On the 10th January 2020 changes to the UK’s regulations on Money Laundering activities came into force. These regulations implement the EU’s 5th Money Laundering Directive and are intended to ensure the UK remains in line with international standards relating to money laundering. In this article we will set out the key changes which may affect your business.
What are the changes?
The key changes are:
1. Additional high risk factors which would require enhanced due diligence;
2. A change in the e-money regulations for customer due diligence;
3. Extension of customer due diligence obligations relating to beneficial ownership of corporate clients;
4. Reporting obligations in respect of beneficial ownership discrepancies;
5. Response obligations for credit institutions or safe custody services;
6. Implementation of compliance obligations;
7. Crypto-asset business registration requirements.
High Risk factors and enhanced due diligence
If your business is engaging with customers and/or providing services which feature one or more of the following factors then you may be required to have enhanced due diligence procedures in place:
· The parties are based in high-risk third countries;
· Your client is the beneficiary of a life insurance policy;
· Your client is a foreign national seeking to acquire UK residence rights or citizenship though:
o Capital transfers;
o Purchase of property;
o Investment in government bonds or corporate entities.
· Your clients or services involve non-face to face business relationships or transactions;
· Your services involve transactions in oil, arms, precious metals, tobacco products, cultural artefacts, items of protected species, or archaeological, historical, cultural and religious significance, or of rare scientific value.
The key takeaway about these changes is that you must assess the transaction and the parties involved for these risk factors and if they are present, take the prescribed steps for enhanced due diligence.
Changes to e-money thresholds and usage
Electronic money (e-money) is an electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer. The device acts as a prepaid bearer instrument which does not necessarily involve bank accounts in transactions.
If the value of the e-money is below a certain threshold, businesses are not obliged to conduct customer due diligence. The new regulations have adjusted these thresholds, introduced rules about the nature of the payment instruments and how they may be used. The key changes are set out below:
· the threshold amount which may be stored electronically has decreased from €250 to €150;
· the relevant payment instrument may not be reloadable;
· the threshold amount for monthly payment transactions is reduced from €250 to €150;
· the payment instrument must be used exclusively to purchase goods or services;
· the payment instrument may not be funded by anonymous electronic money.
Customer due diligence and beneficial ownership of corporate clients
Certain businesses, which fall within the scope of regulated sectors, must be able to demonstrate that they have clear processes in place by which they are able to understand the structure and beneficial ownership of their corporate clients. This definition of “regulated sector” has been expanded by the new regulations to include the following:
· “tax adviser” now includes businesses which offer material aid or assistance on tax matters;
· “property agency sector” now includes letting agents who engage in high value transactions with rentals of greater than £10, 000 per month;
· Art market participants including galleries, dealers and auctioneers who engage in transactions greater than £10, 000;
· Cryptoasset exchange providers and custodian wallet providers who will now be subject to the same regulation as other regulated sector members.
Customer Due Diligence - Reporting beneficial ownership discrepancies
Businesses, as part of their customer due diligence obligations, must examine the information on beneficial ownership held in Companies House against the information provided to them by their customer. If it appears that there are discrepancies between the two sets of information that must be reported to Companies House.
Requests for information from law enforcement or regulators
This regulation will come into force on 10 September 2020. Credit institutions and providers of safe custody services will be required to respond to requests for information about from a law enforcement authority or the Gambling Commission regarding details of accounts, safe deposit boxes. This information can include the name, date of birth, registration details and address of the holders or beneficial owners of the accounts or safe deposit boxes. These requests may be facilitated through an online portal being developed by the UK government.
Implementation of changes
The UK government has indicated that it will require compliance with the new regulations from 10th January 2020 but will take into account evidence that shows a genuine attempt to achieve compliance before that date.
Crypto-asset business registration requirements
The regulations have explicitly extended to cover this industry. It is a legal requirement that businesses carrying out crypto-asset activities must register with the FCA during 2020. Customer due diligence measures must be undertaken by crypto-asset exchange providers and custodian wallet providers when entering into business relationships. Crypto-asset automated teller machines (CATM) have been identified as being particularly vulnerable to criminal exploitation. CATM operators are required to carry out customer due diligence in respect of all exchanges of money for crypto assets, regardless of the amount.
Brexit and the UK’s regulations
The January 2020 regulations were drafted and implemented as part of the UK’s obligations as a member state of the EU. Now that the UK has left the EU this obligation to legislate in accordance with EU directives has fallen away. However, UK has always taken a hard line on combatting money laundering and terrorist financing. It is considered highly unlikely that the UK will make any substantive changes to its money laundering regulations.
The overarching goal of the UK’s anti money laundering regulatory framework is to combat money laundering and terrorist financing. The regulations are designed to be flexible and to encourage individual businesses and sectors to introduce their own procedures and measures by adopting a proportionate and risk based approach.
Failure to have adequate anti money laundering provisions in place can have severe consequences for a business. Non-compliance penalties can range from unlimited fines through to criminal convictions for senior management. It is vital for any business to conduct regular risk assessments to ensure that they are compliant with the regulations relevant to their sector. The government has indicated that it will not issue industry specific guidelines for the implementation of these changes and have advised that persons should consult with their industry regulators or legal advisors to ensure that their business operations are compliant.
This article is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter. If you require specific legal advice on any issue relating to compliance with anti-money laundering regulations, we at Serenity Law LLP will be able to assist. Please contact us on 0800 019 7773 to arrange a consultation.