HMRC has published outline guidance on the changes to the regulations on money laundering and terrorist financing, which have been extended to cover lettings agents and art dealers from mid-January, with more detailed information set to follow
The EU’s Fifth Money Laundering Directive (5MLD) was transposed into UK law by regulations published just days before Christmas. The Money Laundering and Terrorist Financing (amendment) Regulations 2019 (MLRs) came into force on 10 January 2020, updating existing regulations.
While all companies must be fully compliant with the new requirements from 10 January, HMRC says it will take into account the short lead-in time businesses have had to implement all the new requirements in assessing the response to any non-compliance.
Under the reformed regulations, money service businesses and trust or company service providers who apply to register from 10 January 2020 will not be able to carry out relevant activity until HMRC has determined their application for registration.
HMRC will now supervise two new groups of businesses that are subject to the new anti-money laundering regulations: businesses trading in art and high value letting agents.
The regulations are being expanded to include letting agents which rent out property valued at €10,000 (£8,557) or more for a minimum of one calendar month, including both commercial and residential property. HMRC says the online system for these letting agency businesses to register will open in May 2020.
The new rules also apply to those in the art market who deal in in sales, purchases, and storage of works of art with a value of €10,000 or more, whether this is for a single transaction or series of linked transactions, who will now be required to apply customer due diligence measures regardless of payment method used.
Other businesses will be required to register by 10 January 2021.
HMRC notes a number of specific changes to the regulations that may affect a business. There is an expanded definition of what a tax adviser is, which means anyone who provides support with tax matters will now come under the definition of an accountancy service provider.
Changes in the regulations also mean that businesses need to carry out a money laundering risk assessment of new products, business practices, or technologies before they implement them.
There are new requirements in respect of business group-wide policies on the sharing of information about customers, customer accounts, and transactions for money laundering/terrorist financing purposes.
Agents of money service business principals who are delivering the regulated business must receive relevant training from their principals.
There are also new regulations setting out requirements for relevant persons to apply customer due diligence measures where there is a legal duty under the relevant international tax compliance regulations, or a duty to review information relevant to the risk assessment or beneficial ownership of the customer.
In addition, there are requirements for measures to be taken to understand the ownership and control structure of persons, trusts and companies as a customer, and to verify the identity of senior managing officials responsible for managing corporate bodies, particularly when the beneficial owner cannot be identified.
In some circumstances, businesses are required to and company beneficial ownership registers before establishing a business relationship, and to report any discrepancies found to Companies House.
The list of ‘risky’ products is extended to include oil, arms, precious metals and tobacco, while the threshold for which low risk electronic money products can be exempt from customer due diligence is reduced from €250 to €150.
Under the new regulations, in specified circumstances, information may be regarded as being reliable and independent of the person providing it where it has been obtained by means of an electronic identification process, in place of traditional methods of know your customer such as passports, driving licences and utility bills.
Martin Cheek, managing director of verification software specialist SmartSearch, said: ‘The government – and the EU – are right to want to see more use of electronic verification. It’s been shown to be more reliable, quicker and more cost effective than manual checks.
‘Plus, firms can have highly efficient screening and ongoing monitoring for politically exposed persons and sanctions, all of which are a requirement of the anti-money laundering rules.
‘It’s a pity the regulations didn’t appear until so late in the day, but it is imperative that firms take action now to show they comply with the new regulations or else they could face a significant fine.’