Author: Nicola Sharp
9 March 2023
2 min read
Nicola Sharp of Rahman Ravelli outlines forthcoming increased compliance obligations being placed on the regulated sector.
The pending changes to the 2017 Money Laundering Regulations (MLRs) are set to create more compliance requirements on a range of regulated companies. Such companies need to be aware of both the changes that are being introduced and their implications.
On 21 July 2022, HM Treasury published the Money Laundering and Terrorist Financing (Amendment) (No 2) Regulations 2022. These (referred to from here onwards as Amendment No 2) made a number of changes to the MLRs, most notably in relation to crypto assets. But parts of Amendment No 2 will have a significant effect on other, more “traditional’, businesses.
From 1 April 2023, Amendment No 2 compels businesses subject to the MLRs to comply with checks relating to the newly-created register of overseas entities (ROE) at Companies House.
Obliged entities will have to obtain proof of registration for certain overseas entities on the ROE, which records beneficial ownership of UK property. They will also have to report any "material" discrepancies. These include an incorrect name, date of birth, nationality or correspondence address, and missing or incorrect entries for a person of significant control or beneficial owner.
Introduced on 1 August 2022 under the Economic Crime (Transparency and Enforcement) Act, the ROE requires every overseas entity with a freehold over UK land, or a seven-year or longer lease on UK land, to register with it and provide details of persons of significant control, including beneficial owners who hold more than 25% of the shares or voting rights.
The Amendment No 2 requirements are in addition to the obligations that already exist to obtain proof of registration on the register of persons of significant control and proof of registration on the Trust Registration Service (TRS), which also require the reporting of material discrepancies. It should also be noted that the obligation to report material discrepancies will apply on an ongoing basis. Previously, this was only required before a relationship was established.
These obligations are significant. They represent a huge change to the levels of customer due diligence expected of the regulated sector – and to the basis of any relationship a company in that sector has with relevant overseas entities. Non-compliance with these obligations can lead to a fine or even imprisonment.
This represents a challenge, given that companies in the regulated sector will have to meet these obligations at a time when they will also need to manage the introduction of extended customer due diligence (CDD) requirements relating to trust structures. From 1 September 2022, entities subject to the MLRs have had to check the TRS register as part of new customer onboarding processes. Yet from 1 April 2023, this will be extended to cover ongoing CDD checks on all existing business relationships with relevant trusts. This is a move that may impose a greater compliance burden involving thousands of trust customers; many of whom will represent a low money laundering risk.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.