated regularly to reflect new HMRC, FATF, and OFSI guidance on proliferation financing.
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