Trowers & Hamlins update on new regulations and advise that providers of affordable housing should update their anti-money laundering personnel, policies and procedures to ensure compliance.
4 July 2017
The Government enacted the Money Laundering Regulations 2017 on 26 June 2017. Changes made by the regulations to the pre-existing rules significantly affect the way that providers of affordable housing must carry out anti-money laundering (AML) checks.
The changes reflect the greater emphasis in the EU's 4th Money Laundering Directive, which the 2017 regulations implement, on a risk-based approach. Key changes include:
- New roles. Organisations must appoint a board member with responsibility for compliance with the regulations. It appears this person must be different from the existing Money Laundering Reporting Officer. Organisations must screen employees involved in AML compliance and provide them with regular training. They must also establish an independent audit function to monitor compliance.
- Risk assessments. It will be necessary to undertake organisation-wide AML risk assessments. It will also be necessary to undertake individual risk assessments for each new customer and transaction.
- More onerous customer due diligence. The customer due diligence documentation required will be more onerous. Simplified due diligence will apply more rarely. Politically exposed persons (PEPs) will now include UK government officials as well as overseas officials, meaning public sector transactions will be subject to greater scrutiny.
- Trusts. Trustees will need to be ready to provide details for a new register of beneficial owners of trusts. Beneficial owners are likely to include a trust's settlor, trustees, protector and beneficiaries.
Providers of affordable housing should update their AML personnel, policies and procedures to ensure compliance with the new regulations and be aware of newly introduced sanctions.
It will be important for providers to consider risk factors specific to their own businesses. In general terms, property is seen as a relatively high risk sector. This is likely to inform risk assessments across the housing sector.
Particular issues can arise where social housing tenants exercise Right to Buy. In those circumstances, providers should not rely on purchasers' solicitors carrying out AML checks. They need to carry out their own risk assessment, factoring in what is known about a tenant's financial circumstances.
Another difficult area can be rent arrears, where tenants may produce large sums at short notice to avoid eviction. Counter-parties to commercial property deals should also be scrutinised, especially where they feature complex corporate structures and non UK-entities.
For further information please contact Ned Beale (firstname.lastname@example.org, 020 7423 8357).