Some will be hoping that Brexit might make things simpler for Brits when it comes to proving the ownership of money and other assets, but financial services lawyer Simon Deane-Johns explains that will not be the case.
Despite the uncertainty of Brexit, it’s business as usual for the UK Government as it plans to implement the EU’s Fifth Money Laundering Directive by making certain changes to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
The main amendments proposed are summarised here, and must take effect by 10 January 2020. If the proposed changes in the regulations affect you and you require advice, please contact Simon Deane-Johns on the contact details below.
The definition of “tax adviser” will be expanded to include firms and sole practitioners who are in the business of providing material aid, assistance or advice about the tax affairs of another person (directly or by way of arrangement with other persons).
There are numerous options for applying the MLRs to letting agents.
The MLRs will apply to service providers engaged in exchange services between cryptoassets and fiat currencies, and wallet providers. This will include exchange tokens, security tokens and utility tokens.
That means the MLRs will apply to:
- crypto-to-crypto exchange service providers;
- the peer-to-peer exchange of both fiat-to-crypto and crypto-to-crypto between prospective “buyers” and “sellers”;
- cryptoasset ATMs; issuance of new cryptoassets (including Initial Coin Offerings); and
- the publication of relevant open-source software (which includes, but is not limited to, non-custodian wallet software and other types of cryptoasset-related software).
High-value dealers are to include art intermediaries for transactions exceeding €10,000. That will capture, for example:
- art galleries,
- auction houses, and
- free ports/zones (currently none in the UK),
regardless of whether they are paid in cash.
Exemptions for low-value e-money instruments will be narrower, as all of the following conditions must be met:
- the maximum amount that can be stored electronically is €150;
- the instrument either can’t be reloadable or must have a maximum limit on monthly payments of €150 which can only be used in the one Member State;
- the instrument must only be used to purchase goods and services;
- the instrument can’t be funded with anonymous e-money; and
- any single cash redemption or remote payment cannot exceed €50.
In addition, EEA acquirers can only accept payments made with anonymous prepaid cards issued in non-EEA countries that impose equivalent AML requirements.
Members States will be free to prohibit payments carried out using anonymous prepaid cards.
The new requirement for electronic identification processes is for them to be “regulated, recognised, approved or accepted at national level by the national competent authority” which raises questions about which e-ID processes in the UK will be acceptable.
Companies and officers
Firms will be required to determine and verify:
- the law to which a body corporate is subject;
- its constitution; and
- the full names of the board of directors, as well as the names of the senior persons responsible for the operations of the body corporate.
Where beneficial owner cannot be identified
If a firm has exhausted all possible means of identifying the beneficial owner of a body corporate but hasn’t succeeded, the firm must keep written records of the steps it took, and then take further measures to verify the identity of the senior person in that body corporate (keep written records of those measures).
Understanding the customer’s business/structure
Firms will be required to understand the nature of their customer’s business and its ownership and control structure (rather than just being required to take “reasonable measures” to do so).
Filing SARs when due diligence fails
Firms must cease transacting and file a suspicious activity report (SAR) when they cannot apply their due diligence or additional or enhanced measures.
Proof trust/company register was searched
Firms must collect proof of registration (or an excerpt of the register) for any company or the trust that is subject to beneficial ownership registration requirements, before a new business relationship is established.
Apply due diligence when beneficial ownership must be reviewed
Firms must apply due diligence when they have any legal duty in a calendar year to contact the customer for reviewing their relevant beneficial ownership information.
Enhanced due diligence where high-risk countries are involved
Firms must apply a newly defined set of enhanced due diligence measures and monitoring to business relationships and transactions involving high-risk third countries.
Lists of PEP functions to be taken into account
The responsibility to apply enhanced due diligence on Politically Exposed Persons (PEPs) will be able to be discharged by applying the FCA’s July 2017 guidance on how firms should take into account a list of functions in determining whether an individual is a PEP for the purposes of the MLRs.
Information on beneficial owners to be publicly available
The Government must ensure that information on the beneficial ownership of corporate and other legal entities is accessible by members of the general public and “mechanisms” must be in place to ensure that the information held on the central register is adequate, accurate, and current. The UK must also take appropriate actions to resolve any reported discrepancies in a timely manner and, if appropriate, include a specific mention in the central register in the meantime.
Trusts to be registered
Trustees or agents of all UK and some non-EU resident express trusts must register those trusts with the Trust Registration Service, whether or not the trust has incurred a UK tax; and the Government must share data from that register with a range of persons under certain circumstances.
Bank account registries
The UK must establish a centralised registry or online retrieval mechanism which allows identification of natural and legal persons who hold or control bank accounts; payment accounts; or safe-deposit boxes held by credit institutions within the UK – including names and account/identification numbers.
Pooled client accounts of unregulated operators
The Government wants further evidence on:
- the administration of checks relating to the use of pooled client accounts (PCAs) under the MLRs, especially those held by non-regulated businesses, with any evidence of abuse; and
- the practical barriers industry face in implementing the current framework and whether that framework could be ‘enhanced’.
AML risk assessments for new products, practices and channels
Firms will need to undertake AML risk assessments prior to the launch or use of new products, new business practices and delivery mechanisms.
Provision of Information by branches and subsidiaries
Firms must have policies relating to the provision of customer, account and transaction information from their branches and subsidiaries.
The UK will not require that “whenever a customer makes their first payment involving a designated high-risk third country, that payment is carried out through an account in the customer’s name with a credit institution subject to the Directive’s customer due diligence standards.”
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.