New AML and counter-terrorist financing guidance released by HMT
HM Treasury (HMT) has now approved the anti-money laundering (AML) guidance for the accountancy sector previously published in draft format in September 2020.
HMT has also approved the associated Tax Appendix and Insolvency Appendix. CCAB have published explanatory notes which set out the main changes between the HMT approved guidance and the draft guidance previously issued.
Draft guidance pending approval from HMT was published in September 2020.
The draft reflected a number of amendments to the UK Money Laundering and Terrorist Financing Regulations 2017, which were amended in January 2020 to reflect the Fifth Money Laundering Directive (5MLD) from the EU.
The main changes resulting from 5MLD are summarised below:
- The requirement for members to report discrepancies in the People with Significant Control (PSC) register to Companies House.
- The requirement for firms to train ‘agents’ on client due diligence (CDD) and how to identify and report suspicions of money laundering and terrorist financing.
- The expansion of the scope of the regulations to include indirect provision of tax services.
- The enhanced due diligence that must be conducted when a client is connected to a high-risk third country.
- Clarification that electronic CDD systems may be considered a reliable method for CDD subject to meeting certain conditions.
Other updates to the guidance included:
- A new appendix of case studies that explains who the beneficial owners would be for a range of client types/structures, for the purposes of CDD (Appendix E).
- Updated guidance on the identity verification required for a range of client types for CDD purposes (Appendix B).
- Expanded list of red flags of money laundering or terrorist financing when identifying and risk assessing a client.
- Expansion of the ‘reasonable excuse’ defence for failing to make a Suspicious Activity Report (SAR).
- How to deal with the situation where a Defence Against Money Laundering (DAML) request is neither granted nor refused by the National Crime Agency (NCA).
The main changes to the guidance following HMT review and approval are as follows:
- The timeframe in which members must report discrepancies in the PSC register to Companies House has been defined as being as soon as reasonably practicable after the discrepancy is discovered, which would normally be within 15 working days (previously 30 days). This means that a business has the opportunity to discuss the potential discrepancy with the client to establish whether an inadvertent error has been made and will be corrected without delay. The outcome of any such discussion with the client will allow the business to conclude whether a material discrepancy exists and is reportable (paragraph 5.6.7).
- A strengthening from ‘should’ to ‘must’ for the following requirements:
- Firm-wide risk assessment - Businesses must consider information from the business’s AML supervisory authority when conducting the firm’s risk assessment (paragraph 3.6.5).
- New services of products - Businesses must have procedures that require any new service or product, including its characteristics, to be assessed for money laundering and terrorist financing (MLTF) vulnerability and included within the firm-wide risk assessment (paragraph 3.6.9). It must respond appropriately to any new or increased risks (paragraph 4.6.13)
- New ways of working - Before introducing new ways of working, consideration must be given to whether new controls, policies or procedures are required to mitigate the MLTF risk, e.g. the introduction of additional monitoring or review controls (paragraph 3.6.10).
- Employee screening - Businesses must consider the skills, knowledge, expertise, conduct and integrity of all relevant employees both before and during their appointment (paragraph 3.6.22).
- A review of law and regulations following the UK leaving the EU – particularly some requirements of the regulations relating to the EU lists. Businesses should refer to the list of high-risk third countries as per the MLTF (Amendment) (No. 2) (High-Risk Countries) Regulations 2021 and the HM Treasury Advisory Notice ‘MLTF controls in higher-risk jurisdictions’.
- The guidance also clarifies the wording around enhanced due diligence where a client or any parties to an occasional transaction are established in a high-risk third country or where there is a business relationship with a client established in a high-risk third country (paragraph 5.3.7).
Firms should take steps to ensure that the changes to the guidance are communicated to staff and a record is maintained of any training provided. In addition, checklists and other AML documentation should be reviewed to ensure that they reflect the latest guidance.
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