Money laundering:
Due diligence requirements change
Lawyers have until just this Friday to ensure they comply with the Fifth Money Laundering Directive, the government announced just before Christmas.
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were made on 20 December 2019 and will come into force on 10 January, making changes to various pieces of anti-money laundering (AML) legislation.
Among the changes to customer due diligence (CDD) are explicit requirements for regulated persons to take reasonable measures to understand the ownership and control structure of their customers, and to verify the identity of senior managing officials when the beneficial owner of a corporate body cannot be identified.
The explanatory memorandum to the regulations say electronic identification processes will be allowed where these are: independent of the person whose identity is being verified, 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”.
Lawyers will now have to check beneficial ownership registers of legal entities in scope of the People with Significant Control (PSC) requirements before establishing a business relationship.
Where there is a discrepancy between the beneficial ownership information on the registers and the information given to them in the course of carrying out CDD, these will have to be reported to Companies House.
The regulations also amend specific customer risk factors in relation to enhanced CDD measures, which are required for business relationships with a person established in a high-risk third country or in relation to any relevant transaction where either of the parties is established in a high-risk third country.
The Treasury consulted on the regulations last April and said in the memorandum that it received over 200 responses, which were “broadly supportive of the overall policy objectives”.
The Treasury’s summary and response of these submissions has not yet been published, but it said there was “significant engagement” on electronic identification processes, among other issues.
“Responses agreed that additional clarification is needed on what constitutes secure electronic identification processes but were mixed on the question of whether this clarification should be included in the MLRs themselves or in government-approved guidance.
“The government therefore decided to take a high-level, principles-based approach to the regulations, in line with the general approach to CDD in the regulations. More detailed discussion of the elements of secure electronic identification will be covered in HM Treasury-approved guidance for each sector.”
The response to obligations to report discrepancies in beneficial ownership information was “mixed”, it conceded.
There was also “significant interest” in the government’s approach to the national register of bank account ownership.
“It is a requirement of the [directive] which the government will endeavour to implement in the most effective way for the UK system, taking considerable input from industry, competent authorities, law enforcement and civil society into account.”
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