For firms subject to AML regulations, there’s been a host of new rules and guidance. Here are the key reminders and  takeaways

The Law Society has published proposed updates to Legal Sector Affinity Group (LSAG) as an addendum. They await Treasury approval of the wording. The changes are largely reminders and clarification on certain points and are not likely to have a large impact. 

Our summary:

  • A reminder that firms with annual turnover exceeding £10.2 million should be registered with HMRC to pay an additional levy on combating economic crime
  • Guidance has been published on revised discrepancy reporting regimes for telling Companies House about ‘material’ errors in ownership information as recorded on the registers as compared with what the law firm knows.
  • Guidance has also been published on reporting discrepancies between client instructions and the HMRC’s register of trusts. 
  • A reminder that overseas companies and other entities wishing to buy, sell or transfer property or land in the UK must register with Companies House. The Tax Policy Associates have created an interactive map where you can dig into any overseas ownership details for properties. 
  • Amendments to the Proceeds of Crime Act which mean that under certain circumstances it is now possible to return up to £1,000.00 of suspicious money or property value to the client to end the relationship with that client without securing NCA consent. 
  • The tone of the revised LSAG source of funds guidance appears to be shifting again, leaning towards the SRA’s more broad interpretation of the Money Laundering Regulations requirement to risk assess new matters: “Without understanding the SoF of both client and associated third parties to the transaction, you are unlikely to be able to carry out an effective risk assessment or ongoing monitoring under regulations 28(11) to (13).” At the very least, it should be understood where funds are coming from. In practice, obtaining documentary evidence to verify what you are being told will also be expected by the SRA for individual clients and for less well established corporate / entity clients.
  • Proposed guidance is pending approval on the obligation to take reasonable measures to understand a company or entity client’s ownership and control structure. The proposed changes seem to suggest that checking what you’re being told against independent documentation is required. It’s not entirely clear how one would obtain reliable documentation independent of the client to prove all potentially governance arrangements in unlisted companies. We hope that more clarity can be provided before this guidance is finalised into the core LSAG document.

In addition, changes to the PEP (politically exposed persons) regime are now in force. For those familiar with the FCA guidance, the changes may represent little change in practice. The changes essentially state that, in the absence of other risk factors, while UK politicians and other PEPs still require enhanced due diligence the starting point is that the level of caution required would be less than for non-domestic PEPs. In terms of the approach under the Regulations, emphasis is on the words “starting point.” The SRA guides that firms should consider amending their policies.  

The Money Laundering Regulations have been amended to refer to the Financial Action Task Force’s (FATF) list of high-risk and increased monitoring jurisdictions rather than maintaining a separate list of high-risk third jurisdictions. The requirement to apply enhanced checks on matters with certain links to such jurisdictions and indeed the list itself for the moment remain the same. However they will now be found in a different place – though the Law Society maintains one combined user friendly list also. Guidance accompanying the changes encourage firms to consider the reasoning behind the FATF decisions in appropriate cases.
Here is more info on SRA compliance.