Regulatory and Compliance Training & Consultancy

Fourth Money Laundering Directive Summary of Changes

August 2015

The EU 4th Money Laundering Directive will lead to new Money Laundering Regulations being introduced in the UK within two years.

Introduction

The European Parliament finally approved the Fourth Money Laundering Directive on 20th May 2015. The legislation came into force on 26th June 2015 and the UK government now has two years to implement the anti-money laundering provisions contained in the 4th Directive into a new version of the Money Laundering Regulations.

What Changes?

• Simplified Due Diligence

The Fourth Money Laundering Directive removes the automatic right for ‘obliged entities’ to carry out simplified due diligence where the customer or product falls within certain categories, e.g. where the customer is a credit or financial institution, a local authority or a company listed on a regulated market. Instead, individual Member States may allow obliged entities to apply simplified customer due diligence (CDD) measures provided that before applying simplified customer due diligence measures, obliged entities establish that the business relationship or the transaction presents a lower degree of risk of money laundering occurring. It is anticipated that the UK government will take advantage of these measures and allow simplified due diligence to be undertaken in appropriate circumstances.

• Register of Beneficial Owners

Member states will be required to maintain central registers containing information about the Beneficial Owners of companies and other legal entities.
In the case of trusts, the Fourth Money Laundering Directive requires the trustees of any express trust to maintain up-to-date information on beneficial ownership including details of the settlor, trustee, the protector (if any), the beneficiaries or class of beneficiaries; and any other natural person exercising effective control over the trust. The trustees will be required to make such information available to obliged entities when entering into a business relationship or carrying out an occasional transaction

In the UK, those trusts which are obliged to file a tax return will be required to submit information about their Beneficial Owners to the central register.

The central registers will be accessible to the authorities with no restrictions. Those within the regulated sector undertaking customer due diligence will have access to the registers as ‘responsible parties’ as will others who are able to demonstrate that they have a ‘legitimate interest’.

• Record Keeping Requirements

Presently, the Money Laundering Regulations 2007 require regulated entities to maintain their customer due diligence material for a period of five years from the date when the business relationship with the client comes to an end or an occasional transition is completed. The Fourth Money Laundering Directive imposes a new obligation on obliged entities to delete personal data at the end of the five year retention period.

The Law Society has been lobbying against this restriction and the final version of the Fourth Money Laundering Directive provided that Member States could extend the retention period of a maximum of a further five years if it is felt that such an extension can be justified. It is expected that the enabling legislation in the UK will permit customer due diligence material to be maintained for up to ten years in some situations.

• Written Risk Assessments

The Fourth Money Laundering Directive introduces a new requirement that obliged entities must take appropriate steps to identify and assess the risks of money laundering and terrorist financing and to document the same. These written risks assessments must be kept up-to-date and made available to the Solicitors Regulation Authority (SRA) upon request.

• Politically Exposed Persons (PEP's)

The Fourth Money Laundering Directive widens the definition of a Politically Exposed Persons (PEP) to include citizens holding prominent positions in their home country such as politicians, the judiciary and senior members of the armed services as well as those of overseas countries. The Directive has clarified the position regarding family members of PEP‘s. Parents, spouses (or equivalent partners), children and their spouses or partners are to be treated as being PEP’s under the Fourth Money Laundering Directive.

Consideration was given to extending the period of time for which a person continues to be a PEP once they have left their office from the current period of twelve months to eighteen months. However, the final version of the Fourth Money Laundering Directive specifies that a person will remain a PEP for at least twelve months and requires obliged entities to take into account the continuing risk posed by that person and to apply appropriate and risk- sensitive measures until such time as that person is deemed to pose no further risk specific to politically exposed persons. Perhaps the certainty of a longer fixed period may have been better!

READ OUR LATEST ARTICLE, MONEY LAUNDERING REGULATIONS 2017: ARE YOU READY?

Why not attend one of our Money Laundering Regulations 2017 accredited CPD training courses and learn more about how the the EU 4th Money Laundering Directive will be put into force in the United Kingdom? Or, perhaps now would be a good time to consider providing in-house anti-money laundering training to your staff if you have not done so in the last two years?

To find out more about the training and consultancy services we can provide to support your firm please contact Richard Lane on 0330 223 5346.

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