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A clear commitment to meeting your legal obligations

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLR 2019) are now in effect. Anne Davis, director of professional standards at the Institute of Financial Accountants (IFA), provides an overview of what the changes mean for accountants.

Eighteen months ago, the government published a high-level consultation seeking views on how best to transpose the Fifth EU Money-Laundering Directive (5MLD) into UK law. The deadline for its implementation was 10 January 2020.

Despite plenty of prior notice for EU 5MLD, the new regulations which actually make the directive a reality – The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLR 2019) – were only published on 20 December 2019, with a mandatory compliance date of the 10 January 2020. Not ideal timing with most businesses closing for Christmas, and made harder now by not having the sector guidance available which interprets and provides clarity to businesses on how to comply with the regulations.

At the IFA, we are a recognised supervisory body and work with our members to provide relevant and credible advice and guidance on all legislative changes. The MLR 2019 updates the regulations issued in June 2017, and here is what we know so far. 

For accountancy firms, the key changes to be aware of are as follows:

  • Extending the scope of the money laundering regulations to additional sectors. The regulations now also encompass letting agents, art market participants, cryptoasset exchange providers and custodian wallet providers. The first two will be supervised by HMRC, while cryptoasset exchanges and custodian wallet providers will come under the jurisdiction of the FCA.

          Not all accountants will have clients who are directly affected, but what is most relevant for accountants is the fact              that the regulations have been amended to include all providers of tax advice – whether direct or indirect – so even            high-volume repayment agents will fall within scope.

  • Firms’ policies, controls and procedures should be updated for changes relating to identification and scrutiny of transactions, assessment of money laundering and terrorist risks when adopting new products, new business practices including new delivery mechanisms or new technology and training requirements relating to ‘relevant employees’.

           The MLR 2019 also recognises ‘electronic verification’ (EV) methods formally for the first time, highlighting that EV             signatures can be used as a means of ID verification. 

  • It can be difficult to establish who has ultimate responsibility in a complex corporate structure, which has led to changes around client due diligence (CDD). There are now requirements on accountancy firms to report ultimate beneficial ownership discrepancies, between information firms have about their clients and the Persons with Significant Control (PSC) register in Companies House.

Previously, CDD was applied ‘at appropriate times to existing customers on a risk-based approach’, however under the new MLR 2019, firms are required to conduct CDD when:

  • They have any legal duty in the course of the calendar year to contact existing clients for the purpose of reviewing any information which is relevant to the firm’s risk assessment, and relates to the customer’s beneficial ownership; and
  • The firm has to contact an existing client in order to fulfil any duty under the International Tax Compliance Regulations 2014.

For full details on how to report discrepancies, see the gov.uk website.

  • The scope of enhanced due diligence (EDD) has been updated, and will often apply even if your client is based in a ‘safe’ country such as the UK. EDD is now required for additional risk factors such as transactions related to oil, gas, arms, precious metals, tobacco, ivory and protected species, and clients who are third-country nationals applying for residency or citizenship in an EEA state in exchange for transfers of capital, the purchase of property, government bonds or investment, i.e. ‘golden visas’.

           Regulation 33 lists various (non-exhaustive) customer, delivery channel, and geographical risk factors which firms               must take into account in assessing whether a particular situation presents a higher ML/TF risk, and the EDD                     measures that should be taken to mitigate such risk, including if the customer is a beneficiary of a life insurance                   policy.

Ultimately, the most significant driver for these changes is to reduce the opportunity of firms being used for money laundering and terrorist financing activities.

All businesses are expected to comply with the law; however, in the case of these recent changes, the IFA, as a supervisory body, will take into account the short lead time which firms have been given to comply, and assess each firm that we supervise on a case-by-case basis.

What is essential is that you devise and implement a clear strategy to comply with these recent changes, demonstrating your commitment to meeting your legal obligations in the near term. 

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