Money Laundering Regulations 2017

Key changes based on the Fourth Directive

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Overview

The Fourth Money Laundering Directive came into force in the UK on 26 June 2017 as The Money Laundering Regulations 2017. This presentation is an overview of the key changes over the previous law.

UBO is changing

The ultimate beneficial owner of a corporate client will need to be determined and due diligence checks performed. A UBO is anyone who owns or controls 25% or greater percentage in a corporation. If you don’t know who the UBO is of a client, you must take “all reasonable steps” to determine this. If no beneficial owners can be identified, then the details of senior managers must be recorded.

CDD is changing

There will no longer be automatic exemptions from conducting client due diligence. Previously UK public authorities, pension schemes, pooled accounts or companies listed on regulated markets or who follow equivalent AML rules could have simplified due diligence automatically applied. This is no longer the case. Simplified due diligence can be applied, but the decision for this must be backed up with evidence and form one part of a justification for the level of due diligence to be applied.

Additionally, CDD will be required by anyone trading goods in cash with a value over €10,000 (current level is €15,000). CDD will also be required by casinos where customers wish to place a stake or collect winnings of at least €2,000.

Third party equivalence is changing

Under the previous money laundering directives, a “white list” of jurisdictions whose AML procedures were considered equivalent to those in the EU allowed institutions to operate with a greater degree of freedom where the risk was thought to be lower. However, the Fourth Directive has rescinded the “white list” and country-specific risk determinations must be made for any jurisdiction outside of the EU.

Determining Risk

You must set your own risk criteria and assessment procedures specific for your industry. Some examples of different risk factors could include:

Low risk

The customer is domestic and does not have overseas accounts. The customer has a low cash activity volume and the source of funds or wealth conforms to the customer profile and is easily verified.

Medium Risk

The customer has an account in a foreign country which is a member of the FATF. There are questions over the customer's source of funds or wealth or more evidence was required to verify this information. The customer has a cash-intensive business or is in an industry or jurisdiction with a history of money laundering activity.

High risk

The customer is a PEP. The customer has an account based in an offshore tax jurisdiction, a country under international sanctions or a weak AML regime. There are serious questions about the client’s source of funds, or their profile does not match their activity. There are frequent and unexplained movements of assets across borders. There is uncertainty about the identity of the customer or beneficial owners.

Which directive is it?

  • Politically exposed persons can be from the home country or a foreign country
    3rd directive
    4th directive
  • CDD is required for cash transactions over €10,000
    3rd directive
    4th directive
  • The white list of non-EU countries with equivalent AML laws can be relied on
    3rd directive
    4th directive
  • Companies must maintain a record of their beneficial owners
    3rd directive
    4th directive
  • Simplified due diligence can be automatically applied in a number of situations
    3rd directive
    4th directive
  • A risk-based approach is central to all transactions
    3rd directive
    4th directive
  • Estate agents only have to perform CDD checks on the seller.
    3rd directive
    4th directive
  • Only casinos are covered by money laundering rules
    3rd directive
    4th directive
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Fourth Directive or Third?

Read the following examples. Click the slider to the left if you think it’s from the third directive, or click the slider to the right if you think it is a part of the new fourth directive.

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Money Laundering Regulations 2017

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