ECSH71500 - Regulation 66

Introduction

As a supervisor under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) HMRC must, under regulation 46, effectively monitor the relevant persons (businesses) it supervises for the purposes of securing compliance with MLR 2017. We do this by carrying out compliance activity under the HMRC compliance strategy of ‘prevent, promote, respond’ and an essential component of this is reviewing, and testing, business’s records at their premises, their representative's premises if they are held there, or remotely if they are submitted to HMRC.

The vast majority of our compliance activity is undertaken with the co-operation of the business and most requests for documents or information will be provided voluntarily and will not require any use of statutory information powers. In some cases, we may require the use of statutory information powers to require documents or information to be provided, or to require someone to attend an office to meet with an officer and answer questions.

This section explains:

  • When and why regulation 66 MLR 2017 powers can be utilised.
  • What can be required of a business, connected person, payment service provider or third person.
  • Who can be compelled to produce documents or provide information under regulation 66? And;
  • The legal criteria that must be met when using regulation 66.

 

What is regulation 66?

Regulation 66 is a legal power that provides HMRC, as a supervisory authority, to require a person who is (or was at any time) a relevant person, a payment service provider or a connected person to provide specified information and produce specified documents, or information or documents of a specified description.

Regulation 66 also provides HMRC, as a supervisory authority, with the power to require such person to attend before an officer at a time and place specified in the notice and answer questions.

Where we require a document to be produced, but it appears that the document is in the possession of a third person, then we may also exercise the power to require the production of the document from that third person (see section below headed ‘third persons’). We can only require information or documents which are reasonably required by HMRC in connection with the exercise of its supervisory functions under the MLR 2017.

 

The regulation 66 notice

For regulation 66 to be lawfully exercised, the notice must be given in writing. Officers should follow the SWI and use the up-to-date template, both of which can be found in the EC-S Knowledge Library.

Regulation 66(5) requires that the Regulation 66 notice sets out the reasons why the information is required to be provided or the documents produced, unless the supervisory authority or (as the case may be) the officer is not permitted to disclose this information.

The officer must clearly set out in the DEL, or paperwork, why the information or documents are reasonably required. This will will provide the rationale for the request, within the notice. An example may be:

“This information is required to ensure that you are complying with the requirements of MLR 2017”.

An Officer is never permitted to disclose in the regulation 66 notice that the reason for the request derives from intelligence received.

The notice should also specify:

  • A clear, itemised list of the specific documents and/or information required (or their specific description). It is important that this is as precise as possible to enable the business to comply and to demonstrate that you have made a reasonable request which will withstand legal challenge.
  • A deadline for their submission, that must be within a reasonable period of time.
  • Where or how they should be delivered.
  • What form of documents/ information are acceptable. Any form we require, including translations into English, must be reasonable.

Regulation 66 notices requesting attendance should specify:

  • The place and time the interview will take place, within a reasonable period of time.
  • What documents/information we require them to bring to the interview with them, and the reasons why these are reasonably required.
  • If we do expect them to bring documents/information, we can require the format, as long as it is reasonable.

 

When can a regulation 66 notice be used?

The powers in regulation 66 may only be exercised in relation to information or documents which are reasonably required by HMRC in connection with the exercise of its supervisory functions under MLR 2017, and may only be exercised by notice in writing to a person who is (or was at any time)a business, connected person or payment service provider. Where we have the power to require a document to be provided, but that document is in the possession of a third person, we can require that third person to produce it, by giving notice in writing.

In the large majority of cases, the decision to issue a regulation 66 notice should be taken after previous attempts to obtain the information voluntarily has failed.

The use of the power may be necessary if the information is required for the officer to conduct their compliance activity. There are other circumstances in which the power may be used, for example where we suspect a business may be trading whilst unregistered and we require information from them to determine the position.

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The information or documents must be “reasonably required”

Regulation 66 can only be used in relation to information or documents which are reasonably required by HMRC in connection with the exercise of its supervisory functions. In order to show that the information or documents are reasonably required, officers must keep a record of how they reached the decision to issue a regulation 66 notice, which should include what is being requested and, importantly, why it is being requested. In the event of challenge, this rationale will be used to evidence a lawful exercise of regulation 66.

The impact of a regulation 66 notice on the person can be significant and require extra resources to be expended by the person and disrupt them from carrying out their day-to-day business. This power should only be used when it is necessary and proportionate.

For example, copies of policies, controls, procedures and risk assessment should be readily available, whereas the translation of contracts or bulk due diligence documents might take several weeks.

We should not be asking for documents which are not reasonably required and proportionate to the supervisory function we are required to fulfil. It is particularly important that the requirements set out in the notice are reasonable to avoid placing the business in an awkward predicament (either struggling to meet an unreasonable demand, or being unable to comply, which could bring associated consequences).

