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The changes update the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ("the 2017 Regulations") to incorporate international standards set by the Financial Action Task Force (FATF) and to implement the EU's Fifth Money Laundering Directive (5MLD). The UK has implemented this into domestic law via the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 ('the 2019 Regulations').
The 2017 Regulations brought in significant changes to the AML regime including; extending the scope of Customer Due Diligence ('CDD') checks, introduced domestic PEPs (Politically Exposed Persons) and created a central register of beneficial ownership. The 5MLD builds upon these changes to better counter the financing of terrorism, and increase transparency in financial transactions. The amendments are based on the European Commission's 2016 Action Plan to plug the gap in the terrorist finance and anti-money laundering risks.
For most businesses subject to the 2017 Regulations, the changes will require updating their current policies and procedures. However, the 2019 Regulations have extended the scope to include businesses in sectors not previously regulated, no doubt causing significant changes to the way they operate. This article summarises the key changes:
Extended Scope
The 2019 Regulations extend the scope of persons subject to the 2017 Regulations to include; Virtual currency providers and custodian wallet providers; Art traders (with a transaction of EUR10, 000 or more); those who carry out similar services to accountants and tax advisors as a principal business activity; Estate agents who deal with letting transactions of EUR10, 000 or more a month. These changes are intended to close perceived loopholes and to account for changes in behaviour from new technologies. In some areas, the 2019 Regulations take a wider approach than that of the 5MLD. For example, the 2019 Regulations provide a wider interpretation of "Cryptoassets" to capture exchange, security and utility tokens.
Financial Intelligence Units ('FIU')
The 2019 Regulations bring a greater focus on enhanced information sharing. Powers given to the EU Financial Intelligence Units', to have increased access to information in a centralised bank and payment account register to better identify account holders. By 10 September 2020, Member States are required to set up a national centralised mechanism. Bank and payment account owners must be registered along with safety deposit holders. Information available would include the IBAN number, identification number of the customer, beneficial owner etc. The information will only be accessible to FUI's and are not to be made available to the public. This new power places a duty on credit institutions, and the providers of safety deposit boxes to respond to requests for information. FIU's have also been given the power to request money laundering and terrorist financing information from firms, even where the firm has not submitted a suspicious activity report (SARs), as previously required under the 2017 Regulations.
Beneficial Ownership Structures
The 2017 Regulations introduced a register of beneficial ownership information for corporate and legal entities, available to those who have a legitimate interest. In line with the aim for greater transparency, The 2019 Regulations brings the beneficial ownership register into the public domain, and there is no longer a need to show a legitimate interest to gain access. Where the beneficial owner of a corporate organisation cannot be established, senior managing officials must be identified. The 2019 Regulations expands the registration of beneficial owners of taxable trusts, to include express trusts. Further amendments place a greater need for firms to update their records to accurately reflect the beneficial ownership of corporate clients. Where there are differences from the information held by the firm, and that of Companies House, a new 'discrepancy reporting requirement' creates a duty to report these differences to Companies House. An exception applies where the information is protected by legal professional privilege.
Enhanced Due Diligence ('EDD')
Previously member states determined their own type of Enhanced Due Diligence ('EDD') to be applied to high-risk third countries, this has changed to a more harmonised approach across member states. In particular, The 2019 Regulations amend the 2017 Regulations by setting out a list of EDD measures that must be applied to high-risk third countries. The 2019 Regulations have widened the triggers for EDD, transactions relating to - arms; oil; precious metal; tobacco products etc. have all become new risk factors to be considered. A transaction which is considered unusual "or" complex, rather than unusual "and" complex will also trigger EDD.
Politically Exposed Persons ('PEPs')
Each member state, and the international organisations accredited to them, will be required to keep an up-to-date list of exact functions, which qualify as prominent public functions. These lists will be given to the EU Commission, and made available for public access.
Customer Due Diligence ('CDD')
To minimise the anonymity around prepaid cards. The 2019 Regulations amend the 2017 Regulations by narrowing the E-money exemption so that firms can only forgo CDD for electronic payments where the maximum amount stored electronically is EUR150 (previously EUR250); are non-reloadable and have a maximum monthly payment transaction limit of EUR150. Remote payment transactions higher than EUR50 are not subject to CDD. If the electronic payment product is issued in a non-EU country, then it can only be used if the country of issue has AML legislation equivalent to the 2017 Regulation. In addition to documents, data or information from a reliable and independent source as set out in the 2017 regulations, the 2019 Regulations expands CDD to include electronic identification means that have been approved by national authorises.