On 15 December 2007, the new UK Money Laundering Regulations will come into force, replacing the Money Laundering Regulations 2003 and giving effect to the EU's Third Money Laundering Directive – the Directive on the Prevention of Money Laundering and Terrorist Financing.
The EU's Third Money Laundering Directive was adopted in October 2005, under the UK’s Presidency of the European Union. It seeks to implement the global money laundering standards produced by the Financial Action Task Force (FATF) in 2003. FATF is an inter-governmental body charged with the development and promotion of national and international policies to combat money laundering and terrorist financing. The FATF Money Laundering Standard consists of 40 Recommendations that seek to provide a complete set of counter-measures against money laundering, covering the criminal justice system and law enforcement, the financial system and its regulation, as well as international co-operation.
In general, firms that are already subject to the requirements of the Money Laundering Regulations 2003 will not notice significant changes under the new Regulations. However there are some key changes that should be noted. In particular, the 2007 Regulations now require firms to be monitored for compliance by either a professional body (e.g. ICAEW, ICAS, the Chartered Institute of Taxation, the Chartered Institute of Management Accountants etc.) or HMRC/OFT, depending on the sector.
The Regulations also update the provisions relating to Customer Due Diligence, for example, firms will be required to identify the beneficial owner of the customer as well as the customer. There are also developments in the level of Customer Due Diligence that must be undertaken. An important change is the need to conduct a risk assessment in the first instance and then to carry out Customer Due Diligence on the basis of that assessment. There are certain provisions for simplified due diligence in respect of specified low risk clients. Where the risk is deemed to be lower, companies may still choose to adopt a policy of applying normal or enhanced procedures. For all higher risk clients, there will be the requirement to conduct more rigorous checks, known as enhanced due diligence. Enhanced Customer Due Diligence will also apply in relation to remote client services (where no physical meeting with the client takes place).
In addition to the impact on the Customer Due Diligence process for new clients, it is important to note that Customer Due Diligence measures must be applied on a risk sensitive basis to existing clients at appropriate times, requiring ongoing monitoring of the client relationship. This could involve scrutiny of transactions (including the source of funds) to ensure that they are consistent with relevant person's knowledge of the customer, his business and their risk profile. It is imperative that all Customer Due Diligence information is kept up-to-date.
A final interesting development is that the new Regulations also permit reliance on an assertion from certain specified third parties that they have already completed Customer Due Diligence measures. For example, in certain situations firms may rely on a credit or financial institution, an auditor, an external accountant or an independent legal professional provided that they consent to being relied upon. Nevertheless, it is important to remember that even when relying on such an assertion, the firm will remain liable for any failure to apply the appropriated measures.
Further information on the content of the Regulations and their requirements can be found on the website of HM Treasury - www.hm-treasury.gov.uk or the website of your professional regulator.