We must allow a reasonable period for the person to provide the requested information or documents. For example, if we need a person to supply documents and they had no previous awareness of the issue (such as a notice to a third person), or we are intending to require information in different formats to the way it is held (e.g. a translation), we should be able to show that our actions are proportionate to the need, that we are aware of potential impacts and are acting within the framework of HMRC’s Compliance Professional Standards.

If using a regulation 66 notice to request attendance for the purpose of answering questions, consideration should be given to when the person would normally be available and how far it is reasonable to expect them to travel. Officers must act reasonably in determining a time and place for the interview. In practice, the location may be the premises from which the person conducts their business, the registered office address of the business or, if appropriate, a HMRC office or even the office of another authority (e.g. The National Crime Agency, Trading Standards or other law enforcement agency).

 

Who can issue a regulation 66 notice?

EC-S officers can issue regulation 66 notices.

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Regulation 66 notices issued by HMRC are issued under regulation 66(1). They are not issued under regulation 66(3). Regulation 66(3) is a provision which, for example, allows trading standards officers to issue regulation 66 notices on behalf of a supervisor, or for HMRC or the Financial Conduct Authority to issue them on behalf of another supervisor.

 

Who can be compelled to produce documents or provide information under regulation 66?

HMRC has the power to require information or documents under regulation 66 from a ‘person’. A ‘person’ has a specific definition in this context (see below), and for the power to be lawfully exercised, officers must ensure the recipient of the notice falls within scope. In certain circumstances a regulation 66 notice can be issued to a third person (see next section).

It is not necessary for the person to be a supervised business, payment service provider or connected person at the time the power is exercised, and it is sufficient that they were at any time.

A ‘person’ is a:    

  • Relevant person (business)
  • Payment service provider (PSP)  
  • Connected person

  

Relevant persons are individuals or businesses who are conducting or have conducted (MLR 2017) regulated activity by way of a business.  

Payment Service Providers (PSP) are defined in regulation 2 of The Payment Services Regulations 2017 and can include:

  • Small payment institutions   
  • Electronic money issuers   
  • Money service businesses.  

Connected persons

Whether a person is connected to a business or PSP (and thereby a connected person) depends on the type of legal entity of the business or PSP. Legal entity means the way that the business is legally formed. We mainly deal with sole traders and limited companies but may come across other structures. MLR 2017 Schedule 5 explains who qualifies as a ‘connected person’ in the cases of:

  • Corporate bodies  
  • Partnerships
  • Unincorporated associations
  • Individuals

For body corporates a connected person is an officer or manager. The definition of ‘officer’ in regulation 3 MLR 2017 does not apply to schedule 5. Therefore, for the purposes of schedule 5, a person who is a beneficial owner is likely to meet the definition of a manager, but virtue of having control, authority, or responsibility for managing the business, or PSP.

 

Third persons

An example of a third person may be that an Art Market Participant (AMP) uses an electronic identification provider to meet its due diligence requirements, and in conducting a compliance intervention, you require a document that appears to be in possession of the electronic identification provider, who would in this scenario be a third person for the purpose of regulation 66.

Where we require a document to be produced, but it appears that the document is in the possession of a third person, then we may exercise the power to require the production of the document by virtue of regulation 66(8).

We may only request that specified documents are produced by a third person and do not have the power to require the provision of specified information or information of a specified description, nor require attendance before an officer for interview.

Although the power in regulation 66(8) extends to documents only, regulation 3 defines ‘documents’ as ‘anything in which information of any description is recorded’. Where, in the example above, we are asking for bulk data such as customer due diligence records, at first glance this may look like ‘information’, as it would be held within software, but could also be defined as multiple documents, as it would be comprised of records of ID documents and proof of address.

Regulation 76 allows us to issue penalties against any person contravening a relevant requirement imposed on them. This means that we could potentially issue a penalty against a third person for non-compliance with a regulation 66 notice as they, the third person, have breached a relevant requirement of MLR 2017.

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Businesses who have ceased trading or are not currently trading and connected persons who are no longer acting

It is important to remember that a person who, at any time, has been conducting relevant activity, with or without being registered, is still regarded as a ‘person’ and a regulation 66 notice can still be used. This would include those who were previously registered and those who are or have been conducting relevant activity while unregistered.

This also applies to connected persons who are no longer acting, e.g. a director of a supervised business who has stepped down.

In order to issue a regulation 66 notice, the business must be or must have been conducting relevant activity. Where a money service business (MSB) or trust or company service provider (TCSP) submits a new application for registration it cannot conduct relevant activity until they have been determined to be fit and proper and their application is approved. Therefore, where the MSB or TCSP waits for the outcome of its application to register before it starts relevant activity, we cannot issue a regulation 66 notice while the application is being processed.

 

What can be requested and how should it be supplied?

