ECSH21125 - Summary of changes included in the Fifth Money Laundering Directive (5MLD)
On 1 September 2022 the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017( MLR 2017) were amended. The changes that apply to HMRC and its supervised population are as follows:
Removal of outdated reference to the Terrorist Asset-Freezing etc. Act 2010 (TAFA)
The definition of “terrorist financing” has been updated to remove outdated reference to TAFA.
Formation of limited partnerships
The meaning of business relationship in regulation 4(2) MLR 2017 has been extended to also include the activities in regulation 12(2)(a) MLR 2017 forming a firm; regulation 12(b) MLR 2017 director, company secretary, etc. and regualtion 12 (d) MLR 2017 trustee of an express trust, nominee shareholder etc. whether the relationship is otherwise expected to have an element of duration.
The wording in regulation 2(2)(a) MLR 2017 has changed from forming a company to forming a firm.
Proliferation financing (PF)
Adds Proliferation Financing (PF) to some of the regulations in addition to Money Laundering (ML) and Terrorist Financing (TF). PF is defined by an amendment to Regulation 3. It only relates to those countries subject to PF-related UN sanctions (in February 2024, that’s DPRK and Iran).
Regulation 16A MLR 2017 inserted requires a PF risk assessment by the Treasury (published in NRA of proliferation financing).
Regulation 18A MLR 2017 inserted on risk assessment (RA) by relevant persons in relation to PF. Businesses must take account of the NRA of proliferation financing.
Regulation 19A MLR 2017 inserted on policies, controls, and procedures (PCPs) in relation to PF. PCPs must include risk management, internal controls and monitoring of compliance.
Unlike ML and TF there is no requirement on HMRC to risks-assess its sectors or individual businesses for PF.
Businesses will have the option to carry out a separate proliferation financing risk assessment or to add proliferation financing to their existing ML/TF RA. In most cases existing PCPs covering sanctions screening should, if they are adequate, meet any customer due diligence or enhanced due diligence requirements.
Art market participants
Regulation 14 MLR 2017 amended to clarify that MLR 2017 do not apply to artists who sell their own works of art directly to the customer.
Exclusions
Regulation 15(3)(f) MLR 2017 updated to include art market participants.
Reporting of material discrepancies
The reporting requirement was extended from 1 April 2023.
Regulation 30A MLR 2017 requires a business to report discrepancies in registers before establishing a business relationship and as part of customer due diligenc (CDD) and/or ongoing monitoring in relation to any of the entities listed in regulation 30A(1) MLR 2017.
The business must either collect an excerpt of the register which contains full details of the information held or establish (from inspection of the register) that there is no information held at that time.
The requirement to report is limited to a material discrepancy (defined in the Schedule 3AZA MLR2017). Where a material discrepancy is found it must be reported, as soon as possible, to:
Companies House - if it relates to a company, an unregistered company, a limited liability partnership or an eligible Scottish partnership or an overseas entity.
HMRC Trust Registration Service - if it relates to a trust.
Suspicious activity reporting
The change in regulation 66 MLR 2017 makes it clear that supervisory authorities can, to assist in meeting their supervisory functions, require supervised persons to provide copies of SARs they have submitted.
Information sharing and confidentiality
Regulation 52 MLR 2017 is amended to wideninformation and intelligence sharing gateways to allow reciprocal sharing between supervisors and relevant authorities. It expands the list of relevant authorities toinclude other government agencies such as functions ofthe Department for Energy Security and Net Zero, Department for Science, Innovation and Technology, and Department for Business and Trade and Companies House (CH).