HM Treasury published a consultation document on 22nd July 2021 on the Government’s approach to Money Laundering Regulations 2017, which will be published in 2022. The consultation is open until the 14th October.
There are a number of areas where they are asking for views;
• Changes in scope of certain sectors being subject to the regulation due to the risk of money laundering being undertaken,
• Making changes to strengthen supervision,
• Expanded requirements to strengthen the regime,
• Transfer of Cryptoassets.
Changes in Scope
HM Treasury are recommending the exclusion of Account Information Services (AIS) and Payment Initiation Service (PIS). AIS are viewed as informational tools which allow their customers to view their data and link it to other services. PIS are involved in the payment chain but are conduits rather than executing of the payment. The European Banking Authority assessed the ML/TF risk as limited.
It is also recommended the removal of Bill Payment Service Providers (BPSPs) and Telecoms, Digital and IT Payment Service Providers (TDITPSPs) as the government assesses the risk to be low as they are involved in dealing with relatively small value which is transferred between regulated bodies.
The 5th ML Directive included Art Market Participants (AMP) within the scope of the regulation for the first time. This potentially includes artists who sell their own work for a value greater than EUR10,000. The proposal is to amend the definition of an AMP and exclude artists but retain those that trade or act as an intermediary.
A further proposal is to align the definition of credit and financial institution with those contained in FSMA.
Strengthening Supervision
One of the more controversial consultations is for the supervisory bodies to have access to the content contained in Suspicious Activity Reports (SAR). Supervisors have always been able to request the volume of reports made to the NCA as part of the necessary information required to perform their supervisory functions. The consultation recognises that the proposal is not adding a specific legal obligation on a supervisor to review the SAR, however this does appear to be challenging the rationale of the SAR reporting system. If a supervisor is not able to draw a conclusion on the content of the SAR, what is the point of undertaking such a review.
Expanding the Regime
In October 2020, FATF amended Recommendation 7 to include the risk of Proliferation Financing. This will require the Government to undertake a national risk assessment and firms will be required to include the risk of proliferation financing in their risk assessment and consequently to implement appropriate policies and procedures. The largest impact is likely to be customer due diligence and monitoring especially for those firms that are involved in any form of trade finance.
Further changes are proposed to ensure that all forms of trust and company service providers are covered by the money laundering regulations.
The requirement to report any discrepancies in company beneficial ownership has been a requirement since 10th January 2020. Currently, this requirement is applicable at the commencement of the business relationship, the proposal is to move this to an ongoing requirement which will further increase the cost of due diligence.
There are a number of other proposals, such as supervisors able to share information with Companies House, which appears sensible. The most impactful will be the expansion of supervisory powers such as section 166 reviews to those that rent out safe boxes and involved in commercial lending.
Transfer of Cryptoassets
The final proposal applies to cryptoasset exchange providers and custodian wallet providers where they will be brought into the requirement to record the originator and beneficiary information as per the Funds Transfer Regulation. Firms will need to put systems and controls in place for transactions over £1000, irrespective of the format of the transfer i.e. if bitcoin was the transferred asset, the value will need to be calculated in GBP. In addition to recording the identification details with each transfer, firms will need to retain the information for at least 5 years. Furthermore, cryptoasset providers will need verify the accuracy of beneficiary information before releasing assets, monitor and report missing information if repeated discrepancies occur.
In total, H.M. Treasury have requested responses to 63 questions.
Overall, the amendments will create additional requirements on regulated firms, especially with regard to proliferation financing. It places further emphasis on firms having a robust risk assessments and risk appetites to show where they have exposure to various areas of financial crime.
If you wish to discuss any of these changes and how they may affect you or your business, please contact a member of the Gracechurch Financial Crime Prevention team.
John Flynn
12 August 2021