In Financial Crime News – Issue 1 a three part series of articles examined the issues around the UK’s ability to fight financial crime once out of the EU. In this Part 4, the UK nevertheless remains determined to implement the EU’s Fifth Money Laundering Directive (EU 2018/843 or 5MLD), even in a post Brexit environment, which may raise surprise amongst many “Brexiteers” but has been communicated well in advance. Andrew Williams is highly regarded UK Lawyer at Simmons & Simmons, Consultant and former top Legal & Compliance Chief at UBS.
5MLD - What’s new?
Despite Brexit and the “flexible” date of Britain’s leaving the EU, the 5MLD is expected to become law in the UK by 10th January 2020, not least because the UK was one of the main supporters of the changes proposed. The EU bloc issued 1MLD in 1991, 2MLD in 2001, 3 MLD in 2006, 4 MLD in 2015 and 5MLD in 2018 which suggests the 6MLD will be with us by 2028 at the latest.
In April 2019, the UK Treasury published an 88 page consultation paper on transposing 5MLD into UK law (which runs until 10 June 2019). The proposed changes can be seen as incremental and are unlikely to represent major challenges to FI’s. Still the proposed measures seek to further increase both transparency and coverage in areas where criticism has been levelled, for example, in requiring beneficial ownership disclosures and access to this information not only for companies but also other legal arrangements such as trusts; by expanding the umbrella of regulation and with it AML/CFT requirements to virtual assets (service providers) and others for example, certain tax advisers, letting agents and art intermediaries, where concern around vulnerabilities and abuse has been building, and by enhanced information sharing by EU Member States. Whilst overall the measures make sense, it’s hard to see the proposed changes as anything other than tactical responses to criticism, rather than a strategic response or a new direction or thinking to respond to the increasing threats faced.
The proposals published and open for comment reflect sensible incremental measures, designed to close known gaps and rightly evolve current “preventative measures” to strengthen the global response. The target of these proposals and those that will bear the burden of additional regulation include:
- cryptocurrency professionals such as VC wallet providers & VC brokers will fall under the scope of AML regulation and will be supervised by the UK’s Financial Conduct Authority.
- additional businesses, including, tax advisers, letting agents (involved in rents of over €10,000 per month), & art intermediaries, including galleries and auction houses, involved in transactions greater than €10,000.
- FI’s that will need to review their CDD/EDD Policies, which will become more complex and onerous, (in particular as regards company identification and verification and periodic reviews), review their PEP definitions (which may require extending), high risk country lists (which may lead to supplementing existing lists and to applying additional measures to customers materially exposed to these countries), complete detailed product risk assessments (on all new products, business practices and delivery mechanisms) and implement new data protection policies, controls and procedures relating to the provision of customer, accounting and transaction information for AML/CTF purposes. Whilst some FI’s will already be well placed to comply with these new requirements, there will be many more that will need to act and implement new measures to ensure compliance.
- FI’s will be required to provide details of all customers (i.e. all individuals and companies) holding bank accounts (including payment accounts and safe deposit accounts) in the UK so that the authorities are in a position to see the bigger picture.
- Company Registries will be required to provide access to details (enhanced as a result of 5 MLD) to other EU Member States and in turn benefit from online access to other Country registries, (albeit likely the UK will lose such rights post Brexit and any agreed transition period, unless otherwise agreed).
The UK’s implementation of the EU 5 MLD and similar measures to be taken across the EU will improve preventative measures, and are required following agreements reached at the FATF. Still this is an opportunity missed, for example, to:
- set minimum effectiveness targets for Countries, to boost current poor scores, (according to FCN research whilst the EU beats the international average of 31%, it still only reaches 45%;
- extend real accountability beyond the private sector, where regulation applies a zero tolerance approach to compliance, to for example Country Supervisors, FIU’s, and / or Company Registries etc where a resource based approach applies and limited success is tolerated;
- fully empower a pan EU wide body to oversee and police AML/CTF seriously, and
- provide Countries with flexibility to explore and test new ways of working, promoting innovation, such as information sharing, use of new technologies and the trials of utilities.
Maybe a future EU6 MLD will remedy these omissions by 2028!, or earlier in the UK, if Brexit permits.