It’s now been almost six months since the long awaited “Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017” – commonly known as the Money Laundering Regulations 2017 – came into force.
Although there’s been some hype in the media, for most sectors the new regulations didn’t mean a sea change. Most obliged entities have been working to a risk-based approach for a while now, using companies like Dun & Bradstreet to identify a corporate customer, its corporate structure, beneficial ownership, and associated inherent risks.
That said, some of the intricacies of the regulation have been more challenging to comply with than others, and resources designed to help haven’t been as credible as initially hoped. For example, where some companies had hoped that the new Persons of Significant Control Register would help them with identifying additional beneficial owners, there have been complaints that the quality of the data in the register often falls short of being useful.
While some of the obliged entities named in the 2017 regulations fall into already highly regulated sectors – such as Financial Services and Insurance – others have been hit harder by the changing regulations. An example of this is estate agencies, that must now carry out due diligence on property buyers as well as sellers. When you look at the high-value transactions they oversee and the propensity for property to be used in the money laundering process, this makes perfect sense. However, the rushing of the legislation through parliament has meant that estate agencies have not necessarily had the time to prepare for the additional burden that this extra due diligence entails: assigning an MLRO; putting policies, procedures, and training in place; and the costs associated with extra checks.
As penalties for non-compliance with the money laundering legislation are increased and the Financial Conduct Authority (FCA) reiterates its commitment to safeguarding the UK’s financial system, we see some companies passing money laundering obligations further down the chain, to entities not on the obliged list: Handelsbanken and HSBC are reportedly asking lettings agencies to carry out Politically Exposed Persons (PEP) checks on their clients or risk losing their banking facility.
This is likely to be the tip of the iceberg. As more pressure is put on obliged entities to be compliant with the regulations, there’s an expectation that this compliance duty will be cascaded down to other non-obliged entities. Once you add into the mix the new Criminal Finances Act 2017, where companies are potentially seen as responsible for the tax evasion and human rights abuses of the third parties they choose to do business with, the compliance process will have to have a much wider reach than it does now and potentially will need to become a more collaborative effort across customers, suppliers, and third parties, not just across internal departments.