New regulations regarding Money Laundering came into force on 26 June 2017. The Money Laundering Regulations 2017 (MLR 2017) update the 2007 version, with a key change being the shift from a prescriptive to a more risk-based approach.

To view the regulations in full, please click here .

We don’t expect the changes to affect ATEB clients significantly. However, there will be some tweaks required, notably in relation to client specific risk assessment (see next paragraph). The key areas of MLR 2017 likely to be of interest to ATEB clients are listed below.

Risk Assessment (Regulation 18)

MLR 2017 highlights the importance that firms should have an up-to-date risk assessment for each individual client. The risk assessment should include factors such as:

• the customer;
• the country or geographic areas in which it operates;
• the product and / or service;
• the transaction; and
• the delivery channel risk.

Records must be kept up-to-date and reflect any changes in the customer’s circumstances.

Impact: Review/update procedures to ensure that this requirement is met.

Customer Due Diligence (Regulation 28)

MLR 2017 provides further information about when to conduct Customer Due Diligence (CDD) on existing clients.

Impact: Not anticipated to represent a major change to most firms.

Simplified Due Diligence (Regulation 37)

Under previous guidance Simplified Due Diligence (SDD) could be conducted where the customer takes a product considered to be low risk. The new rules propose removing the list of products to which SDD could apply. Instead a firm will only be able to conduct SDD when it has established that the business relationship or transaction that the client is entering into represents sufficiently low risk of money laundering.

Impact: This is likely to have little impact on firms.

Politically Exposed Persons (Regulation 35) and Enhanced Due Diligence (Regulation 33)

The new regulation widens the definition of Politically Exposed Persons (PEP’s) to include certain domestic individuals who occupy prominent public positions or a family member or known close associate of a PEP. In these circumstances, Enhanced Due Diligence (EDD) should be conducted for at least 12 months after the individual ceases to be a PEP. EDD may include increased monitoring of the relationship, obtaining additional sources of information to verify data, such as documentation to support the source of funds and taking additional measures to understand the financial situation and background of the client.

Impact: Ensure that procedures adequately cover PEPs. Note the wider definition.

Policies, Controls and Procedures (Regulation 19)

MLR 2017 builds on MLR 2007 stating that a firm must have documented (written) policies, procedures and controls, which are kept up-to-date and made available to the FCA if asked. These requirements include:

• risk management practices;
• internal controls;
• customer due diligence;
• reliance and record keeping;
• the monitoring and management of compliance with, and the internal communication of, such policies, controls and procedures.

ATEB offer a detailed risk assessment template which can be tailored towards individual firm requirements, and clients should speak to their consultant for further information.

Impact: Review/update internal procedures.

Reliance on Third Parties (Regulation 39)

Companies may still use third party CDD where the third party carries out CDD in line with previous guidance. In addition, the firm must obtain CDD information from the third party and enter into a written agreement with the third party within two working days of obtaining this information. The scope of third parties whom can be relied upon has increased in comparison to MLR 2007, now covering all of the regulated sector.

Impact: Note requirements.

Exempt Firms

It should be noted that MLR 2017 will not apply to firms with a turnover of less than £100,000, which is an increase from MLR 2007 in which firms with a turnover of less than £64,000 were exempt. Whilst these firms will be exempt, ATEB recommends that exempt firms should still consider a common sense, risk-based approach to the new changes.

Impact: Note requirements.