Anti Money Laundering: Tweak your systems for 4MLD

Changes under the 4th Money Laundering Directive will provide new opportunities to identify beneficial owners, but the other main requirements seem likely to stay the same, says Katie Jackson of Honne Ltd – Risk and Compliance Consultants.

The 4th Money Laundering Directive from the European Union is due for implementation soon. Barring a Brexit, and a consequent change of government policy on money laundering, the Directive should be implemented fully by June 2017.

The Home Secretary has announced a raft of changes to anti-money laundering systems in the UK, but at the moment these are primarily aimed at the regulators and other crime agencies.

The changes introduced by 4MLD are tweaks to the current system, and firms should continue to:

  • verify client identity
  • be aware of high risk jurisdictions
  • conduct PEP, sanctions, and other e-verification checks
  • check source of funds
  • monitor transactions and relationships
  • make Suspicious Activity Reports to the National Crime Agency and seek consent to continue where necessary

Here are our tips for the five main changes which could impact you, with their timescale:

1. The introduction of the register of Persons with Significant Control – This is a new requirement for companies registered in the UK; which is coming into force now and in the coming months. The register will be updated as part of information returns to Companies House and should make finding beneficial owners easier. We anticipate new search products will cover this.

2. Risk assessment of simplified due diligence (SDD) – this may impact you if you act for Councils, Listed Companies, and others who currently qualify for SDD. Due to be implemented by June 2017, a risk assessment will be needed to justify the use of the simplified approach.

3. Home-grown Politically Exposed Persons (PEPs) – previously PEPs were foreign clients only. However this should change by June 2017, meaning if you are instructed by a prominent person in the UK, you would need to establish their source of funds and the source of their general wealth, and monitor the relationship closely. The Directive also notes that PEP status should not be seen as a reason to cease or decline a relationship with a client.

4. Limit for Client Due Diligence – Currently if a transaction is worth less than 15,000 EUR, a firm does not need to undertake due diligence. This amount should be reduced to 10,000 EUR by June 2017. Remember to check the exhange rate!

5. An increased emphasis on risk – the concept of risk features heavily in this Directive. Firms should take heed and ask themselves about their risk profile for money laundering; where the risks are coming from in the client base; and are there instructions they would decline? Forewarned is forearmed – preparing means you will be better prepared to spot unusual instructions and circumstances that pose a money laundering risk.

At the moment, the changes themselves do not mean a re-write of your money laundering procedures; instead look now at the PSC register. You can also keep an eye out for the remaining changes over the coming year, and whether the Home Secretary’s plans turn into anything more impactful for firms. Contact us for help and assistance with implementation; or if you have questions (big or small) about AML and conducting due diligence.

Katie Jackson is Director of Honne Ltd – Risk and Compliance Consultants. Katie works with a range of law firms on their anti-money laundering compliance by developing policies, assisting with due diligence enquiries and delivering staff training. You can contact Katie at [email protected].

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