MLRs extended to cover new types of business
The MLRs apply to a wide range of businesses (known as ‘relevant persons’) that are deemed at risk of being involved in money laundering or terrorist financing. The amendments coming into force today add new categories of business. Now included are crypto asset exchange providers, custodian wallet providers, high value art market participants (e.g. art dealers and freeport operators) and high value property letting agents (previously it was just estate agents). An expanded definition of ‘tax adviser’ means that those who offer material aid or assistance on tax matters will also fall in scope.
Changes to customer due diligence
There are some new and amended customer due diligence requirements.
Must understand ownership and control
There is a new explicit requirement for relevant persons to take reasonable measures to understand the ownership and control structure of their customers. Relevant persons must also use reasonable measures to verify the identity of senior managing officials when the beneficial owner of a corporate cannot be identified. Although many relevant persons will already be doing these checks voluntarily, they are now mandatory.
Changes to EDD requirements
Some of the triggers for Enhanced Due Diligence (EDD) have been amended. For example, an amended trigger for EDD refers to "any transaction which is complex or unusually large." Previously this referred to transactions that were complex and unusually large. A tiny change in wording, but imposing a potentially larger obligation.
There are also some new specific risk factors that must be taken into account when assessing whether to apply EDD – these include if the transaction relates to oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or other items of archaeological, historical, cultural or religious significance or of rare scientific value. Another new mandatory risk factor to be considered involves corporate/other legal arrangement beneficiaries of life insurance policies.
There are some new mandatory steps prescribed as part of EDD, for example establishing beneficial ownership, the reasons for the transaction, information on source of funds and wealth, involving senior management in decisions about the relationship and increased ongoing monitoring.
Again, many firms may already be operating to these standards but it is worth checking as these steps are now mandatory.
Electronic identification allowed
Use of electronic identification processes is now permitted 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. Treasury-approved guidance for each sector is expected to provide a more detailed discussion of the elements of secure electronic identification.
E-money exemption narrowed
The circumstances in which the customer due diligence exemption applies for low-risk e-money products have been narrowed. There are also new requirements for a credit institutions or financial institutions acting as an acquirer for payment using an anonymous prepaid card issued in a third country (this change comes into force slightly later, on 10 July 2020).
Policies, controls and procedures
Key changes here include:
- Relevant persons must ensure they undertake risk assessments prior to the launch or use of new products or business practices (previously this just applied to new technologies).
- There is a new obligation on parent undertakings to ensure they have group-wide policies on the sharing of information about customers, customer accounts and transactions for AML/counter-terrorist finance (CTF) purposes.
- Relevant persons must also ensure that agents used for the purposes of its regulated business receive AML/CTF training.
Assisting enforcement
5MLD requires new national bank account registers in each Member State to enable easy access by law enforcement and supervisory authorities to bank account information (although not transaction history) for all bank accounts held in that Member State. The registries will all be interconnected between Member States. There are therefore new obligations in the MLRs on credit institutions and providers of safe custody services to have systems which enable them to respond, using a central automated mechanism, to a request for information made by a law enforcement authority or the Gambling Commission. Enforcement authorities will be able to request information even where no Suspicious Activity Report has been filed. This new regime comes into force on 10 September 2020.
Increasing transparency of beneficial ownership of corporates
There is a new ‘discrepancy reporting requirement’ which requires a relevant person to report any discrepancies it finds between the information that it holds on beneficial ownership, and the information it receives from official registries such as Companies House (for example, the Register of Persons with Significant Control). There is an exception where the information is protected by legal professional privilege (belonging to the relevant person).
Beneficial ownership of trusts
MLD5 requires all express trusts and their beneficial owners to be registered in a central national register. This has been controversial in the UK, as currently the trust registration requirement is limited to taxable trusts only. This part of MLD5 is not reflected in the amendments to the MLRs at present. A recent alert from the Institute of Chartered Accountants in England and Wales records that HMRC has told it that:
"HMRC would run a more detailed technical consultation on the details of implementation…in early 2020…. this consultation will include additional information on the proposals for the type of express trusts that will be required to register, data collection and sharing, and penalties."
Brexit
The UK is a founding member and strong supporter of FATF, which sets global anti-money laundering and counter-terrorist financing standards. These standards are generally incorporated into English law through the transposition of EU directives. Even following Brexit, as a leading member of FATF, the UK will continue updating anti-money laundering policies according to international standards.
Except as stated above, all the changes to the MLRs come into force today. If you would like further information on how these changes affect your business please contact amy.edwards@allenovery.com or your usual Allen & Overy contact.
