Of relevance to:
HM Treasury has published a Consultation Paper on the transposition of the Fourth Money Laundering Directive (“4MLD”) and the accompanying Fund Transfer Regulation (“FTR”). Although the latter is a Regulation, and hence binding upon all Member States, Article 17 of the FTR requires Member States to set out rules on administrative sanctions and measures for breaches.
The Consultation advises that the current Anti-Money Laundering and Transfer of Funds Regulations will be replaced by a “Money Laundering and Transfer of Funds (Information on the Payer) Regulations 2017”. It is intended that the new provisions will come into force in national law by 26 June 2017, in line with 4MLD (and FTR).
Like the current Money Laundering regime, the Consultation is not just aimed at credit and financial institutions but also draws in businesses such as estate agents, providers of gambling services, letting agents etc.
Areas addressed by the Consultation include, but are not limited to:
- When Customer Due Diligence (“CDD”) should be applied to existing customers (4MLD Article 14 mentions “at appropriate times”);
- Although the concept of Simplified CDD (“SDD”) remains (4MLD Annex II provides a non-exhaustive list of factors and types of evidence of potentially lower risk which can be taken into account when determining the validity of SDD), the Consultation is proposing to remove the list of products that could be subject to SDD (see Regulation 13 of the current Money Laundering Regulations);
- The possibility of removing the application of SDD to pooled client accounts e.g. pooled accounts held by notaries and other independent legal professionals (although this express provision applies under the current regime it is not repeated in 4MLD);
- The need for Enhanced Due Diligence (“EDD”) for Politically Exposed Persons (“PEPs”) continues and, of course, is widened under 4MLD due to the removal of the distinction between a domestic or foreign PEP. The government’s view is that a risk-based approach can be used in identifying whether a customer is a PEP and so different degrees of EDD measures can be used. The Consultation provides an example of a PEP check not being required if the product being offered was assessed as being the subject of a low risk of take-ups by PEPs. Where a person is identified as a PEP, the enhanced measures can be tailored to the risk posed by both the product and the person – in low risk cases the government’s view is that UK PEPs (and their family members and close associates) should be treated at the lowest level of EDD.
- Still on PEPs, the Consultation also poses the question as to whether senior members of international sporting federations (“ISF”) should also be included in the UK’s definition of PEPs (4MLD does not expressly include members within ISF).
- Under 4MLD Article 54 imposes a maximum penalty of at least €5m or 10% of the total annual turnover (note that this only applies to credit and financial institutions, there are lesser maximum penalties for other types of entities). The Consultation advises that the government does not intend to set an upper limit, believing that such a matter should be dealt with on a case-by-case basis. As for breaches of the FTR it is proposed that power to determine the measures and level of administrative sanctions remains with the relevant supervisory authority.
HM Treasury invites comments on the Consultation Paper by 10 November 2016.