The European Union’s Fourth Anti-Money Laundering Directive (EU4MLD) has been implemented into UK law as of 26th June 2017. Relevant legislation includes the Money Laundering Regulations, Policing and Crime Act and the Proceeds of Crime Act. The directive includes fundamental changes to AML procedures at law firms, including changes to Customer Due Diligence (CDD) and a strong focus on risk assessments.
What is changing?
Under EU3MLD and the current Money Laundering Regulations, firms could automatically apply simplified CDD under certain circumstances. Under the new regulations, firms will be able to use these circumstances as a partial justification for simplified CDD only after conducting a documented risk assessment.
Exemption from enhanced CDD is no longer automatic, a decision to apply simplified CDD will need to be evidenced by a documented risk assessment and include PEP and Financial Sanctions screening. Local politically-exposed persons (PEPs) must now be identified and will be subject to the same scrutiny as foreign PEPs. The regulations direct firms to develop risk-based policies, and practitioners to conduct client risk assessments as a part of their CDD.
UK regulations already incorporate a risk-based approach, but the new directive goes considerably further requiring documented client risk assessments.
For law firms this will mean:
• Demonstrating that risk assessments are conducted and kept up-to date, including; clients, countries or geographic areas, products, services, relationships, transactions or delivery channels.
• Policies and procedures that take the firm’s risk assessment into consideration.
• Testing of the internal policies, controls and procedures.
• Training staff in conducting Risk Assessments, CDD and ongoing due-diligence.
• Compliance reporting, electronic and hard copy records management.
Law firms with majority-owned subsidiaries in other countries where the minimum AML requirements are not as stringent, must also implement the same procedures with the subsidiaries.
Additionally, for all businesses, CDD will be required when trading goods in cash with a value over €10,000 (rather than €15,000).
What can law firms do to prepare?
• Review existing providers of CDD services for compliance with the new regulations.
• Review integrating AML risk assessment and compliance systems to reduce costs, streamline and unify your procedures firm wide.
• Implement staff training.
• Money laundering reporting officers (MLROs) should;
• Policies should be reviewed and approved by senior management.
With thanks to Greg Roach, Director of Searches Group Limited