New money laundering regulations in force

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, SI 2017/692, came into force on 26 June, replacing the Money Laundering Regulations 2007. The new regulations implement, in part, the requirements of the EU fourth money laundering directive.

The regulations, which have been subject to extensive consultation, introduce some new requirements and changes to some of the obligations found under the current regime. They apply to financial institutions, including money service businesses (MSBs), as well as to other ‘gatekeepers’ to the financial system, including auditors, legal advisers, insolvency practitioners, external accountants, tax advisers, estate agents, casinos, high value dealers (HVDs) and trust or company service providers. See http://bit.ly/2tclCjS.

The main changes are:

• the HVDs’ cash transaction threshold is reduced to €10,000 (down from €15,000) and extended to receiving as well as making payments in cash;
• the threshold for the inclusion of persons engaged in financial activity is increased to £100,000 (from £64,000);
• simplified due diligence checks for areas of lower risk will be based on a non-exhaustive list of factors;
• the enhanced due diligence checks requirement is extended to all financial institutions engaged in cross-border correspondent relationships with non-EEA countries;
• ‘politically exposed persons’ are to be risk assessed on a case by case basis for enhanced due diligence;
• estate agents will have to apply customer due diligence checks to both buyers and sellers in a transaction;
• pooled client accounts will be subject to a risk-based approach, rather than automatic qualification for simplified due diligence;
• customers spending more than €250 in a single month will be subject to due diligence checks;
• low risk e-money products, such as gift cards and store vouchers, will be subject to the maximum threshold for simplified due diligence;
• customer due diligence information and transaction data will have to be retained for five years at the end of a relationship (the UK will not require the additional five year option allowed under the directive);
• trustees of express trusts (other than low risk trusts) must hold beneficial ownership information (information for trusts with tax consequences is to be held through HMRC’s trust register);
• HMRC is to act as registering authority for all trust or company service providers (TCSPs) and will require professional body supervisors to provide details of their members who carry out TCSP activity and their ‘fit and proper’ status;
• a new requirement is introduced for supervisors of TCSPs and MSBs to carry out fit and proper tests on managers and owners;
• the ‘criminality test’ for beneficial owners, officers or managers of supervised businesses will also cover HVDs; and
• supervisors will have to be able to demonstrate that they can impose effective sanctions and may consider the use of HMRC/FCA powers where they are unable to impose suitable pecuniary penalties.

The Treasury must keep the regulations under review and publish a report setting out its conclusions before 26 June 2022. Subsequent reports must be published at intervals not exceeding five years.

HMRC has updated several items of its guidance on various aspects of money laundering supervision, including the main guidance notes on MSBs, HVDs, TCSPs and estate agents, which it describes as ‘interim’ and subject to further revision.

Richard Morley, tax dispute resolution partner at BDO, commented: ‘This is effectively the second major step in the UK’s compliance initiative to counter money laundering and terrorist financing, the first being the introduction of the PSC (people with significant control) register for corporates last year.’

More specifically, he said: ‘Parts of the new legislation enable HMRC to compile a register of beneficial ownership for trusts effective from January 2018.’ Although aimed at UK-based trustees, this ‘will nevertheless affect any trusts wherever they are based, if UK assets are held’.

Pointing out that the new money laundering regulations coincide with the first wave of automatic information exchange due under the OECD’s common reporting standard (CRS) in September, Morley warned that the new trusts register ‘places even greater information in the hands of HMRC over and above that to be provided under CRS’. It is therefore important for trusts to ‘review their UK tax affairs to ensure correct compliance before providing information under the new money laundering directive’.

Further provision for information on beneficial ownership of legal entities is also being made by the Information about People with Significant Control (Amendment) Regulations, SI 2017/693 and the Scottish Partnerships (Register of People with Significant Control) Regulations, SI 2017/694.