Experts warn UK businesses of imminent changes to anti-money laundering regulations

Legal experts have urged UK businesses to pay close attention to upcoming changes to the 2017 Money Laundering Regulations (MLRs) that will impose further compliance requirements on in-scope firms.

In line with the 2022 Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations, from 1 April 2023, businesses subject to the MLRs will have to comply with checks of the register of overseas entities (ROE) at Companies House for dealings with corporate entities. For dealings with trust entities, businesses subject to the MLRs will have to comply with checks of the trust registration service (TRS) that is maintained by HM Revenue and Customs (HMRC).

Andrew Sackey of Pinsent Masons warned that the enhanced obligations, which carry a fine or imprisonment for non-compliance, have passed “largely under the radar” of the regulated sector. He added: “This mandatory requirement is a hugely significant change to the levels of customer due diligence (CDD) and subsequent reporting of material discrepancies which regulated businesses must conduct before establishing, or maintaining, business relationships with relevant overseas entities – which are themselves now required to register their details, those of their beneficial owners and, in some cases, managing officers, in the UK ROE.”

David Hamilton of Pinsent Masons added: “It is significant that 1 April 2023 also sees the introduction of expanded CDD requirements in relation to trust structures. From 1 September 2022, entities subject to the MLRs have been required to check the TRS register as part of their new customer onboarding processes. This requirement will be expanded on 1 April 2023 to encompass ongoing CDD checks on all existing business relationships with relevant trusts. This will bring potentially thousands of trust customers within scope, imposing a significantly greater compliance burden on firms.”

Hamilton warned that, despite lobbying from industry, the government had placed tight constraints on TRS exemptions in recent years, effectively limiting exemptions to a handful of products, including regulated pension schemes and life insurance policies. “This means that a significant number of otherwise low risk trusts are now required to register with TRS, including healthcare trusts and certain types of investment trusts. It also means that firms engaging with such trusts must conduct expanded CDD checks even though the trusts present a low risk of money laundering,” he added.

“What makes this all the more ironic is that trustees of certain non-exempt trusts may themselves benefit from an exemption to register with HMRC for anti-money laundering (AML) supervision on the basis that the trusts are low risk. It will be interesting to see whether officials address this inconsistency. In the meantime, relevant firms doing business with such trusts will have to engineer new compliance frameworks to capture the required degree of TRS data, determine whether the information they receive from trustees during the CDD process is materially different, and report such discrepancies to HMRC,” Hamilton said.

He added: “Aside from the operational challenges this will pose, there are also questions as to whether the lack of a TRS registration should itself be treated as a compliance red flag requiring enhanced due diligence, whether and how payments out of products held under trust may be affected, and whether and how firms should engage with relevant customers to raise awareness of legislative changes and consequences of failing to register as required.”

Article Credit: https://www.pinsentmasons.com/out-law/news/experts-warn-uk-businesses-of-imminent-changes-to-anti-money-laundering-regulations