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Money Laundering

Volume 548: debated on Tuesday 17 July 2012

The Government are today publishing their response to the consultation on proposed changes to the Money Laundering Regulations 2007 and an impact assessment on those changes. The 2007 regulations implement the European Union’s third money laundering directive in the UK.

The proposals being taken forward will both reduce the regulatory burden on firms and make the UK’s money laundering regime more effective and proportionate. The amendments are, for the most part, intended to benefit UK businesses by removing from the scope of the regulations those firms that are not at high risk of money laundering or terrorist financing and by enabling UK businesses to take full advantage of simplification measures provided in the European Union (EU) directive.

The Government committed to a post-implementation review of the 2007 regulations two years after they came into force. This review was undertaken in 2009-10, in conjunction with the Better Regulation Executive. The review entailed an extensive call for evidence, meetings, conferences and interviews with stakeholders. The Government’s response to the review was published in June 2011 and contained a consultation on 17 proposals to improve the UK’s anti-money laundering and counter-terrorist financing regime.

Following this consultation, which drew 72 responses and involved extensive engagement, the Government are taking forward proposals with a net annual benefit for businesses of £3 million.

The measures that will be taken forward are:

Extending the use of reliance: The Government will extend the permitted use of reliance, a mechanism by which a firm can rely on the customer due diligence (CDD) carried out by a different firm. This will minimise the duplication of CDD checks by the regulated sector and reduce the burden CDD places upon customers.

Exempting non-lending credit institutions: Only businesses that lend and advance money should be subject to the regulations. The regulations will be amended to exempt credit institutions that offer time to pay for non-refundable services, such as health and golf clubs. The Government do not consider that such businesses present a high risk of money laundering and terrorist financing, or that the global standards and EU directive require such businesses to be regulated.

Regulating overseas estate agents: Global standards and the EU directive require the regulation of estate agents because of the high money laundering risks in this sector. UK estate agents selling overseas properties will, therefore, now be within scope of the regulations.

Amending the fit and proper test: The “fit and proper persons” test is applied by Her Majesty’s Revenue and Customs (HMRC) to decide whether a person is suitable to run a money service business (MSB). This test will be amended in the regulations to ensure that individuals who are not fit and proper cannot run a business which is at high risk of money laundering, terrorist financing and proliferation of financing. This also ensures consistency with the financial action taskforce (FATF) global standards, the EU directive and the fit and proper test applied by the Financial Services Authority (FSA) under the Payment Services Regulations.

Right to appeal against HMRC decision: The Government will clarify the right to appeal, to ensure that individuals have easy and economic access to a fair hearing if they wish to challenge HMRC’s decision.

Regulatory enforcement measures: These measures support the Office of Fair Trading, HMRC and the FSA as supervisors in taking action to ensure compliance with the regulations.

A full explanation of the proposals being taken forward can be found in the Government’s response document and impact assessment. Copies have been placed in the Libraries of both Houses.