In a last minute dash, the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were made on 19 December 2019 and came before Parliament the following day. The new Regulations apply from 10 January 2020 in line with the implementation of the Fifth Money Laundering Directive.

What are the changes?

The following are some of the highlights from the amended Regulations.

• Customer Due Diligence (CDD)
  • There is a new obligation requiring regulated businesses to secure proof of registration or similar where the entity is subject to UK company or partnership registration requirements and to report to the relevant Registrar any discrepancies between information on beneficial ownership that the regulated business collects or otherwise becomes aware of and what is stated in the Register. Additional training is therefore required for individuals cross-referencing the information to ensure that internal processes are in place to identify the discrepancies and also to know to whom they should report those discrepancies for onward referral to the Registrar. Generally this would of course be the Money Laundering Reporting Officer’s task.

• • Letting Agents are to apply CDD to any transaction for a term of less than a month and where the rent is at least 10,000 Euros per month for at least part of the term. This criteria applies both to the Landlord and Tenant.

• • For the first time, art market participants are described in the legislation as “people who by way of business trades in, or acts as an intermediary in the sale and purchase of works of art and the value of the transaction, or linked transactions is at least 10,000 Euros.” CDD applies to this category where the transaction or linked transactions are of a value of 10,000 Euros or more in relation to storage of such works.

• • Crypto-asset exchange providers operating machines to exchange crypto-assets for money or vice versa, in relation to any transaction carried out using the machine are now required to take CDD. For reference, the definition of a crypto-asset has also been defined in the new Legislation as “cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically”.

• • The new Legislation also stresses the importance of understanding ownership and control structures of any non-individual customer as well as confirming the requirements to keep written records of relevant transactions taken to identify beneficial owners and to verify the identity of the senior manager managing an entity where the firm has failed to identify the beneficial owner.

• Electronic Verification
  • It is now also expressly stated that information may be regarded as obtained from a reliable source where obtained via appropriate electronic services secure from fraud or misuse and capable to provide an appropriate level of assurance that the person claiming a particular identity is that person. This will be a huge relief for many regulated business relying upon electronic services and for those individuals who do not wish to part with their original passports and driving licence etc.

• Enhanced Due Diligence (EDD)
  • This has been updated slightly to clarify that it applies to any relevant transaction where a party is established in a high risk third country. This is likely to hit most regulated businesses risk assessment in any event and requires more careful analysis that is now formally incorporated in that category. The meaning “established” is to be interpreted as incorporated or having a principal place of business or principal regulator in that jurisdiction, or be resident in that jurisdiction if an individual. It is expected that EDD in these circumstances would include obtaining additional information on the customer, its beneficial owner and intended nature of the business relationship, information on source of wealth and funds of the customer and its beneficial owner, understanding the reasons for the transaction, securing senior management approval and conducting enhanced monitoring all fit this bill too.

• New Product or Business practice launch
  • If a regulated business launches a new product or business practice, appropriate risk assessments must also be undertaken. This historically applied only to new technologies.

• Training Requirements
  • There is also an extension to the training requirements to include agents that are used by the business whose work is relevant to money laundering prevention or compliance.

The dates when the current legislation will fall into place should be considered as effective from 10 January 2020. There are some exceptions to this that will apply to certain categories of regulated business in limited circumstances.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Despite the awaited exit from the EU, the likelihood is that the EU’s Fifth Anti-Money Laundering (AML) Directive will also be implemented in the UK.

The changes are due by 10 January 2020 and for the first time will bring Art Dealers and Auction Houses into the regulated sector for anti-money laundering purposes.

As law enforcement departments gain further insight into the movement of laundered funds, the legislation seeks to crackdown upon key areas which have remained vulnerable.

Some of the key changes will include the following:-

• Definition of Politically Exposed Person clarified – Each member state must issue a list setting out which functions qualify under this category as prominent public functions.

• Improved transparency of Beneficial Ownership of Corporate Entities – Wider access to each Member States Central Register of Beneficial Ownership of Companies and Entities comes into force to provide increased transparency. The objective is to ensure that any member of the public can access minimum information without needing to demonstrate a legitimate interest.  Companies House has already provided this basic level of access for some time. There is also a new requirement for what is termed “Obliged Entities” to report any discrepancies found between information held and the information on the Register.

• More information on the Beneficial Ownership of Trusts – The next Directive will extend the reporting requirements for the Beneficial Ownership of Trusts which would also result in a Central Register of Beneficial Ownership being available to those showing a legitimate interest in the Register. The Member States have been left to define what a legitimate interest may be with the key focus upon ensuring that preventative work in undertaking Due Diligence can be assured.

• Ownership Details for Safe-Deposit Boxes – No longer will it be possible to have an anonymous safe-deposit box with there being a legal requirement now for identity papers to be taken.

• The Prepaid Cards to have Increased Due Diligence – There was previously a threshold of €250 for gift cards and prepaid cards of this type. This limit has now been reduced to €150.

• New Technologies – Virtual currency exchange platforms will now be subject to AML laws as they too are included as Obliged Entities.

• Use of Electronic Identification – Contrary to previous legislation, under the Fifth Money Laundering Directive the use of Electronic Identification for customer Due Diligence will be permitted.

Whilst at time of posting this it is unclear as to how the UK will implement the Directive post Brexit, the desire to remain a leading financial centre is unlikely to see the UK fall behind other countries in their compliance with legislation targeting Money Laundering and Terrorist Financing.

Make sure you are compliant!

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk