ECSH81100 - Regulation18(4) concession
Regulation 18(4) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) requires a relevant business to maintain an up-to-date written record of the steps it has taken to comply with Regulations 18(1) to (3) of MLR 2017 which relate to the requirement for a relevant business to complete a risk assessment.
It also allows a supervisory authority to waive the requirement to keep such a written record, and to give notice to the business of that decision in writing. This is referred to as “the Regulation 18(4) concession”.
Regulation 18(5) states that the supervisory authority may not grant a Regulation 18(4) concession unless it considers that the risks of money laundering and terrorist financing applicable to the sector in which the relevant person operates are clear and understood (by the relevant person).
When can the concession be granted?
The Regulation 18(4) concession should only be granted to businesses who can satisfy all these requirements:
Can demonstrate a thorough and detailed understanding of the money laundering/terrorist financing (MLTF) risk to which they are exposed.
Are small – both in size and number of relevant transactions.
Are sole traders.
Are not working in/with, or are exposed to, any higher risk context or customers.
Are not complex businesses in nature or structure.
Do not handle any cash.
Are businesses of a type whose circumstances and dealings rarely change or vary.
Can demonstrate a good standard of MLR 2017 compliance in all other obligations.
Have not been found to be in breach of the MLR 2017 (unless in very exceptional circumstances details below).
Does not have any unspent convictions for relevant offences under Schedule 3 (where a Beneficial Owner, officer or manager (BOOM) of the business has an unspent conviction for relevant offences under Schedule 3 the BOOM cannot be approved, and any approval granted is automatically invalidated).
Are not new businesses, which have not undertaken a risk assessment and cannot demonstrate a clear and detailed understanding of risk.
No concessions have been granted to date; therefore, all existing supervised businesses should already have a written risk assessment in place in order to be compliant with the MLR 2017.
We should not grant the Regulation 18(4) concession to any business already registered with us which does not have an existing written risk assessment, since this would mean they have been in breach of Regulation 18(4) from at least the date of their registration or 1st January 2018 (when our unofficial “grace period” ended) or the date they began undertaking relevant activity if they started trading after this date. To do otherwise risks granting the Regulation 18(4) concession to businesses which are simply trying to avoid having to do one. However, this should not prevent a newly registered, low-risk, and compliant businesses from seeking a concession under Regulation 18(4).
Larger, more complex businesses, those exposed to higher risk, those who are not sole traders and those with low levels or standards of anti-money laundering (AML) compliance, or a known history of non-compliance in any HMRC regime (in other words not just under the MLR 2017), should not be allowed to benefit from the Regulation 18(4) concession.
In addition:
This should be a concession only used in limited circumstances where businesses meet all the relevant criteria and should only be granted with care.
It should only be granted in response to a formal request by a business (it must not be granted by HMRC on its own initiative).
A business who is or has been carrying out relevant activity but does not have the required written risk assessment should be considered as being in breach of the MLR 2017 unless they can produce written confirmation from HMRC that the concession was granted – and that this can be confirmed by HMRC’s own records.
HMRC should, in writing, withdraw a previously given concession if the businesses’ circumstances change in such a way that any of the criteria listed above no longer apply.
With regards to the qualifying criteria, where a business has previously been warned or sanctioned for not having a written record of their risk assessment, they should not usually be granted a concession under Regulation 18(4).
To what does the concession apply?
The risk assessment referred to in Regulation 18(1), and to which the concession in Regulation 18(4) applies, requires a relevant business to take into account all the elements listed in Regulation 18(2)(a) and (b), and any further factors which the business has considered over and above the Regulation 18(2) lists.
The factors set out in regulation 18(2) that must be taken into account are as follows:
Information made available by HMRC as supervisory authority under Regulations 17(9) and 47.
Risk factors including factors relating to:
Customers of the business.
Countries or geographical areas in which the business operates.
Products or services offered by the business.
Transactions carried out by the business.
Delivery channels used by the business.
If HMRC is concerned that the MLTF risk will be increased by the business not maintaining an up-to-date written record of any of these factors, then the Regulation 18(4) concession should not be granted.
Operational considerations
When writing to inform a business of our decision to grant the concession, we should make clear that they should regularly review whether all the requirements listed above continue to be met. Our letter should explain that if one or more of the requirements is no longer met, the business must immediately re-assess and document its risks, then update policies, controls, and procedures as necessary. They should also write to inform HMRC that the concession is no longer applicable.
When writing to inform a business that we will not be granting the concession, we should make our reasons for that decision clear.
HMRC needs to record which businesses have been granted and refused the Regulation 18(4) concession. Checks need to be undertaken at suitable intervals on businesses which have been granted the concession to ensure that the Regulation 18(4) criteria still apply. We might also wish to consider ‘nudge’ interventions such as occasional emails reminding the business of the importance of reviewing whether the Regulation 18(4) criteria still apply.
HMRC should not, and cannot, impose any form of sanction on a business for failing to keep a written record of risk assessment when the concession has been given.
The decision whether or not to grant a concession is not appealable – Regulation 18(4) decisions are not included in the list of appealable decisions within Regulation 99. Further information on Regulation 99 is available in ECSH64560.
Who should make the decision about whether the concession applies or should be removed?
Whether a business should be granted the Regulation 18(4) concession is an operational decision. Responsibility for the decision should sit with the Grade 7 Compliance Heads, although Risking should also be consulted on the decision.
Similarly, removal of the concession where it has previously been granted is an operational decision, and consideration towards this course of action could be made when the business is unable to demonstrate a sufficient understanding of risk and their own risk assessment. Removal of the concession should be confirmed in writing, and the business from that point will need to revert to maintaining a written record of its risk assessment. A reasonable deadline should be provided for the business to comply with Regulation 18(4) requirements. It is an operational decision as to whether the officer would want to review the risk assessment.
Further information on Regulation 18 is available in ECSH63380.