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Article:

UK Post-Brexit Money Laundering Regulations

03 September 2020

Background

With everything that has happened in 2020, it’s hard to remember a time when Brexit was all people talked about. Whether it be the top new story on the BBC or discussed in the local pub; Brexit was on the tip of everyone’s tongue. As the UK, as well as the rest of the world, looks to navigate its way through the COVID-19 pandemic, the UK must also look towards the end of the ‘transition period’ following the UK’s decision to leave the European Union (“EU”). As you would have seen from the various billboards and posters popping up, we have to move on with “The UK’s new start: let’s get going”, and anti-money laundering (“AML”) controls, are no different. Following the UK’s exit from the EU, the current money laundering regulations are being updated (yes, again – having just been changed in January); ‘The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020’.

What’s changing

Following the transposition of the EU’s Fifth Money Laundering Directive (“5MLD”) into national law in January this year, a further article, Article 31, had to be transposed by 10 March 2020, which the UK missed. You’ll be excused for missing the UK’s indiscretion. This Article required Member States to “set up” an expanded register of express trusts, which will now be added to the new money laundering regulations. This will help a number of financial institutions who struggle to obtain relevant due diligence and know your client (“KYC”) information on trusts, due to the historical secrecy around such fiduciary relationships. UK express trusts with taxable consequences are already required to collect information on beneficial ownership and register with HMRC’s Trust Registration Service. However, the new regulation widens the scope of trusts required to register to include all UK express trusts, including those with no tax consequences, with limited exemptions for some categories of trusts. Trustees of UK trusts that are not exempted must now collect relevant information on beneficial ownership and register by 10 March 2022.

However, this is not the only change:

  • The regulation to report discrepancies in Companies House is amended to clarify this only has to be reported when establishing new relationships
  • Further clarification is provided to obliged entities on the level of assurance required on a firm’s electronic identity verification (“e-ID&V”), to allow focus on mitigating the risk of money laundering and terrorist financing
  • Enhanced due diligence for correspondent relationships is further refined to be specific to “involving the execution of payments”.
  • Following the COVID-19 pandemic, Art Market Participants (“AMPs”) and letting agents have been given a five month extension (10 June 2021) to register with HMRC as their AML supervisor.

As with all changes to Regulations, a gap analysis should be conducted to understand whether your current policy is still applicable following these changes. The updated Regulations take effect from 1st January 2021 – therefore, firms should look to make changes within the next month and have them embedded by the time the transition period ends.

BDO’s Economic Crime Advisory team can provide firms with an independent assessment of their policies and procedures to ensure they meet UK regulatory requirements, as well as industry practice. Further, our team will ensure a firm’s systems and controls are appropriate and proportionate to the firm’s size, complexity and business model.

If you have any questions regarding the implementation of your AML framework, please contact a member of BDO’s Economic Crime Advisory team.