The Government today published its response to its consultation on changes to the Money Laundering Regulations 2007. Following this consultation the Government is now taking forward proposals to reduce the regulatory burden imposed by the current regulations, while strengthening the overall anti-money laundering regime.
The aim of the changes was to make the UK’s money laundering regime more effective and proportionate, with the proposed changes saving firms around £3 million a year. Relevant regulatory changes will take effect from 1 October 2012.
The Government has decided to keep the criminal penalties in the Regulations. The consultation highlighted key risks inherent in their removal and there is insufficient evidence to indicate that removing them would achieve either the UK’s policy objectives or address the concerns raised. Indeed, the balance of responses indicates that ‘over-compliance’ behaviour is also influenced by other factors that would not be addressed by removing the penalties. For example, businesses may adopt risk-averse and tick-box approaches if it is more cost-effective for them to do so, in the absence of clear and unambiguous guidelines for front line staff, in order to prevent fraud or in order to comply with other legislation including financial sanctions.
The Government reiterates the point made by the CPS that it is not in the public interest to prosecute employees of regulated businesses for minor, procedural or accidental regulatory failures.
The Government is proceeding with the removal of the distinction between Part 1 and Part 2 bodies. Based on recent and continuing work with Supervisors, it is considered that they are discharging their role satisfactorily and that the proposed change is advisable. This was further confirmed in HM Treasury’s first Annual Report on Supervision1. As suggested in some responses, any new supervisors will be placed in Part 2 until they demonstrate ongoing, robust and effective supervision of their members.
Small Business Exemptions from the Regulations.
The Government does not propose to introduce an exemption based on the size or turnover of a business, as it acknowledges the absence of a positive correlation between the size of a business and the money laundering risk it represents. The Government also recognises the risk of the exemption leading to ‘smurfing’ and other criminal practices; and the practical difficulties of introducing such a measure.
The Government understands the ongoing issues faced by some exceptionally small businesses in relation to the costs of compliance and supervision. Supervisors are encouraged to ensure that the risk-based approach translates into effective, differential treatment in terms of the burden of requirements and, where possible, the fee levied.
Other Changes to be made include;
Overseas estate agents are to be bought within the Regulations. The UK is required to regulate all estate agents in order to ensure they minimise their vulnerability to money laundering. These businesses should be regulated, both to ensure the UK is fully compliant with Financial Action Task Force (FATF) global standards and EU requirements and because these businesses are at high risk of money laundering.
Fit & Proper Tests for MSB’s – The EU Directive allows for all criminal conduct to be taken into account. Given the high risk presented by Money Service Businesses (MSBs) and the case made for enabling the fit and proper test to take into consideration all previous criminal conduct, the Government will proceed with this proposal. The MSB sector is a high-risk sector for terrorism financing and money laundering.
There are a number of issues that have been resolved concerning supervisors’ powers. The widest reaching change is that Government will proceed with the creation of an information-sharing gateway for supervisors. The Government acknowledges the need for safeguards and clarity around the circumstances under which the information can be shared and the nature of the information.
Given the issue of overlapping responsibilities, the Government considers it essential that a new Supervisor is able to access information from a previous Supervisor when a business/person seeks to register for anti-money laundering purposes.
A summary of the changes cited as the Money Laundering (Amendment) Regulations 2012 and come into force on 1st October 2012 are;
- Partly or Wholly Removing Criminal Sanctions & Strengthening Supervisors Powers to Compensate – No Action
- Removing Distinction Between Part 1 and Part 2 Bodies – Commencement Date 1 October 2012
- Extending reliance to OFT-Supervised Debt Purchasers – Commencement Date 1 October 2012
- Introduction of a De-Minimis Exclusion – No Action
- Exemption of ‘Non-Lending Credit Institutions’ – Commencement Date 1 October 2012
- Regulation of Estate Agents Handling Overseas Properties – Commencement Date 1 October 2012
- Clarifying the Definition of Safe Custody Services – The Government response formalises the FSA definition as the one applicable in the UK. FSA to update its website and include in next edition of Financial Crime newsletter
- Extending Consideration of Previous Criminal Conduct under HMRC Fit and Proper Test – Commencement Date 1 October 2012
- Introducing Right of Appeal for HMRC Fit and Proper Test – Commencement Date 1 October 2012
- Clarifying Supervisory Powers – Commencement Date 1 October 2012
- Creating an Information Gateway for Supervisors – Commencement Date 1 October 2012
- Regulating to Penalise Misused of HMRC name and logo by Regulated Businesses – HMRC to monitor this abuse and inform HMT if measures to mitigate it are not working.
- Appointing the FSA as the Supervisor for Recognised Investment Exchanges – Commencement Date 1 October 2012
- Removing Regulation 18 – Commencement Date 1 October 2012
Other Changes to the Regulations which were a part of the proposals of the review and call to evidence which are deferred Subject to Revisions to the EU Third Money Laundering Directive expected early 2013
- Improving Wording on Beneficial Ownership
- Streamlining the Supervision of E-Money Issuers
- Appointed Representatives
- Pooled Client Accounts