Consultation on the Fourth Money Laundering directive

4th October 2016

The UK Government has published a consultation on the transposition of the Fourth Money Laundering Directive.

The consultation invites views and evidence to inform the government’s transposition of the Directive which reflects the standards set by the Financial Action Task Force (FATF). The implementation of the Directive will not be effected by the recent referendum result and new legislation will come into force from June 2017.

We have created a template which can be used by firms to respond to the consultation. This shows all consultation questions in full - you can simply delete the questions you are not answering.

Download our consultation response template

We recognise that the implementation of the Directive will impact on our members as regulated entities. For example:

  • Requirements may include banks recording beneficial ownership details of pooled client accounts (meaning potential impact on our membership in terms of increased administrative burden),
  • Registration of beneficial ownership information for certain trusts and legal entities
  • Further administrative measures such as employee financial crime screening and the requirement to set up an independent audit function within all regulated firms, above a (yet to be determined) size/turnover threshold.

The Directive also proposes increased sanctions available to supervisors (including the Society) for systematic breaches of AML requirements.

We encourage all practice units to review the consultation document and provide responses which will assist government to effectively implement the directive while also being proportionate and managing burdens of businesses.

Responses to the consultation should be submitted by 11.45pm on 10 November 2016.  Responses can be emailed to aml@hmtreasury.gsi.gov.uk or to the postal address provided on the consultation.

The Law Society will also be submitting a response and we would welcome any comments as well as sight of any responses being submitted by practice units. Any comments or questions or should be emailed to fincomp@lawscot.org.uk.

We have highlighted some of the key content below. Please read the consultation in full before responding.

 

Potential Impact on:

Client Due Diligence (CDD) Measures

 

Comments are invited on the circumstances when CDD should apply to existing customers under a risk based approach and the costs of carrying out CDD.

Compliance workload & costs

Pooled Client Accounts

 

Under the current regime, pooled client accounts held by solicitors were covered by an express provision for the application of simplified due diligence (SDD).  This has meant that financial institutions were not required to perform due diligence on funds from such accounts.

Under the fourth directive, this express provision has been removed although individual member states have flexibility to allow the application of SDD to pooled client accounts.

Comments are invited on the risks associated with pooled client accounts, how these risks are/can be mitigated and the impact of the removal of SDD measures on such accounts.
 

Compliance workload & costs

Enhanced Due Diligence (EDD)

 

Comments are invited on when EDD should be applied and the costs of applying EDD.

Compliance workload & costs

Reliance on third parties

 

Comments are invited on the scope of third party reliance as well as the costs incurred by businesses in applying current approach to reliance.

Scope for 3rd party reliance

Costs of 3rd party reliance

Risks & Controls

 

The directive requires some additional controls where these are appropriate in terms of the nature and size of a business.  Additional controls included employee screening and independent audits to assess AML compliance.

Comments are invited on the nature of these controls and the thresholds for their application.

Compliance workload & costs

Estate Agents/Letting Agents

 

Various questions are posed including whether estate agents and lettings agents should be required to apply CDD to both contracting parties.

Compliance workload & costs

 

Politically Exposed Persons (PEPs)

 

Comments are invited on the removal of the distinction between foreign and domestic PEPs. The exclusion of domestic PEPs from existing requirements has meant that to date many practice units will have had little experience of dealing with PEPs.

Compliance workload & costs

Beneficial Ownership

 

Comments are invited on the People with Significant Control (PSC regime) implemented by the UK.

N/A

The consultation notes a number of business entities “which might be noted as coming within the scope of the requirements to register information on beneficial ownership” and invites comments.  These entities include:

  •  Scottish Partnerships
  • Scottish Limited Partnerships

Compliance workload & costs

Trust Beneficial Ownership

 

Comments are invited on the update frequency for beneficial ownership information held by trustees.

Compliance workload & costs

Comments are invited on the scope and nature of a central register of trust beneficial ownership.

As above

Comments are invited on the provision of information to HMRC where a trust generates a tax liability.

As above

Administrative Sanctions

 

In response to repeated and/or systemic breaches of requirements, the directive sets out various sanctions which will be available including:

  • Making public statements identifying the person/entity responsible and the nature of the breach
  • Making orders to cease conduct
  • Withdrawal of authorisations/memberships
  • Applying administrative pecuniary sanctions “of at least twice the amount of benefit derived from the breach, where it can be determined, or at least £835,893”.

Comments are invited on the nature and application of administrative sanctions.

Disciplinary Outcomes

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