ECSH51250 - Principals and agent networks

Money service businesses (MSBs) frequently enter into arrangements with other parties to enable the MSB to provide its services to customers. This is known as a principal/agent relationship.  `

These include appointing an agent or agents to act on behalf of a MSB (the principal) in the provision of their services. For example, this may be to:

  • Accept money transmission instructions from customers.
  • Accept cheques for encashment.
  • Undertake currency exchange.

A principal in this context is the party that contracts with a customer through its agent and owns, and is responsible for, the transaction. Principals can supply bespoke software packages and must train agents on their use.

An agent is a separate person or entity, appointed to act on behalf of the principal in the provision of their services. This arrangement may be directly between agent and principal or may be a between an agent of the original principal and a further agent.

In a principal/agent relationship, the principal is the person or entity who gives authority to an agent to act on its behalf. However, the responsibilities of the principal do not absolve an agent from its legal obligations to comply with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) and the Proceeds of Crime Act 2002.

Whilst the agent is the first line of defence and must apply customer due diligence (CDD) and enhanced due diligence (EDD) where appropriate and flag suspicious activity via a Nominated Officer, it is still the principal’s responsibility to ensure that the agent is complying with MLR 2017.  Principals are required to notify HMRC of the details of their agent population.

Typically, a written contract or an agency agreement between principal and agent, is necessary to set out their respective roles and responsibilities. For example, an agency agreement may provide for the principal to give its agent access to technology, systems, forms, advertising and marketing material as well as written processes and procedures necessary to comply with MLR 2017 and other legal and regulatory requirements.

It is possible for an agent of a principal to be a principal in its own right. e.g. Business A is an agent of business B, and business C is an agent of business A. There are legitimate reasons for these relationships to exist; some MSBs have access to specific economic corridors, where others do not, and a broad customer base in a densely populated area may require a business to establish relationships with other MSBs to serve these customers. e.g. MSB X may not have the ability to transmit money to Africa, and may be able to remit to Asia, but is located in an area where different customers require both services to be available. MSB X may become an agent of MSB Y to be able to retain customers who require a remittance service to Africa.

The current top 5 principals control a large section of the agent population, and it is ultimately their responsibility to manage their agent networks.  EC-S have allocated SPOCs to work with these principals to help them maintain compliance, including the compliance of their agents.  For an updated SPOCS list contact the Compliance Team Lead.

 

Fit and proper Testing

The fit and proper aspect of registration can differ between agents and principals depending on the relationship. Where a principal retains control of how an agent operates and requires agents to operate under the principal’s risk assessment and policies, the principal will be responsible for the fit and proper testing of that agent and include the agent in the principals own AML registration.

Where an agent retains its own control over how the business is run and may simply use a principal’s branding or software, the agent is required to register for AML supervision separately from its principal and EC-S will conduct fit and proper testing on that agent.

Further information on F&P testing can be found here.