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Changes to Money Laundering Regulations

The 5th Money Laundering Directive (‘5MLD’) was implemented into UK law on 10 January 2020. Its aim is to amend and strengthen the current Money Laundering Regulations (MLR).

The 5MLD applies to all firms whose work areas currently fall within the scope of the MLR. It is not as big a change as the previous overhaul in 2017.

Main changes that will be most relevant to solicitors and law firms are outlined below:

  1. Additional due diligence requirements when dealing with high risk jurisdictions, including what is known as ‘super-enhanced due diligence.’
  2. Reliable electronic verification systems are now explicitly permitted to be used in customer due diligence.
  3. More certainty over Politically Exposed Persons (‘PEP’). The government is required to give the profession information about the PEP worthy roles and positions.
  4. Increasing transparency in beneficial ownership through expansion of the registration requirements for companies and trusts, and the availability for their inspection. This will include an obligation on solicitors to notify Companies House of any discrepancies between the official persons of significant control register and the information held by a firm.
  5. The legislation also means the SRA are changing some of their processes. For example, new applications for Beneficial Owners, Officer and Managers (known as BOOMs) will now need to provide a basic Disclosure and Barring Service check which shows applicants do not have any of the criminal convictions that would prevent approval.

The Regulatory Position

Although the SRA previously indicated that they would take enforcement action against any firms who did not comply with the 5MLD, they have now changed their stance and will take the limited time that firms have had to prepare for the new requirements into account when carrying out enforcement work. The Legal Sector Affinity Group is also currently drafting updated guidance on the 5MLD, which will then have to be approved by the Treasury. This may take a number of months to implement.

What should your firm be doing about the 5MLD?

We have outlined some practical tips that you can implement now:

  1. Your firm should review its current anti-money laundering policy and risk assessment so that any of the new changes are recorded in these policies.
  2. Revised copies of the polices should be circulated to members of staff.
  3. How are you monitoring compliance? Are fee earner file reviews identifying any major issues?
  4. Consider refresher training for your staff.
  5. Keep an eye on further guidance that may be published by The Legal Sector Affinity Group as this may trigger another review of your policies and procedures.

If your firm requires support in implementing any of the above please contact us today.