The UK's previous Anti-Money Laundering (AML) legislation, The Money Laundering Regulations 2007 (the 2007 Regulations), was repealed on 26th June 2017 and replaced by The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the 2017 Regulations). This new legislation implements the proposals contained within the EU's 4th Money Laundering Directive, which was published on the 25th June 2015.
The 2017 Regulations build upon the risk-based approach advocated by the 2007 Regulations and make some key changes, aimed at making the UK a more hostile place for money launderers and terrorist financers.
Some of the key changes introduced by the 2017 Regulations are summarised below:
- Company Formations: Under the 2007 Regulations, the forming of a UK company was widely construed as an occasional transaction. Unless the company also required additional on-going support services, such as a registered office address or company secretarial services, there was not a mandatory requirement to conduct due diligence on everyone wishing to form a UK company. The 2017 Regulations now classify a one-off company formation as a business relationship, giving rise to due diligence requirements.
- PEPs (Politically Exposed Persons): Previously, only foreign PEPs were considered to represent an increased risk of money laundering, thus triggering the need to undertake Enhanced Due Diligence when doing business with them, their immediate family or their close associates. The 2017 Regulations have widened the PEP definition so it now includes domestic UK PEPs, their immediate family & close associates. However, there is also recognition that not all PEPs present the same level of risk, and so the 2017 Regulations include the provision to apply a risk-based approach to PEPs, differentiating between low and high-risk PEPs, their family members and close associates. The Financial Conduct Authority have been tasked with publishing guidance on how you may differentiate PEP risk, considering factors such as the political stability of the PEPs country of origin.
- Simplified due diligence: To come more in line with the risk-based approach, the UK Government will provide a non-exhaustive list of factors where simplified due diligence may be appropriate. Compliance practitioners will now need to consider each case on its merits and document their rationale for instances where they feel simplified due diligence is appropriate.
- Widening the definition of beneficial ownership: Whilst the 2017 Regulations stop short of lowering the beneficial ownership threshold from >25% to >10% shareholders, the definition of beneficial ownership has been extended to include those persons with significant control of a company (PSCs).
- Central Register of Trusts: To bring trusts in line with the level of beneficial ownership transparency now expected of UK companies, HMRC are to launch a central register of beneficial owners of express trusts with tax consequences during 2017. This will mandate trustees to provide HMRC with details of a relevant trust's Settlor, Trustees, Beneficiaries and all other natural or legal persons with control over the trust. However, unlike the beneficial ownership register of UK companies, this will not currently be made public.
- PSC changes: In order that the UK's central register of beneficial owners provides "adequate, accurate and current information", changes to a UK company's PSC register will now need to be filed within 28 days of the change, rather than just annually when filing their confirmation statement.
- Independent Audit Function: Having regard to the size and nature of a business, there is now a requirement to appoint a member of the board as an officer for compliance with the 2017 Regulations and establish an independent audit function to evaluate the effectiveness of the company's AML policies/procedures.
- Risk Assessment: The Treasury, The Home Office, Supervisory Bodies & businesses supervised for compliance with the 2017 Regulations must each produce a risk assessment based on the money laundering & terrorist financing risks the UK, entities the supervisory body supervises and supervised companies face. The Treasury & The Home Office will share their findings with the supervisory bodies who will, in turn, share these with the bodies they supervise. Some of the factors companies will need to consider when producing their risk assessment are the services they provide, the delivery channels used and the location of their clients.
Whilst some have criticised the UK Government for "gold plating" the EU's 4th Money Laundering Directive, when transposing its recommendations into UK law, most of the changes shouldn't be too onerous for the majority of firms to comply with. However, unlike the 2007 Regulations, which were in place for over 10 years, the EU are currently working on their 5th Money Laundering Directive. The 2017 Regulations may therefore just be the start of an ever more stringent AML regime that will ensure that the UK, and our European neighbours, are leading the global fight against money laundering and terrorist financing which, given the current global threat level, must surely be viewed as a positive.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.