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Money Laundering, Terrorist Financing and Transfer of Funds Regulations

Volume 623: debated on Wednesday 15 March 2017

The Government have today published draft Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“Money Laundering Regulations 2017”). These regulations transpose the EU fourth money laundering directive (and the Fund Transfer Regulation (FTR) which accompanies it), which seek to implement the international standards set by the Financial Action Task Force.

The Government previously consulted on the transposition of the fourth money laundering directive (4MLD) and the Funds Transfer Regulation in autumn 2016 and these regulations are accompanied by the Government response to that consultation.

The overall objective of transposition is to ensure that the UK’s anti-money laundering and counter-terrorist financing (AML/CTF) regime is kept up to date is effective and is proportionate. This will enable the UK to have a comprehensive AML/CTF regime and ensure that the UK’s financial system is an increasingly hostile environment for money laundering/terrorist financing (ML/TF).

The Money Laundering Regulations 2017 introduce a number of new and updated requirements on relevant businesses and changes to some of the obligations found under the third money laundering directive (3MLD). The FTR updates the rules regarding information on payers and payees accompanying transfers of funds, in any currency, for the purposes of preventing, detecting and investigating ML/TF, where at least one of the payment service providers involved in the transfer of funds is established in the EU.

The Money Laundering Regulations 2017 have been informed by the responses submitted to the autumn 2016 consultation, and the call for evidence on the anti-money laundering supervisory regime in 2016. Changes introduced by the Money Laundering Regulations 2017 include:

Her Majesty’s Revenue and Customs (HMRC) acting as a registering authority for all trust and company service providers (TCSPs), who are not registered by the Financial Conduct Authority (FCA);

an extension of the fit and proper test to agents of money service businesses (MSBs), which will be carried out by HMRC;

the exemption of all gambling service providers from the requirements of the directive, except remote and non-remote casinos. The national risk assessment found that, while ML/TF risks exist in the gambling sector, it is relatively lower risk than other regulated sectors, partly because risks are mitigated by licensing conditions and robust supervision. The Government will regularly review their position on the ML/TF risk that gambling providers present;

a decision not to allow pooled client accounts to be automatically subject to simplified due diligence, but instead for this to be applied on a risk-based approach;

clarification and enhancement of the obligations on money laundering supervisors.

So as to address concern about the disproportionate application of enhanced due diligence measures (EDD) to politically exposed persons, their family members and known close associates, the Government are also requiring firms to take a proportionate approach to EDD. The Money Laundering Regulations 2017 make it clear that firms must assess the level of risk associated with a particular person and assess the extent of the EDD to be applied to that person. In the Government’s view it is not acceptable for firms to refuse to establish a business relationship or carry out a transaction based solely on anyone’s status as a PEP and this was never the intention of 4MLD. Firms must form their own view of the risks associated with individual PEPs, their family members, and known close associates on a case-by-case basis, but the Government would expect that PEPs entrusted with prominent public functions by the UK should generally be treated as lower-risk, and that firms should apply EDD accordingly.

This approach will complement the important provisions put forward by my hon. Friend the Member for Broxbourne (Mr Walker) and accepted by the Government in the Bank of England and Financial Services Act 2016. The FCA will also shortly publish draft guidance on how firms should apply EDD to PEPs, their family members and known close associates.

Alongside the draft Money Laundering Regulations 2017, the Government have also published a response to the consultation on the anti-money laundering supervisory regime. Inconsistent supervision was highlighted by the UK’s national risk assessment as a weakness. The Money Laundering Regulations 2017 impose clearer obligations on supervisors and this publication announces a new office for professional body AML supervision to work with professional body supervisors to help, and ensure, compliance with the new Money Laundering Regulations 2017. Views on the powers this new office should have to carry out this task effectively are requested by 26 April.

The draft Money Laundering Regulations 2017 are open to consultation until 12 April. We expect the regulations to come into force on 26 June.

Both documents can be found at: