Fifth Directive places new requirements on law firms
The new Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (Money Laundering Regulations 2019) came into effect on January 10 which will result in law firms needing to make changes to the way they work to help keep the proceeds of crime out of legal services.
The new provisions implement the Fifth EU Directive on Money Laundering and add to provisions already in place from the Fourth Directive, which became law in the UK through the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) and which came into force in June 2017.
It is anticipated that the Money Laundering Regulations 2019 will impact more on sectors such as the banks and those that deal in crypto-currencies rather than on law firms. In any event, those law firms with well developed AML policies will find that they comply with many, although probably not all, of the key new requirements.
The background to the Fifth Directive is that its provisions were being discussed as part of the Fourth Directive but were held over as a result of the delays that were being experienced in its passage through the Commission. The decision was therefore made to proceed with the greater part of Fourth Directive and postpone the remainder that was holding up the process. This in turn became the Fifth Directive, and so it is that which we are now dealing with – in other words what is in effect a postscript to the Fourth Directive and therefore amendment regulations only.
Around 7,000 solicitors firms are potentially caught by changes to the regulations and will need to re-assess their processes – making any necessary changes immediately.
The Legal Sector Affinity Group (LSAG) – which includes the SRA and all of the legal sector supervisors named in the regulations – is publishing a summary of changes to the regulations (PDF 5 pages, 197KB) to help firms comply with the new requirements.
- a duty to collect proof of registration for entities (eg trusts and companies)
- a duty to inform the registry of any discrepancies in their information
- changes to client due diligence and enhanced due diligence
LSAG is currently drafting updated guidance on the regulations. This will require the approval of Treasury and will be made available in the coming months.
There has been a short lead in time between the regulations being laid in Parliament on 20 December, and the legislation coming into force. However, the legislation requires firms to be compliant from 10 January. The SRA have indicated that they will take the limited time that firms have had to prepare for the new requirements into account in their enforcement work.