AML Money Laundering Changes – 10th January 2020

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