Draft Money Laundering Regulations Published

Draft Money Laundering Regulations Published

Introduction

HM Treasury has now published the long-awaited revision of the Money Laundering Regulations. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Revised Regulations), which transpose the EU Fourth Money Laundering Directive and the Fund Transfer Regulation which accompanies it, must take effect by the 26th June so as to comply with the deadline imposed on EU member states by the Fourth EU Directive.

The Revised Regulations are accompanied by a “response and call for further information” from the Government on its views on increasing the oversight of professional body supervisors. The closing date for comments to be submitted is 12 April 2017.

The Revised Regulations are intended to keep the UK’s anti-money laundering and counter-terrorist financing regime up-to-date, effective and proportionate and in doing so will introduce a number of new or updated requirement, including:

  1. changes to due diligence processes – including addressing concerns about the disproportionate application of enhanced due diligence measures to Politically Exposed Persons
  2. looking at the risk assessments that relevant businesses need to undertake
  3. establishing an independent audit function able to monitor the adequacy and effectiveness of, and compliance with, anti-money laundering procedures
  4. changes to the supervision regime
  5. the setting up of a central register of beneficial ownership information for express trusts with tax consequences, and
  6. the possibility that there will be an increase in the frequency of filing information about people with significant control.

Impact on law firms

So what is this likely to mean in practice for law firms?

In many cases, firms will need to amend, update and adapt their anti-money laundering policies in order to deal with issues such as enhanced CDD checking.  These are unlikely to have a major effect, however, on file management processes.

A far more significant challenge for firms, however, will be to embrace a culture of compliance whereby firms will have to do more than simply carrying out identity checks in a mechanistic manner. Instead, firms will need to conduct a proper risk assessment on the exposure of the firm to anti-money laundering risks and they will have to develop policies which genuinely give more emphasis not only to proper risk assessment but also to the need for there to be far more regular audits of the firm’s procedures in this regard.  This is likely to lead to a far more interventionist approach by the SRA on issues relating to anti-money laundering compliance, with the likelihood of new regulations covering the new responsibilities for all designated supervisory bodies.

Aside from those issues relating to management arrangements, other changes which are likely to impact most on firms include:

  • changes to the provisions relating to politically exposed persons – with the need for greater checking on their source of wealth,
  • a new obligation to disclose to the bank on request a list of clients holding funds in client account at any given time, and
  • the need to provide clients with data protection advice in relation to the identity data collected for customer due diligence processes.

We will publish a more detailed overview of the new provisions following the consultation and the introduction by the SRA of new regulations

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