Following a consultation exercise that ran between September and November 2016, the UK Government has now set out its proposals for changes to the UK Anti-Money laundering regime in order to implement the Fourth Money Laundering Directive (4MLD). The changes will come into force by 30 June 2017.
Many of the provisions of 4MLD will have little or no impact in the UK, as its requirements are already met by the existing regime. For example, Article 40 requires Member States to ensure that obliged entities retain documents relating to Customer Due Diligence for at least five years and allows for this period to be longer. The Money Laundering Regulations 2007 already impose a five year period for record retention in the UK and the Government has decided against extending this. Similarly, letting agents conducting estate agency activity are included within the scope of 4MLD, in a change from 3MLD, but the Money Laundering Regulations 2007 already include such letting agents.
The changes that 4MLD will bring to the UK are therefore mostly minor.
Politically exposed persons (PEPs)
The Government has accepted the overwhelming view expressed by respondents to the consultation that the approach to PEPs needs to be proportionate to the risk that they pose and that this will vary widely. Enhanced Due Diligence requirements for PEPs will therefore be on a sliding scale. The FCA has published guidance for firms on how to assess the risk posed by any particular PEP, which can be found here, but the consultation response makes clear that the mere fact that a person is a PEP does not justify any refusal to provide financial services to them.
Trust beneficial ownership
Article 31 of 4MLD requires Member States to establish central registers of beneficial ownership for express trusts with tax consequences. HMRC will therefore launch a register in the summer of 2017 as an online service and trustees will be expected to update it annually. Express trusts means trusts created deliberately, as opposed to those established as a result of a statute, resulting or constructive trust. Trustees will have to provide information on the identity of other trustees, beneficiaries and any other person exercising effective control over the trust. Where a trust has a class of beneficiaries, not all of whom have been identified, only a description of the class will be required.
The Government noted that most respondents to the consultation felt that the money-laundering risk posed by electronic money systems was low. 4MLD provides that Member States must ensure that no more than €100 can be redeemed in cash from an e-money instrument. Customer Due Diligence exemptions will apply to devices that are not reloadable or have a maximum monthly transaction limit of €250 and no more than €250 can be stored on them.
Trust and company service providers
Currency exchangers, cheque cashing services and trust and company service providers (TCSPs) must all be registered under Article 47 of 4MLD. The FCA currently registers authorised persons who act as a money service business or TCSP, but as all TCSPs will now need to be registered, HMRC will act as the registering authority for all TCSPs, including those supervised by professional bodies. Those supervisors will have to notify HMRC if members have passed fit and proper tests and if the fit and proper status of their members has changed. Responsibility for supervision of TCSPs will remain with professional bodies and HMRC’s role is therefore limited to registering them.
The new guidance on handling PEPs will be welcome, but while many firms will find their procedures need to be changed in some way by 4MLD, the impact is likely to be minor compared to other developments in train. The promised wholesale revision of the Suspicious Activity Reporting scheme, to include provisions allowing sharing of information between institutions and an extension of the moratorium period, will have a more significant impact. For more on this, see our elexica article.
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