Regulation 66 MLR 2017 allows us to require that a person provides information or produces documents that are specified or of a specified description:

Documents: 

A document is given a very broad definition in regulation 3 of MLR 2017 as “anything in which information of any description is recorded”. Whilst MLR 2017 does not elaborate any further on the meaning of a document, exercising regulation 66 to compel the provision of electronic documents such as records held on a computer or similar electronic device or server is likely to be a lawful exercise of HMRC’s power. Obvious examples are information recorded on:

  • CDs
  • Memory sticks
  • Computer hard drives. 
  • CCTV footage
  • Mobile phones
  • Tablets
  • Computers

Producing a document would include allowing officers to inspect it and to take extracts. Simply letting you have a brief look at it is not sufficient to comply with the notice. You are entitled to examine the document and take extracts from it.

Information:

MLR 2017 does not define ‘specified information’ or ‘information of a specified description’ for the purpose of regulation 66 and there is no judicial authority on the term in the context of MLR 2017.

Given its ordinary and literal meaning, information means “knowledge” or “facts”. A court is therefore likely to apply a broad meaning to the word ‘information’.However, such information must be reasonably required and be specified in the notice.

SARs:

Regulation 66 includes a specific power (since 1 September 2022) allowing HMRC to require that copies of suspicious activity disclosures made to the NCA are provided.

 Specified or Specified Description: In all cases we must be specific and precise when setting out what is required to be submitted.In some cases, we will know exactly what document we require, e.g. copies of enhanced due diligence documents relating to specific transactions, this would be a ‘specified’ document’. In some cases, we would be looking for something more generic, e.g. ‘records of AML training for all relevant staff for a specific period’, this would be a ‘specified description’.

Attend a meeting to answer questions: In some cases, it may be appropriate to require a person to attend a meeting with an officer. This may be at the business’s premises, at an HMRC office, or the office of another authority (e.g. NCA, trading standards or police). The regulation 66 notice should specify the time, date and place and explain the rationale for requiring attendance.


Once the regulation 66 notice has been provided, the person must act and respond in the way specified in the regulation 66 notice by attending an interview or providing the information or documents that an officer has requested, by the date and time specified.


In respect of information recorded on a computer or other storage device, regulation 66(6)(a) allows HMRC to require the person to produce the information in a visible and legible form.

By virtue of regulation 66(6)(b), we may also require information to be provided in such a form as we may reasonably require. For example, we may require certified translations of any documents or information not originally in English if this is reasonably required. We would expect information and documents to be submitted through use of the email or Dropbox protocol.

 

What to do if a business says a document does not exist or they don’t have it?

It is reasonable for us to expect a business to be in possession of information and documents that are required under MLR 2017 for example, a regulation 18 risk assessment. As such we can issue a regulation 66 notice on the basis that we expect the business to have the documents we specify. However, there may be circumstances where we request a document, and the business tells us that the document requested either does not exist or is not in their possession (nor the possession of any connected person or third person). In such cases, we can no longer rely on regulation 66 powers and the officer needs to consider what other powers can be used.

For example:

You issue a regulation 66 notice to require a copy of documents including the regulation 18 risk assessment. Subsequently the business says that it has not documented the risk assessment yet but is in the process of doing so. While failure to comply with a regulation 66 notice would normally result in a type 4 penalty for failing to provide the ‘document’, in this case you could not do so, as the document does not exist. However, you may consider a type 1 penalty for a breach of regulation 18 is appropriate for failure to comply with a relevant requirement and/or prohibition or suspension.

 

Lien

Regulation 66 (7)MLR 2017 specifies that the production of a document does not affect any lien which a person has on the document.

A lien is usually used in debt recovery to stop a person from being able to sell their goods or property until the debt is settled. The purpose of regulation 66(7) is to explain that the production of a document by a business (or any other person) under regulation 66 does not affect any lien which a person has on the document.


Non-compliance

If the business states that the documents requested attract legal professional privilege (LPP) and therefore will not produce or provide what has been requested, you should refer to the guidance at ECSH110250.

Where a business or individual does not comply the regulation 66 notice, and does provide what has been required within the period specified, or only provides part of it, or if they fail to attend before an officer to answer questions when required, and they have given an acceptable reason for this an officer should consider extending the deadline or re-arrange the interview. The compliance history, and level of cooperation shown by the person are essential elements in deciding whether any extension is granted, and whether any reasons given are acceptable.

Failure to comply with a regulation 66 notice, in whole or part, may lead to type 4 penalties being imposed under regulation 76 MLR 2017.  Type 4 penalties consist of an initial penalty, followed by a daily penalty up to 30 days and a final penalty. The continued failure to comply with the regulation 66 notice may lead to further sanctions being considered such as suspension or cancellation of the registration.  The failure to comply with a regulation 66 notice is a criminal offence for the purposes of regulation 86 MLR 2017.  

Depending on the behaviours, compliance history, and any intelligence held, failure to comply with a regulation 66 notice could alternatively, or in conjunction with a penalty, lead to:

  • Use of powers of entry without a warrant under regulation 69 to inspect documents, information and cash and take copies or extracts of information and documents. See ECSH73000.
  • Entry with a warrant under regulation 70 which will allow an officer to search for, and seize, or take copies and/or extracts of documents and/or information and to inspect cash. See ECSH73500.