January 10th, 2020 saw key updates to the UK’s existing anti-money laundering regulations come into force. The Regulations implement the fifth EU Money Laundering Directive in the UK through amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
With the recent changes only published mid-December, businesses have been given little time to review the updates and ensure compliance. While the most significant changes will apply to new businesses who fall in scope of the regulations, those already subject to Money Laundering Regulations (MLRs) must ensure existing policies and procedures are refined to comply with new requirements.
New categories of business falling in scope of MLRs
Under the newly reformed regulations, new categories of businesses will be supervised by HMRC and subject to the new MLRs. Described in the Fourth Anti-Money Laundering Directive as “obliged entities”, these new groups are defined as “relevant persons” in the MLRs.
This includes crypto-assets dealers, custodian wallet providers, high value letting agents where the monthly rent exceeds €10,000 (£8,557) for more than one calendar month. Online letting agency businesses will be able to register in May 2020 according to guidance from HMRC. The new rules further extend to businesses trading in art where the value of the transaction is greater than €10,000 – whether this is for a single transaction or a series of linked transactions. Such organisations will be required to apply customer due diligence measures to ensure full compliance.
What are the key changes to the Money Laundering Regulations?
While the key changes to the MLRs do not add much in the way of regulatory red tape for firms with regard to beneficial ownership, they do make critical changes in line with the wider purpose of the Fifth Directive – to fight against terrorism and strengthen transparency. In particular, the changes require that businesses falling in scope of the regulations must undertake an extensive money laundering risk assessment of new products, practices or technologies before they implement them. Parent undertakings must also ensure they have group-wide policies in place with regard to the sharing of information about customers, customer accounts and transactions for anti-money laundering purposes.
Before a firm enters into a new business relationship with a company or trust, the regulations state that they must either collect proof of registration from the national beneficial ownership register, or collect an extract of the register.
Due diligence must be conducted in situations where there is a legal duty in the calendar year to contact the customer for the purpose of reviewing any “relevant information” relating to the beneficial owner, and where there is a legal duty under the International Tax Compliance regulations for identifying new and pre-existing reportable offshore financial accounts for annual reporting, along with the details of the account holder (including jurisdiction of tax residence).
Additionally, new requirements demand that firms take measures to understand the ownership and control structure of persons, trusts and companies as a customer, and to verify the identity of senior managing personnel responsible for managing corporate bodies. According to the updated MLRs, there may be certain instances in which firms will be required to report any discrepancies between the beneficial ownership information which they hold on their customers, and the beneficial ownership information shown in Companies House.
New regulations further state that, in specified circumstances, electronic identification will be seen as a reliable method of identifying customers in place of traditional methods such as passports and utility bills.
Martin Cheek, managing director of verification software specialist SmartSearch, said: ‘The government – and the EU – are right to want to see more use of electronic verification. It’s been shown to be more reliable, quicker and more cost effective than manual checks.
‘Plus, firms can have highly efficient screening and ongoing monitoring for politically exposed persons and sanctions, all of which are a requirement of the anti-money laundering rules.
‘It’s a pity the regulations didn’t appear until so late in the day, but it is imperative that firms take action now to show they comply with the new regulations or else they could face a significant fine.’