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The Money Laundering, terrorist financing and transfer of funds (information on the payer) regulations 2017

Financial Conduct

Purpose of the Regulations

The Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007 will be replaced with the Money Laundering, terrorist financing and transfer of funds (information on the payer), with updated requirements that implement in part the Fourth Money Laundering Directive (4MLD) and the Funds Transfer Regulation (FTR). This will come into national law on 26th June 2018. It will apply to all of the United Kingdom.

Matters of special interest to Parliament

Certain powers are now included in the MLR’s, including the supervision, enforcement and investigation of FTR breaches. Also covered by the MLR’s are the regulations related to the setting of thresholds with regards to customer due diligence and the increase of data retention periods; intended to assist law enforcement investigations.

Legislative Context

The new regulation updates the guidelines on data on payers and payees, complementary to transmission of funds, in any currency, for the determinations of avoiding, distinguishing and examining money laundering and terrorist financing. In the case where at least one of the payment service providers involved in the transfer of funds is established in the EU.

Background

The major policy objective is to update and boost European legislation on to the same level as the international standards on combating money laundering and terrorist financing as set out in the revision to the Financing and transfer for funds (FATF) standards in 2012.

The intention behind the changes is to ensure the financial system is too difficult an environment for illicit activities to develop and survive, but without passing the burden onto legitimate businesses.

Money laundering is the coverup of the backgrounds of illegally gained money, often involving foreign banks or legitimate businesses. It can challenge the truth and steadiness of our financial markets and institutions. Money laundering happens all over the world, and everyone most play their part in tackling it together.

Money service businesses and sectors that are considered “gatekeepers” to the financial system are among those financial systems which the regulations apply to.

The updated MLR’s allow those member states who seldom participate in financial activity to be declared exempt.

They will also present a ‘criminality test’ for specific segments to prevent convicts sentenced in applicable areas. The government has considered that the rehabilitation period of spent criminal convictions is enough of a “safeguard”, and so will not be licencing supervisors to assess this.

If an organisation falls under the scope of the Regulations, they will need to apply to different levels of due diligence procedures, for example classifying and authenticating the purchaser’s identity, in order to manage the risk of money laundering and terrorist financing.

Part 4 of the regulations allows for all those in the regulated sector to be depended on for adequately completing CDD (Customer Due Diligence) checks.

The Directive requires that businesses hold CDD data and transaction data for five years after an association. They also present a new obligation that organisations must erase data after this five-year period.

 

Accurate and up-to-date information on beneficial owners and ‘potential beneficiaries’ must be held by trustees of express trusts, but this does not apply to trustees in statutory, constructive or resulting trusts and partners in active partnerships .

HMRC will uphold a record of trusts with tax penalties in order to provide law enforcement with beneficial ownership information in a timely manner.

All supervisory authorities are subject to a duty to cooperate with other supervisory authorities under part 6 of the Regulations.

Supervisors will be given the utensils they need to display businesses effectively and to take suitable action if needed under part 8 of the Regulations.

The government believes that all supervisors should be able to prove that they have necessities which permit them to enact effective, balanced and discouraging sanctions.

Impact

The regulated population will pay fees which will fund the familiarisation, compliance, staff and IT costs incurred by Regulators and businesses.

 

The predominant impact on the public sector is the charges incurred by the statutory supervisors in implementing any changes. There’s no anticipation that that there will be any substantial impact on charities or voluntary bodies.

Regulating small business

The regulation will apply to the activities small businesses undertake. Small businesses will not be exempt according to the global standards. This is due to the fact criminals often target small businesses.

Monitoring & review

In order to best tackle to the risks of money laundering and terrorist financing affecting the United Kingdom, a full risk assessment (including identification, assessment, understanding and mitigating the risks) must be arranged by the Treasury and Home Office before the 26th June 2018.

Contact

Katherine Newall at HM Treasury (Telephone 020 7270 5803 or email: Katherine.Newall@hmtreasury.gsi.gov.uk) can answer any queries regarding the instrument.