Changes to Anti-Money Laundering Regulations Now in Effect

Changes to the Money Laundering Regulations came into force on 10th January 2020.

The Money Laundering and Terrorist Finance Amendments Regulations 2019 (Regulations) update the UK’s anti-money laundering (AML) regime to incorporate international standards set by the Financial Action Task Force (FATF) and implement the EU’s 5th Money Laundering Directive (5MLD).

UK businesses are being warned to ensure they are complying with the regulatory overhaul.

Reporting discrepancies to Companies House

The new regulations have introduced a requirement for relevant persons subject to the MLRs to check the beneficial ownership registers (i.e. PSC registers) of companies and other legal entities that are within the scope of the UK’s PSC regime before they establish a business relationship with those entities.

If a relevant person finds a discrepancy between the beneficial ownership information on the company’s PSC register and the information which becomes available to them in the course of carrying out customer due diligence, that person must report the discrepancy to Companies House.

There is an exception for legal professional privilege. If a discrepancy is reported, Companies House must take appropriate actions to investigate and, if necessary, resolve the discrepancy.

Identifying a “discrepancy” may not therefore always be straightforward: a beneficial owner for money laundering purposes is not always a PSC, and vice versa. Obliged entities will need to take care when comparing PSC register information with information gathered as part of their customer due diligence checks.

Other 5MLD changes

From a corporate law perspective, the beneficial ownership-related changes above are the most significant ones required to be implemented by 5MLD. The 2019 amendment regulations introduce a number of other changes to the UK’s anti-money laundering regime, which are not covered in this article, such as expanding the scope of the obliged entities subject to the MLRs to include cryptoasset exchanges, custodian wallet providers and high-value residential property letting agents.

Other transparency developments

As we mentioned in our April 2019 briefing, implementation of the beneficial ownership-related changes required by 5MLD is just one of a series of developments increasing transparency of beneficial ownership of companies.

Amendments to regulation 33 of the MLRs require firms to include new additional high-risk factors when assessing the need for enhanced due diligence, and seek additional information and monitoring in certain cases.

These may occur where:

  • there are relevant transactions between parties based in high-risk third countries
  • the customer is the beneficiary of a life insurance policy
  • the customer is a third-country national seeking residence rights or citizenship in exchange for transfers of capital, purchase of a property, governments bonds or investment in corporate entities
  • non-face to face business relationships or transactions without certain safeguards, for example, as set out in regulation 28 (19) concerning electronic identification processes.
  • transactions related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or archaeological, historical, cultural and religious significance, or of rare scientific value

Updates in E-money thresholds for customer due diligence (CDD)

Among other things, amendments to regulation 38 regarding electronic money mean that firms can only forego customer due diligence measures in situations where:

  • the maximum amount which can be stored electronically is 150 (previously 250)
  • the payment instrument used in connection with the electronic money (the relevant payment instrument) is not reloadable or is subject to a maximum limit on monthly payment transactions of 150, which can only be used in the UK (previously 250)
  • the relevant payment instrument is used exclusively to purchase goods or services
  • anonymous electronic money cannot be used to fund the relevant payment instrument

Customer due diligence

Amendments to regulation 28 require firms to update their records relating to the beneficial ownership of corporate clients. Firms also need to understand the ownership and control structure of their corporate customers, and record any difficulties encountered in identifying beneficial ownership.

Reporting discrepancies to Companies House

Regulation 30A is a new requirement for firms to report to Companies House discrepancies between the information the firm holds on their customers compared with the information held in the Companies House Register.

Duty to respond to requests for information about accounts and safe-deposit boxes

The new Part 5A imposes duties on credit institutions and the providers of safe custody services to respond to requests for information, via a central automated mechanism. A law enforcement authority or the Gambling Commission may request details related to accounts and safe-deposit boxes including, but not limited to, name, date of birth and address of the holder(s) or beneficial owner(s).

Compliance under MLRs

We expect firms to comply with the new, amended regulations from 10 January 2020. In assessing our approach to firms that may not be compliant on that date, we will take into account evidence that they have taken sufficient steps before that date to comply with these new obligations.

Cryptoassets activities

Businesses carrying out certain cryptoasset activities will need to comply with the MLRs in relation to those activities from 10 January 2020, and to register with us during 2020.Â

This means art market participants (of any size) who participate in a transaction (single or linked) worth 10,000 EUR or more (currently around £8,500 GBP or $11,000 USD) must conduct the same know your client (KYC) and due diligence checks long used by UK banks, accountants and lawyers before taking on such business and/or handling client money.

The HM Revenue & Customs (HMRC) becomes the UK supervising authority and regulated art participants (as well as their owners, officers and senior managers) will need to register with HMRC within a year.

Additional AML compliance requirements such as appointing a Money Laundering Compliance Officer (MLCO) to supervise compliance and report suspicious activity, adoption of AML policies and documenting that appropriate checks that have been carried out as well as educating and training relevant staff on AML responsibilities, will also take effect.

Changes to Anti-Money Laundering Regulations Now in Effect 2
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