Updated EU AML framework was transposed into UK law on 10 Jan 2020
What are the changes and what can you do to ensure your firm is compliant?
16 January 2020
Overview
The EU’s fifth Anti-Money Laundering Directive (5AMLD) was published in the Official Journal of the European Union on 19 June 2018. Member States, including the UK, were required to transpose the Directive into national law by 10 January 2020.
The UK has met the transposition deadline, unlike many of the other EU Members States.
The UK’s updated Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were laid before Parliament on 20 December 2019. Although the deadline has been met by the UK, it left very little time for regulated firms to ensure compliance before the 10 January 2020.
In relation to financial institutions within the scope of the regulations, both the FCA and HMRC have expressed their view on the matter.
- Financial Conduct Authority (FCA)
On 23 December 2019, the FCA published a summary of the key changes that regulated financial services firms need to take into account and said that it expects firms to comply with the new, amended regulations from 10 January 2020. The regulator went on to say that if FCA regulated firms are not compliant from implementation date, it will take into account evidence that they have taken sufficient steps before that date to comply during its supervisory visits. - HM Revenue and Customs (HMRC)
For those financial services firms such as money services businesses, regulated for AML purposes by HMRC, the regulator said in its policy paper published on 10 January that it expects all firms to be compliant from this date but it will take into account the short lead-in time businesses have had to implement all the new requirements in assessing the response to any non-compliance. It will update guidance shortly to reflect the new regulations.
Key changes and considerations
The UK has less work to do compared to other jurisdictions because many measures introduced by 5AMLD were already in place. In these cases, the UK has used the opportunity to clarify or reinforce an existing measure.
Here is what you need to know and consider if you are a UK regulated financial services firm.
Headline | Summary Change / Consideration |
Expanded categories of regulated sectors | A broader number of categories of so-called ‘relevant persons’ subject to the regulations is now in place. These include: Tax advisors - expanded to include those ‘who offer material aid or assistance on tax matters’ Property agency sector – expanded to include the letting agency sector for high-value transactions with a monthly rent of EUR 10,000 or more Art market participants - including art galleries, auction houses and Freeport operators [1] storing high-value art are now within scope for transactions exceeding EUR 10,000 |
Additional high risk factors triggering enhanced due diligence | Additional risk factors to trigger enhanced due diligence should be applied when:
Furthermore, until now, firms were required to conduct enhanced due diligence when entering into a business relationship or transaction with a person established in a high-risk third country (according to the European Commission’s list). This is now broadened so that enhanced scrutiny is also required where a firm enters into a transaction where either of the parties (its customer or the ultimate recipient of the funds) are established in a high-risk third country. |
Customer due diligence - recording evidence of difficulties encountered in identifying beneficial ownership | To improve transparency of ownership of a body corporate, a firm should:
|
Customer due diligence - reporting discrepancies to Companies House | In relation to UK companies, firms are now obligated to report to Companies House (or Scottish equivalent) any discrepancies found between the ownership information on the People with Significant Control Register and the information made available to the Firm during customer due diligence. |
Customer due diligence – electronic money thresholds lowered | In relation to electronic money, thresholds have been lowered thus reducing the instances where firms do not have to carry out full customer due diligence. A firm does not need to carry out due diligence when:
In addition, anonymous e-money cannot be used to fund the relevant payment instrument. |
Duty to respond to requests for information about accounts and safe-deposit boxes | From 10 September 2020, banks, building societies and safe deposit box providers now have the duty to respond to requests for information (name, date of birth or address of the beneficial owner) by law enforcement authorities or the Gambling Commission. This will be done by way of a centralised system, whereby records and information will be retained and readily accessible for at least 5 years. |
The regulations also set out a number of obligations on the National Crime Agency (NCA), the UK’s Financial Intelligence Unit (FIU), to enhance cross border cooperation. Amendments have also been made to primary and secondary legislation, such as the Terrorism Act 2000, Proceeds of Crime Act 2002 and Companies House Act 2006 to account for the changes to the UK AML regulation.
What do you need to do?
Although the UK has had less work to do to transpose 5AMLD into UK law, there are important considerations for UK regulated firms. The new regulations act as a timely reminder to:
- consider the impact of these changes on the risk profile of the Firm (business-wide risk assessment)
- review and update your policies, procedures and training materials
- communicate the change in regulation to your Board and senior management
- review your customer profile and associated risk profile of customers now subject to the regulations (cryptoasset providers etc). As part of on-going monitoring you should request AML/CTF policies and procedures and get some assurance of their compliance with the regulations
- ensure that you have IT systems / controls in place to identify transactions where either of the parties are established in a high-risk third country, and ensure the necessary Enhanced Due Diligence is carried out. This means extra scrutiny on outgoing transactions by your UK based customer to a high risk third country
- if you are an e-money issuer, you need to ensure systems / controls are in place to flag when the lower thresholds have been breached
[1] Defined as areas designated as special zones for customs purposes, usually defined as a place to carry out business inside a country’s land border but where different customs rules apply.
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