What are Money Laundering Regulations?
Money laundering regulations were last revised in 2017 and apply to financial institutions such as:
- Insolvency practitioners
- Tax advisors
- Legal professionals
- Service providers
- Estate agents
- High-value dealers
- Gambling providers
The changes in the 2017 regulations require businesses to become more risk-aware in their approach to anti-money laundering processes. We break down these changes below.
Money Laundering Regulations – Risk Assessments
Written risk assessments must be made available to the designated supervisor. These assessments must identify the risks posed to their business by money laundering and the risk factors. For example, areas of operation, customer-base, services or products and handling of transactions need to be included to help make risks of money laundering clear and avoidable.
Once a risk assessment is finalised, policies, controls and practical procedures need to be approved by senior management and implemented within the business to mitigate and manage the risks identified in the assessment. Both the risk assessment and policies must also be communicated to relevant branches and subsidiaries, regardless of whether they are inside or outside the UK.
Customer Due Diligence (CDD) must be applied in certain circumstances for new and existing customers as outlined in the 2017 regulations. Using the risk assessment, businesses must decide on the level of CDD they feel is appropriate to employ. While ‘simplified CDD’ is no longer deemed automatically sufficient at any time, ‘enhanced CDD’ is compulsory in certain high-risk factors, as is enhanced ongoing monitoring. High-risk situations may include business relationships or transactions with a politically exposed person or a ‘high-risk third country’.
To identify whether customers are politically exposed, businesses must have the correct systems in place such as applying compulsory ‘enhanced CDD’ measures to individuals for at least 12 months after they cease to be a politically exposed person.
The 2017 regulations require that relevant employees of a business are screened. The screening includes an assessment of the skills, knowledge, expertise, conduct and integrity of the employee. Employees who require screening include individuals who work for the firm and:
- have any part in the business’s compliance of money laundering regulations
- identify or mitigate the risks of money laundering
- prevent or detect money laundering connected to the business
Relevant employees must also be trained in accordance with the 2017 regulations. This includes:
- making them aware of money laundering legislation
- training them in how to spot the signs of money laundering or other terrorist financings in transactions and other activities and how to deal with it
Money Laundering Sentence
Anti-money laundering breaches are treated with increasing severity as per the 2017 regulations. In fact, it is now a criminal offence to recklessly make a false or misleading legal statement in a money laundering investigation. The money laundering penalties for this can be a fine or up to two years in prison.
As such, the FCA will prosecute businesses whose anti-money laundering controls aren’t watertight. This is why we recommend businesses consult a fraud lawyer experienced in money laundering legislation to advise and if necessary, represent them. For more information on money laundering, please read our blog post on the money laundering stages explained.