EU money laundering directive will see review of PSC register rules

Government plans to implement the EU Fourth Money Laundering Directive to prevent the use of the financial system for money laundering or terrorist financing will cost businesses up to £27m a year in additional compliance costs, while the people with significant control register (PSC) will have to be updated

As accountants and tax advisers are at risk from potential clients who may be in a position to launder money or handle illicit funds, it is critical that all accounting firms comply fully with any new anti-money laundering legislation.

The proposals, currently out for consultation until 10 November, are intended to ensure that the Regulations are as effective and proportionate as possible, while meeting the EU recommendations and underpinning the Financial Action Task Force (FATF) requirements. The government estimates that the new Directive will cost around £27m for businesses to implement due to additional compliance requirements.

One of the elements of the Fourth Money Laundering Directive will see the inclusion of a requirement to maintain a central register of beneficial ownership information of corporate and other legal entities across EU member states, which is already going ahead in the UK. However, the EU requirements are different from the UK regime.

Now the Department for Business, Energy and Industrial Strategy (BEIS) has issued a discussion paper outlining possible approaches to the implementation of the register in the UK, under section 30 of the Directive.

Article 30 has two main requirements: that EU member states hold adequate, accurate and current information on beneficial ownership of corporate and other legal entities incorporated within their territory in a central register, and that such information should be made available to specific authorities and organisations across the EU.

BEIS has confirmed that some additions and amendments may be needed to the existing UK PSC regime meets these requirements, although the majority of the UK regime reflects EU requirements.

There may have to be changes to the scope of the entities covered under the EU Directive, broadening the number of organisations captured under the rules and a tighter timeframe for updating records from the current 12 months to six months.

There will also have to be modifications to the five existing conditions defining those entities affected, although these should be minor changes as voting rights, ownership interests and control by other means, are integral to the EU proposals, and are mirrored in existing UK rules.

The government is considering including companies listed on markets such as AIM and the Intercapital Securities and Derivatives Exchange (ISDX) Growth Market within the scope of the PSC regime.

The EU Directive is arguably less transparent as it does not require a public register of interests. While the UK register is available to the public via Companies House records, the EU approach looks to ringfence the data.

Under the EU proposals, Article 30 requires access to information to be available to competent authorities, financial intelligence units (FIUs); obliged entities and ‘any person or organisation that can demonstrate a legitimate interest’. 

The BEIS policy paper states that ‘the rationale in determining whether an entity is in scope of the Directive is that it must be incorporated in the UK, and be constitutionally capable of having a beneficial owner. The information held on the register should increase transparency and be relevant to law enforcement in combatting money laundering’.

The UK rules called for a wholly transparent register, but under the EU proposals some information will have to be suppressed. As a requirement of the Directive, BEIS will make this protected information available to credit and financial institutions.

The beneficial ownership regime in the UK means that companies have to maintain a register of people with significant control (PSC register) and provide this to Companies House. The was put in place through the Small Business, Enterprise and Employment Act 2015, and a subsequent set of PSC regulations in March 2016.

Home Office figures for 2010/11 assess that £10.5bn alone was laundered by organised crime, but this total excludes 85% of fraud and other non-organised crime. An estimated €25bn (£22bn) a year is laundered from UK crime, according to a 2012 EU-sponsored study assessing how much criminal money is generated and laundered within and through the UK.

The UK also faces a Mutual Evaluation by FATF in 2017 which needs to demonstrate the country’s ability to counter money laundering and financial malfeasance.

The Directive must be transposed into domestic legislation by 26 June 2017.

At the same time, it should be noted that as part of the government’s Red Tape Challenge, a comprehensive review of the AML/CFT regime is being undertaken with a focus on supervision, looking to identify areas where the regime is unclear, cumbersome and ineffective. A report is expected by December.

The Treasury Consultation on the transposition of the Fourth Money Laundering Directive, closes for comment on 10 November.

The BEIS consultation on Implementing the Fourth Money Laundering Directive: transposition of Article 30: beneficial ownership of corporate and other legal entities - discussion paper, closes for comment on 16 December 2016.

Essential reading about the UK PSC register

People with significant control (PSC) register - what you need to know

The obligation on UK unlisted companies and limited liability partnerships (LLPs) to keep a register of people with significant influence or control (PSCs) over them came into force on 6 April 2016. Gateley plc law experts considers how the new system will work

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