The Fifth Money Laundering Directive (5AMLD) will be introduced on 10th January 2020 where it will attempt to tackle head on the issues of money laundering.
The 5th Directive will affect those practitioners who carry out regulated work and firms will need to update their Anti-Money Laundering (AML) policies, controls and procedures to ensure they comply with the changes to the Money Laundering Regulations.
The 5AMLD will be addressing any weaknesses that came to light since the introduction of the Fourth Money Laundering Directive on 26th June 2017.
Law firms have been continually improving their processes in regard to anti-money laundering procedures but many regulatory findings have suggested that non-compliance is still a critical issue in the legal sector.
In 2017, 152 reports of money laundering allegations were made against SRA regulated law firms. Unfortunately, this increased to 218 between January and September last year. The findings were released as part of the Upholding Professional Standards 2017/18 report.
Furthermore, in May, 26 SRA regulated firms out of 59 law firms providing trust and company services were placed into the SRA’s disciplinary process for inadequate money laundering procedures. The review in May focused on the creation and administration of trusts and companies on behalf of clients, an area of law the Government deemed to be at most significant risk of money laundering as criminals look to exploit the system and launder their ill-gotten gains.
At the LFS Conference in September this year, Chris Handford, director of regulatory policy at SRA confirmed that they were still seeing high levels of non-compliance in Anti-Money Laundering Regulations. As a result, supervision and enforcement activity had increased and reiterated that new regulations were on their way. While, the Council for Licensed conveyancers stated at the conference that Brexit, Cyber Crime and fraud/money laundering were the top risks for businesses going forward in the next 12 months.
With only a month to go until the 5AMLD comes into force, superseding the Money Laundering Regulations from 2017, compliance professionals address what it will mean for legal practitioners.
Colette Best, Director of anti-money laundering at Solicitors Regulation Authority said:
“We saw major changes to the money laundering regulations in 2017, but the 5th directive refines rather than reforms the law in this area. That said, we are still seeing firms that are still to get to grips with the changes from two years ago, for example the changes to politically exposed persons (PEPs) or the requirement to have a written firm-wide risk assessment in place.
“We are doing a lot of work to make sure everyone in the sector understands and complies with their current obligations. And highlighting the changes that are coming.
“We expect the new regulations to come into force on 10 January 2020, and with the election looming we are again in the position, as we were in 2017, of having a very short lead-in time between the regulations being published and coming into force.
“We will see new requirements to encourage transparency of ownership, to report discrepancies at Companies House and to register trusts.
“There will also be changes to our regulatory processes. There will be a new requirement for us to seek evidence that anyone applying to be a Beneficial Owners, Officers or Managers (BOOMs) doesn’t have a criminal conviction that would prevent them from holding the role. When the new regulations come into force, anyone seeking approval to become a BOOM for the first time, or moving firm, will need to get a DBS check and provide it to us. It won’t affect those who are already in this role in a firm.
“Keep an eye out for the new regulations in the run-up to Christmas, and make sure you have a plan to implement the changes to your policies, procedures and controls.
Olly Thornton-Berry, Director of Thirdfort said:
“We are pleased to see that the Money Laundering Regulations are being updated to include electronic identification as a way to verify client identity.”
He added:
“The legal industry, particularly conveyancing, has been identified as at risk of money laundering due to the large sums which can be moved by criminals in a single transaction. Therefore, effective client due diligence is critical to ensure fraudsters are discovered early on.
“Although electronic ID checks are a step away from tradition, technology can provide a more robust and reliable way to verify client identity. Numerous studies show that technology is better at spotting fake documents than human review alone and its ability to also match the user to the document means conveyancers using the technology can be sure that both the document is authentic and that their client is the true owner of it, preventing Dreamvar like events of identity fraud.
“At Thirdfort we have found that our customers who use digital identification feel they have a much better process in place for spotting fake documents. An additional benefit is that their clients can complete the checks remotely, offering much quicker and smoother client onboarding, reducing administration time and allowing conveyancers to progress the transaction.
“The explicit addition of electronic identification to 5MLD reflects the trend towards digital onboarding, which we are seeing in industries such as banking, and the appetite for structured guidance as uptake of this technology increases. We hope the Regulations encourage adoption of electronic identification technologies to help the legal and conveyancing industry deter and detect bad actors and help protect both firms and their clients from unlawful, criminal activity. “
Brian Rogers, Regulatory Director and head of content & thought leadership at Riliance further commented:
“The 5th AMLD is coming in January 2020, but it won’t have much impact on most law firms and conveyancing businesses, but that does not mean these organisations are out of the woods!
“Many firms still have a long way to go in order to be compliant with the 4th AMLD, and the SRA’s report on its most recent AML thematic review is proof of this, which is why it is now contacting all 7,000 law firms covered by the Money Laundering Regulations to check on their AML compliance levels.
“Key areas for firms to focus on include:
- Completion of a firm-wide risk assessment that takes account of a firm’s potential exposure to money laundering
- Having effective AML policies in place that are policed and enforced
- Completion of individual case-based risk assessments
- Appropriate due diligence on all clients
- Providing all staff with AML training
- Ensuring the quality of information provided in Suspicious Activity Reports (SAR) is sufficient for the NCA to make a decision at to whether a defence should be granted
- Ensuring that risks are properly assessed in relation to sanctions, PEPs, Proceeds of Crime
“Regulators have this topic on their radar so inaction is not an option!”
