New Money Laundering Regulations
On 15 March 2017 the Government published draft new Regulations intended to implement the Fourth Money Laundering Directive ((EU) 2015/849) (“MLD4”) that needs to be transposed into UK law by 26 June 2017.
A further short consultation period closed on 12 April and it is not yet clear whether there will be any changes to the published draft Regulations.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 will entirely replace the Money Laundering Regulations 2007, and its provisions are markedly more comprehensive.
The emphasis is very much on risk management, with a wider positive requirement for regulated firms to perform risk assessment specific to their own sector. Firms are expected to implement controls and procedures proportionate to the nature and size of their business and to continue to monitor, develop and enhance such policies and controls in the light of experience over time.
A summary of generic risk factors is set out in the Regulations as transposed from MLD4, with the intention that detailed examples for different sectors will then be set out in sector-specific guidance.
The Joint Money Laundering Steering Group has recently revised Part I of its guidance to firms to reflect the new draft Regulations, but work continues on revisions to the Part II guidance, chapter 21 of which covers Invoice Finance.
Customer Due Diligence is again the bedrock of the assessment of risk, and the new Regulations list various non-exhaustive indicators when enhanced CDD will be required, and likewise also expand the scope to undertake simplified CDD where, for example having assessed the specific case by reference to a range of risk factors, a firm considers the money laundering risks to be low.
Any CDD record sharing will also be subject to a clearer framework, with a requirement for a written agreement before any CDD performed by a third party can be relied upon.
MLD4 sets out two main requirements in relation to transparency of beneficial ownership:
(1) That EU member states hold adequate, accurate and current information on the beneficial ownership of corporate and other legal entities incorporated within their territory in a central register; and
(2) That such information should be made available to specific authorities, organisations and those with a legitimate interest across the EU.
The Government has already legislated to require transparency of the beneficial ownership of UK companies through the Small Business, Enterprise and Employment Act 2015. Details of the implementation of these requirements are expected to be published by BEIS in their written ministerial statement. This will address issues including the scope of the requirements, and the time limits for updating the central register on changes to beneficial ownership information.
The reporting regime will be enhanced by the Criminal Finances Bill, which will enable the National Crime Agency to require any member of the regulated sector to provide further information in relation to a Suspicious Activity Report.
The new Regulations also involve streamlining of the somewhat convoluted supervisory regime for regulated firms, some of which is explained in the Government’s recently published Cutting Red Tape Review.
In relation to sanctions there are enhanced administrative sanctions for breaches including the publication of a statement identifying offenders and the nature of a breach.
In addition there are a number of new criminal offences, including an offence of prejudicing an investigation and an offence of making false or misleading statements in purported compliance with a requirement of the Regulations.
The current draft of the 2017 Regulations can be found here.