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  • UK Government Consults on Draft Money Laundering Regulations

    03/15/2017
    The UK Government has published draft Money Laundering Regulations 2017 alongside a consultative document. Publication of the draft Regulations follows a consultation launched by HM Treasury on September 15, 2016, entitled "Transposition of the Fourth Money Laundering Directive," where it outlined how the UK Government intended to transpose the 4MLD and the Fund Transfer Regulation. The 4MLD builds on the Third Money Laundering Directive and Money Laundering Regulations, imposing new requirements on businesses and amends some of the existing obligations. The FTR updates the rules contained in the 2006 regulation relating to the information on payers and payees that accompanies transfers of any currency, with a view to preventing, detecting and investigating money laundering and terrorist financing. The FTR applies to the transfer of funds where at least one of the payment service providers involved in the transfer is established in the EU. This consultation outlines the responses submitted to the 2016 consultation and the UK Government's policy decisions following that consultation and requests feedback on further policy questions and the draft Regulations.

    A number of policy positions emerged from the consultation on transposition of the 4MLD, including a requirement for HM Revenue and Customs to act as the registry authority for all trust company service providers who are not registered by HMRC themselves or the Financial Conduct Authority. The UK Government has also extended the scope of the fit and proper test to cover agents of money service businesses. This test will be carried out by HMRC. The UK Government has also decided to remove the requirement that pooled client accounts are to be automatically subject to simplified due diligence, opting instead for a risk-based approach.

    With regard to electronic money, the draft Regulations outline which products should be exempt from customer due diligence measures. The 4MLD has provisions which operate to limit the circumstances in which e-money issuers can be exempted from such measures based on an appropriate risk assessment that demonstrates a low risk, when certain conditions are met. The UK Government has amended one condition and with the effect that e-money issuers may potentially be exempted from CDD measures (subject to satisfying other conditions), where the maximum amount that may be stored electronically is 500.

    The draft Regulations follow the FATF's opinion that correspondent banking must be regarded as high risk from a money laundering and/or terrorist financing perspective. The draft Regulations also require firms to assess the risk posed by each customer and not on judgments based solely on anyone's status as a politically exposed person. Following a consultation process, the Financial Conduct Authority will publish specific guidance on the treatment of domestic and foreign PEPs, their families and their known close associates.

    On beneficial ownership, the 4MLD has two main requirements. First, EU member states must hold adequate, accurate and current information on the beneficial ownership of corporate and other legal entities that are incorporated within their territory in a central register. Second, such information should be made available to authorities and organizations across the EU with a legitimate interest. The UK has already legislated to require transparency of the beneficial ownership of UK companies, Limited Liability Partnerships and Societates Europaeae, through the obligation on such entities to maintain a register of people with significant control and to provide this information to Companies House.

    Responses to this latest consultation are due by April 12, 2017. The UK Government intends to transpose the 4MLD in full in accordance with the deadline of June 26, 2017. The Government notes that 4MLD is being re-opened at a European level because of the terrorist attacks in Europe and the leak of the "Panama papers". A separate consultation will be launched once 4MLD has been published in the Official Journal of the European Union.

    View the draft Regulations.

    View the consultation on the draft Regulations.

    View the consultation on the transposition of the 4MLD.