The changing face of AML in the UK
There are significant changes on the horizon in the world of Anti-Money Laundering as the UK Government announced last week two major developments in the fight to combat the threat of money laundering to the UK economy. Firstly, there was the announcement of the establishing of a new AML watchdog ‘The Office for Professional Body Anti Money Laundering Supervision’ (OPBAS). The new watchdog is part of the Financial Conduct Authority (FCA) and will operate within its existing governance arrangements.
It is anticipated that barring any legislative issues OPBAS is expected to be fully operational by the early part of 2018. It will be funded through a new fee on professional body anti-money laundering (AML) supervisors.
As well as HMRC, the FCA and the Gambling Commission, there are a further 22 accountancy and legal trade bodies that supervise and issue rules to fight money laundering across various sectors including of course the Law Society. The new watchdog will also seek to simplify the anti-money laundering rules that apply to different industries.
The Treasury is concerned that the numerous guidelines across the AML have provided avenues for criminals to explore, and it is hoped that OPBAS will have a major impact in this respect. Ministers have proposed that the new watchdog will have the power to fine supervisors if the new money laundering regulations are breached.
Simon Kirby, Economic Secretary to the Treasury, said the new regulations and watchdog “will bring the UK’s anti-money laundering regime into line with the latest international standards, and ensure consistently high standards of supervision across all sectors, sending a strong message that money laundering and terrorist financing should not and will not be tolerated.”
The second major announcement saw the publishing of the long-awaited draft 2017 Money Laundering Regulations. After launching a consultation document back in September last year, the new legislation seeks to transpose the recommendations of the EU 4th Money Laundering Directive (4MLD) which aims to give effect to the updated Financial Action Task Force (FATF) standards into UK law. The new regulations also consider the Fund Transfer Regulation (FTR).
As part of the consultation process the government received 186 responses from a cross-section of stakeholders including supervisors, industry, non-governmental organisations and government departments. The government has published its responses to the consultation with an explanation of the policy decisions. The closing date for comments to be submitted by is the 12 April 2017. The new ML regulations must come into effect by 26 June 2017 to comply with 4MLD and FTR, and the government states that the overall objective of transposition is to ensure that the UK’s anti-money laundering and counter terrorist financing (AML/CTF) regime is kept up to date, is effective and is proportionate.
Some of the key points in the proposed ML Regulations which might have an impact on firms in the legal sector are as follows: -
Ø Requirement for HMRC to act as the registry authority for all trust and company service providers who are not registered by HMRC themselves or the FCA
Ø When a trust or company service provider is asked to form a company this is to be treated as a business relationship for the purposes of AML (even if only transaction for that customer)
Ø List of products that could be subject to Simplified Due Diligence (SDD) to be removed and replaced with a non-exhaustive list of factors which is in line with a Risk Based Approach (RBA).
Ø Pooled client accounts are not automatically subject of Simplified Due Diligence but rather on a RBA.
Ø An expansion of third parties that can be relied upon in terms of CDD and the proposed regulations now include all the regulated sector notably estate agents.
Ø Reliance on 3rd Party CDD must be set out in writing and time limit has been proposed to receive the CDD from the third party as “at the latest within two working days.” (Obliged entity still responsible for the CDD requirements).
Ø Estate Agents are entering a business relationship with the purchaser as well as the seller and therefore they have responsibility for CDD for both parties.
Ø Firms should adopt a Risk Based Approach to dealing with Politically Exposed Persons (PEP’s) and adopt a case by case basis when it comes to the level of EDD applied. The FCA will publish specific guidance on the treatment of domestic and foreign PEP’s, their family members and known close associates.
Ø Guidance in relation to the criminality test (including independent legal professionals) in that supervisors will be required to carry out criminality tests on all beneficial owners, officers, and managers.
Ø Guidance in respect of Administrative Sanctions for serious, repeated or systematic breaches of CDD, reporting obligations, record keeping and internal controls.
In addition to the ML Regulations, the Criminal Finances Bill has had its second reading in the House of Lords and is at the committee stage, with a hearing set for the 28th of March. The legislation is likely to find its way on to the statute books by the end of the year and will add to the ever-increasing regulatory pressure on regulated firms, including those of course in the legal profession.
The legislation seeks to introduce the following: -
Ø Unexplained Wealth Orders meaning an individual or company must explain the origin of assets that appear to be disproportionate to their known income and if suspected of involvement in, or association with serious criminality
Ø Disclosure Orders which require any person considered to have information relevant to an investigation to answer questions, provide information or produce documents and this now includes a money laundering investigation
Ø Extension of the Suspicious Activity Report moratorium period up to 217 days
Ø Enabling of firm-to-firm information sharing through a legal gateway
Ø Company Ownership Transparency in Overseas Territories and Crown Dependencies
Ø Corporate failure to prevent tax evasion
It promises to be a busy year ahead for AML / CTF practitioners as the government seeks to protect the stability of the country’s financial sector and the global financial framework using what it considers effective AML / CTF legislation.