Implementing the fifth Anti Money Laundering Directive: Insolvency
Legislation to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the 2017 AML Regulations) became effective on 10 January 2020. An earlier article by David Menzies details the key areas affecting accountancy firms.
Many of the changes under 5AMLD will not impact insolvency practitioners greatly as they deal with 5AMLD’s scope expansion. However, some of the main changes are considered below.
Widening of the net
Regulation 8(2) the 2017 AML Regulations is amended to bring new categories of “relevant person” into scope. The new businesses covered by the legislation are letting agents, art market participants (including operators of freeports), and providers of exchange or storage services for “cryptoassets” such as virtual currencies. Insolvency Practitioners need to be aware of these changes in case of appointment over one of these newly regulated entities.
The definition of tax adviser is extended to those who provide material aid or assistance on tax. Regulation 11(d) of the 2017 AML Regulations now states “’tax adviser’ means a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services”.
While there is no direct impact on insolvency practitioners resulting from this change, there may be some questions about whether assisting a company or an individual with a time to pay arrangement for HMRC or similar means that you fall within the remit of “tax adviser”.
It is likely that such activities would have fallen within the former definition of ‘tax adviser’. As such Customer Due Diligence (CDD) should always have been undertaken in relation to such assignments.
The former definition of ‘tax adviser’ was “a firm or sole practitioner who by way of business provides advice about the tax affairs of other persons, when providing such services”. The meaning of ‘advice’ was widely interpreted and assisting with the negotiation and agreement of a time to pay arrangement would certainly appear to have fallen within its term.
Regulation 24(1) (training) of the 2017 AML Regulations is amended to widen the scope of “relevant employees” to include “any agents it uses for the purposes of its business whose work is of a kind mentioned in paragraph (2)”.
Paragraph (2) defines a relevant employee as an employee whose work is—
(a) relevant to the relevant person’s compliance with any requirement in these Regulations, or
(b) otherwise capable of contributing to the—
(i) identification or mitigation of the risk of money laundering and terrorist financing to which the relevant person’s business is subject; or
(ii) prevention or detection of money.
The result is that firms must now ensure that any agents to whom this definition applies are aware of the law relating to money laundering and terrorist financing, and to the requirements of data protection, and are regularly given training in how to recognise and deal with transactions and other activities or situations which may be related to money laundering or terrorist financing.
In an insolvency context, this expanded definition of “relevant employees” has the potential to have significant repercussions given the nature of the work covered by insolvency practitioners and the need to engage agents/third party services to deal with aspects of an insolvency case.
Regulation 24 requires firms to take appropriate measures to ensure that its relevant employees are:
(i) made aware of the law relating to money laundering and terrorist financing, and to the requirements of data protection, which are relevant to the implementation of these Regulations; and
(ii) regularly given training in how to recognise and deal with transactions and other activities or situations which may be related to money laundering or terrorist financing;
The firm is also required to maintain a record in writing of the measures taken under (i) and (ii), and, of the training given.
It is unclear at this stage the extent to which firms will require to go to comply with this requirement for agents. For example, is it acceptable to rely on an agent’s own training systems? Will copies of their training records be required? Can the onus to comply be contractually placed on to the agent, or do responsibilities extend further than this? We are seeking clarification on such matters and expect that further guidance will be available in the updated Anti Money Laundering Guidance for the Accountancy Sector which is being developed.
IPs should bear in mind that, per the CCAB’s draft guidance, when appointed as a liquidator, administrator, administrative or other receiver, or supervisor of an IVA or CVA, the assets do not vest and an IP’s business relationship is with the debtor or the entity over which they have been appointed, not with the purchasers of their assets. Where an IP is appointed over an unregulated entity, the nature of the business of the debtor or entity does not change with the appointment of an IP, therefore, if the insolvent entity was not within the regulated sector prior to the appointment, it would not become a regulated entity simply by virtue of an IP being appointed.
Enhanced due diligence
5MLD extends Regulation 33 pf the 2017 Regulations to prescribe six enhanced due diligence measures that must be taken when undertaking a relevant transaction (as defined by Regulation 27). where either of the parties to the transaction is established in a high-risk third country.
The measures are:
- obtaining additional information on the customer and on the customer’s beneficial owner;
- obtaining additional information on the intended nature of the business relationship;
- obtaining information on the source of funds and source of wealth of the customer and of the customer’s beneficial owner;
- obtaining information on the reasons for the transactions;
- obtaining the approval of senior management for establishing or continuing the business relationship; and
- conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.
The final measure is unlikely to apply in an insolvency situation unless the IP is trading or monitoring trade.
AML compliance is quite often viewed as an administrative job that is not a priority. Given the change in regulatory landscape, AML needs to be prioritised, with sufficient time and resources allocated to it.
Regulation 28 of the 2017 AML Regulations is amended to acknowledge that electronic ID verification can be considered a reliable source of evidence, where the electronic process is free from fraud and provides sufficient assurance of the identity of the individual. ICAS has a strategic partnership with Amiqus ID which provides electronic AML services that aid compliance with AML requirements and reduce risks associated with non-compliance.