Why firms need to review their anti-money laundering processes – now.
There were a number of changes enacted by UK legislation to reflect the fifth Money Laundering Directive. The changes were effective from 10 January, with guidance being updated or being in the process of being revised. The changes have the largest impact on letting agents, art dealers and crypto currency dealers but will also affect other businesses including accountancy firms and other regulated firms.
The FCA has published specific new areas that firms need to comply with. The main changes and areas to consider are highlighted below.
Firm wide risk assessment and policies and procedures The changes include the requirement that firms assess new and additional high-risk factors when deciding on the need for enhanced due diligence. The FCA highlights 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, government 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.
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.
Electronic verification is now written into the legislation with firms needing to verify the reliable source. The Regulation 28(19) states:
'For the purposes of this regulation, information may be regarded as obtained from a reliable source which is independent of the person whose identity is being verified where:
(a) it is obtained by means of an electronic identification process, including by using electronic identification means or by using a trust service (within the meanings of those terms in Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23rd July 2014 on electronic identification and trust services for electronic transactions in the internal market; and
(b) that process is secure from fraud and misuse and capable of providing an appropriate level of assurance that the person claiming a particular identity is in fact the person with that identity.'
Requirement to report discrepancies
There is also a requirement that firms 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.’
There 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.
This means that accountants will need to inform Companies House if there’s a discrepancy between the information that they hold about a beneficial owner of a company, limited liability partnership, or Scottish limited or qualifying partnership and the information that’s on the Public People with Significant Control (PSC) register.
Companies House does have a narrow but important power to rectify the register in the case of such discrepancies and may evaluate whether false or misleading information has been publicly filed and utilise its power to penalise.
Enhanced Due Diligence red flag transactions process requirements have been tightened. The SRA has a useful reminder within its guidance on this area stating that ‘Changes to existing Enhanced Due Diligence (EDD) requirements mean that you must apply EDD in all the following circumstances (formerly it was only necessary if all the listed elements were met):
where the transaction is complex
where the transaction is unusually large or
where there is an unusual pattern of transactions, or the transaction or transactions have no apparent economic or legal purpose (formerly both conditions had to be satisfied).
'Whether a transaction is ‘complex’ or ‘unusually large’ should be judged in relation to the normal activity of the practice and the normal activity of the client.’
Finally, training requirements on staff are extended to include any agents a practice may use for the purpose of its business where they are involved in the identification, mitigation, prevention or detection of money laundering or terrorist financing risk within the business.
CCAB is working on updating the AML guidance for the accountancy sector. We will include an update on our website as soon as the guidance is released.
ACCA’s Technical Advisory Team has produce a series of factsheets to help both new and experienced practitioners in complying with their Anti-Money Laundering obligations.
The factsheets address the following areas:
Firm-wide risk assessment
The (suspicion activity report) SAR process
The role of the Money Laundering Reporting Officer