MLR17 (or the punchily-named Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017) is a relatively new regulation for the UK. The update comes as part of the European Union’s 4th Money Laundering Directive; previously rules regarding money laundering date back to 2007. The new rules mean that accountancy firms (as well as other financial businesses) will come under increased scrutiny in a number of different areas. Today we highlight a few of the key points (the full document is long, so for a full rundown be sure to check out the UK government’s official MLR17 release).
MLR17: Risk Assessment
The new regulations require firms to carry out comprehensive risk assessments on their clients and the areas of the business that are at risk of the concealment of criminal activities. These identified risks must then be assessed for the likelihood of criminal activities taking place and reviewed so the standard can be raised to an acceptable level of protection. Senior management will be responsible for ensuring the firm complies with the new standards, with one member being nominated as a company’s Money Laundering Compliance Principal.
MLR17: Registration of Beneficial Ownership
Beneficial ownership is the term used to describe a person (or company) that enjoys the rights of owning a property or company but is not named as the owner. The beneficial owner can influence company decisions and, as we saw in the Panama and Paradise Papers, the position can be used to syphon money away from one country’s tax system into a more lenient client. Under the new rules, corporations and legal entities will be required to maintain up-to-date information on beneficial owners. This information will be stored on a central register that can be accessed by banks, law firms and anyone that can “demonstrate legitimate interest,” presumably making ownership concealment much more difficult.
MLR17: Client Due Diligence
Let’s go straight to the government for a definition of due diligence: “customer due diligence [CDD] means taking steps to identify your customers and checking they are who they say they are.” This regulation appears to fit under risk assessment, although CDD would usually come before accepting a client’s business. Under the old rules, CDD wasn’t necessary in certain cases, such as one-off transactions, and it could be simplified for business with pension funds and UK public authorities; now, however, it’s a little stricter, with documentation needed to justify why simplified CDD can be applied.
MLR17: Politically Exposed Persons
Politically exposed persons (PEPs) are people in positions of significant public power. Due to their status, people in such positions have a disproportionate potential to influence the laws and regulations that underpin democracy. They have the potential to abuse their positions to commit criminal acts such as money laundering, corruption, bribery, as well as terrorist financing. Under the old regulations, PEP rules for firms (another form of risk assessment) only applied to foreign PEPs; now, local PEPs will face the same scrutiny.
Likewise, family members and known close associates of PEPs will also fall under the same scrutiny. The risk assessment for such persons should also continue throughout the business relationship.
If you’re an aspiring accountant, knowing the information above will stand you in good stead for knowing some of the biggest effects MLR17 will have on accounting firms. However, there is much, much more information on the web that goes into the specifics of each regulation. Check out ICAS’ document for a clear, bullet-point outline of the major changes, or ICAEW’s MLR17 overview.
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