Information on Anti Money Laundering from 1 January 2021
By David Menzies CA, Director of Practice, ICAS
18 December 2020
The end of the Brexit transition period will trigger a number of changes to the UK Money Laundering regulations and related legislation. These are required to ensure the AML regulatory regime continues to operate effectively, and are mostly technical in nature with no substantive changes required to be implemented by CA firms. This article looks at the changes in more detail.
AML obligations on businesses are contained within UK domestic legislation and so will continue largely unaltered after the end of the transition period.
The following legislative changes will come into force once the Brexit transition period ends on 31 December 2020:
- The changes set out in SI 2019/253. Among other updates, this will remove references to the European institutions and equalise the regulatory treatment of EEA member states and ‘third countries’.
- Other miscellaneous EU amendments to cover changes made since that SI, which:
- Enable the FCA to make regulatory technical standards about additional measures to be taken in certain third countries to mitigate money laundering risks (contained in SI 2019/1390)
- Update new EU references in the MLRs to e.g. overseas authorities and EEA states and to reflect recent changes in EU law including to 4MLD: ( regs 4 and 8 of SI 2020/628)
- Update the latest EU references in the MLRs relating to trust registration (contained in SI 2020/991)
- Update references to ‘exit day’ within the MLRs (contained in SI 2020/1301)
- The expanded definition of terrorist financing in regulation 34D of the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019 as inserted by SI 2020/1289. While this new definition of terrorist financing will be included in the MLRs, there will be a redundant reference to the Terrorist Asset-Freezing etc. Act (2010) which is due to be repealed. This will have no effect, but will be removed from the regulations at the next opportunity.
- Not a change to the MLRs, but the completion of the transition period will also bring into force section 49 and Schedule 2 of the Sanctions and Anti-Money Laundering Act (2018). These will allow the government to continue to make secondary legislation relating to anti-money laundering.
- Regulation 33 of the Money Laundering Regulations requires a relevant person to apply enhanced due diligence in any business relationship with a person established in a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country. Regulation 33(3)(a) defines a “high risk third country” as a country listed by the EU by Delegated Act pursuant to the EU’s powers under the 4th Anti Money Laundering Directive. Under Schedule 8 of the EU Withdrawal Act any changes to the EU’s list will cease to have effect in the UK once the transition period has ended. This in effect means that EU’s list effectively becomes frozen in time in the UK and as a result creates a new autonomous list that replicates the EU’s list as of the final day of the transition period. The Government intends to update the new autonomous list following the February Plenary of the Financial Action Task Force so that the UK new autonomous list is aligned with the FATF lists of “jurisdictions under increased monitoring” and “high-risk jurisdictions subject to call for action” (sometimes referred to the FATF grey and black lists). This will be done using the powers under s.49 of the Sanctions and Anti Money Laundering Act (2018).
It is not expected that the changes will have any substantial effect on how firms comply with their AML obligations or result in any substantive change to Customer Due Diligence procedures used by firms.