The Money Laundering Regulations 2017: a risk-based approach

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The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) have been laid before Parliament. These Regulations replace the Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007 with updated provisions implementing the Fourth Money Laundering Directive (4MLD or “the Directive”) and the Funds Transfer Regulation (FTR). 4MLD aimed to give effect to the updated Financial Action Task Force (FATF) global standards which promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

MLR 2017, which came into force on 26 June 2017, increases the emphasis on the risk-based approach, creates new criminal offences and civil penalties and provides supervisory bodies with statutory investigative powers. Persons covered by the new regulations are the same as under the previous rules, however now the entire gambling industry is in the scope of MLR 2017 and trustees have greater obligations relating to transparency of beneficiaries in their trusts. MLR 2017 is more prescriptive on risk mitigation procedures, monitoring on Politically Exposed Persons (PEPs) and conditions for reliance on third parties for customer due diligence.

MLR 2017 posed a strong obligation on relevant persons to adopt a more thought risk-based approach towards AML and CTF prevention, in particular in how they conduct due diligence. The following areas summarise some of the key points of the regulation:

  • Changing the approach to customer due diligence, with restrictions to apply simplified due diligence and obligation to consider both customer and geographical risk factors in deciding whether simplified due diligence is appropriate.
  • Enforcing emphasis on record keeping practices.
  • Improving transparency of beneficial ownership of companies and trusts
  • Effectively enforcing sanctions.

Accordingly, Joint Money Laundering Steering Group (JMLSG) has published the final version of its updated Parts I, II and III guidance. The revised guidance reflects the provisions of the new regulations and takes account of the draft risk factor guidelines published by the European Supervisory Agencies. JMLSG covered the interpretation of aspects of the MLR 2017, where appropriate, made changes to clarify information. It will shortly be submitted to HM Treasury for Ministerial approval but we do not anticipate any substantial changes to the guidance.