Corporate

The Treasury published a consultation paper mid- April on its proposals for transposition of the 5th Money Laundering Directive (5MLD).  5MLD will introduce a number of significant changes to the money laundering regime.

As with anything European, the impact of Brexit needs to be considered. The implementation date for 5MLD in the UK is January 2020. However whether there is a hard Brexit or a soft Brexit by then, the Consultation suggests that it is unlikely that Brexit will have a material impact on the core proposals.

We have reviewed these proposals in detail in our Update but highlight the main proposals below.

Scope

The Treasury, in line with the terms of 5MLD, is proposing that the scope of the anti- money laundering regime in the UK is extended. This will mean that additional firms will need to  register and carry out client due diligence (CDD).  The proposed extension includes:-

  • Tax advisors – 5MLD will include any person who in the course of business provides material aid, assistance or advice about tax matters;
  • Letting agents– Letting agents for property where the monthly rent equals or exceeds €10,000. Estate agency work already falls within the scope of the current regime. 5MLD extends the scope to those involved in letting activities only. The Treasury is consulting on which persons should be subject to CDD. Landlords and tenants or landlords only, and at what point in the business relationship or transaction should CDD take place. It is also seeking views on whether the €10,000 threshold is too high. Should this threshold be reduced further?;
  • Cryptoassets – 5MLD will bring within its scope cryptoasset exchanges (crypto to fiat) and digital wallet providers. However the Treasury is considering extending the range of 5MLD in the UK to include additional entities engaging with cryptoassets. The further extension reflects  the Treasury’s concern at the risks presented by  cryptoassets being used in money laundering. The proposals  would include:-
    1. Crypto to crypto exchange service providers;
    2. Cryptoasset Automated Teller machines;
    3. Issuance of new crypto assets, for example through ICOs;
    4. The publication of open source software.
  • Art intermediaries – this is another area where changes will arise as a result of 5MLD. Once implemented, 5MLD will bring into scope “persons trading or acting as intermediaries in the trade of works of art,…… where the value of the transaction or a series of linked transactions amounts to  €10,000 or more”.

Electronic Money

The Fourth Money Laundering Directive allows the UK to exempt entities from some CDD measures in respect of low risk e-money transactions, subject to  conditions.

5MLD seeks to impose further limitations on these derogations. It reduces the value of  monetary limits that can be held on e-money cards/wallets in order to benefit from modified  CDD requirements.

There will also be limits on the acceptance by financial institutions within the EU of anonymous non-EU prepaid cards.

Enhanced Due Diligence (EDD)

The Treasury notes in the consultation paper that the application of EDD measures will in future operate on a more harmonised basis. There will be an EU list of designated high risk countries. Dealing with these countries  triggers the requirement for enhanced due diligence. If the UK does leave the EU fully, there are powers in the Sanctions and Money Laundering Act 2018 to replicate these.

5MLD expands the scope of EDD requirements so that in future they must be carried out by reference to “business relationships or transactions involving high-risk third countries”. 5MLD details the additional due diligence measures that need to be taken.

There are requirements to carry out enhanced monitoring of any business relationship or transaction involving a high- risk third country. Additionally there will be a requirement for senior management to approve the establishment or continuation of a business relationship of this nature.

Trust Registration Service

5MLD will mean that the scope of the Trust Registration Service is expanded to include all trustees or agents of express UK trusts.

The Trust Registration Service is a register maintained by HMRC.  It currently includes  details of those involved with all trusts which have a tax consequence. As noted, the registration process will now extend to all express trusts. The Treasury defines this as a trust deliberately created by a settlor usually by a written trust deed.

Under 5MLD, the UK Government will have to disclose information held as a result of the registration process to law enforcement organisations as required under existing law. However, 5MLD also extends information sharing to:-

  • obliged entities;
  • other persons who can show a legitimate interest.

The Treasury consults at some length as to who may have a legitimate interest to request details held on the Trust Registration Service.

Register of Bank Account ownership

Pursuant to 5MLD, the UK has to establish a centralised registry for certain banking  accounts. This will identify persons who hold or control bank accounts, payment accounts and safe deposit accounts. 5MLD specifies the type of data set that the register must maintain.

The Treasury is proposing that the information to populate the register would be submitted by credit institutions and payment institutions themselves.

The Treasury is considering enhanced implementation. This would require the following to submit information to the register:-

  • UK incorporated credit and payment institutions that issue credit cards;
  • e- money issuers that issue prepaid cards;
  • credit unions and building societies that issue accounts without an IBAN

The Treasury wants to weigh up the risks inherent in the use of these types of accounts and payment instruments against the costs and administrative burdens that registration would impose.

 

Frank Doran

Consultant at Brodies LLP
Frank has for many years specialised in the financial regulation and investment fund sectors and regularly advises clients such as banks, asset managers and insurers on compliance with existing legislation and preparing for future developments. His area of expertise includes compliance with the FCA and PRA Rulebooks and legislation that affects companies in the sector such as FSMA, AIFMD, MiFID and EMIR.
Frank Doran