AML: regulations bring new focus

Money Laundering Regulations

The UK Government has recently consulted on the new Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which will incorporate the EU Fourth Money Laundering Directive into UK legislation. These were to be implemented on 26 June, but following the announcement of the general election we await news from HM Treasury on a confirmed implementation date.

While the consultation closed on 12 April, we do not expect the key requirements of the new regulations to change significantly. They bring an increased focus on the risk based approach, and some important changes for firms including a new requirement to “identify and assess the risks of money laundering and terrorist financing” which the business faces. This firm risk assessment will need to be documented, as the regulation makes clear that supervisors can request sight of it.

The Society’s AML web page already has some information on firm risk assessment covering AML good practice, and more information will follow. Failures in client or transaction risk assessment have resulted in disciplinary action against several solicitors over the years, and the Society is keen to ensure that solicitors are fully aware of the new requirement and are able to address it.

The Society will also be adjusting its supervisory approach to ensure that firm risk assessments are reviewed during inspections.

Other changes are expected to include a new requirement to identify and apply enhanced due diligence of domestic politically exposed persons (PEPs), and a useful clarification that firms should document AML policies and procedures.

The Society will be working with other legal sector AML supervisors to produce a single AML guidance document for the sector, and we will be making additional supporting material (on all of the changes) available through the website, emails to MLROs and webinars.

The new regulations will also set out some clear obligations for AML supervisors such as the Society (for example, an obligation to adopt a risk based approach), set out significant new supervisory duties and potentially provide more enforcement powers. The Society has liaised with HM Treasury to clarify some aspects of the duties of supervisors, and we will provide more information on this in due course.

View the draft regulations on the UK Government’s website.

AML supervisory regime

Under the UK’s AML supervisory regime, 27 professional bodies mostly in the legal and accountancy sectors, including the Society, will deliver AML supervision of their memberships. The UK National Risk Assessment 2015 highlighted a risk that inconsistencies in the way that supervisors operate could weaken the UK’s overall regime. The Government consulted on how to address this issue during 2016, and during March/April 2017 consulted again on specific proposals.

The most recent consultation makes clear that consistency in AML supervision is to be driven by the new regulations and the creation of a new body, a “supervisor of supervisors”, which will set standards and monitor supervisor compliance. The proposal is that the new body will be part of the Financial Conduct Authority (FCA) and will be called the Office for Professional Body AML Supervision (OPBAS). There is to be a separate consultation on OPBAS funding but it seems clear at this stage that OPBAS costs will be shared among the various supervisors. OPBAS is expected to go live at the start of 2018. The Society is currently engaging with the FCA and we will keep members fully informed as OPBAS planning and implications become clearer.

The Government has issued a news release about OPBAS which is available to read on the news section of its website.

I’d encourage solicitors, particularly MLROs, to check our AML web page, and look out for our emails for further updates.