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Fourth Money Laundering Directive – What does this mean for law firms?

by LegalinX-7Side | May 09, 2017

The EU’s Fourth Money Laundering Directive deadline is fast approaching on the 26th June 2017 and will see the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 in the UK.

As a world leader in the fight against corruption and financial crime, the UK government has already introduced the People with Significant Control Register as part of the Small Business, Enterprise and Employment Act 2015 to improve corporate transparency.  The objectives of the Directive must be met, even though the UK has already voted to leave the EU, we still remain a full member until exit negotiations are concluded and all the right and obligations of EU membership remain in force.

How will the new regulation affect law firms?

Customer Due Diligence (CDD) requirements will be changing and should be undertaken when trading goods in cash over the value of €10,000.  Automatic exemption from enhanced CDD will be abolished, in order to apply simplified CDD documentation will now be required to support the decision, such as a risk analysis.  The changes also mean that law firms and banks who use pooled client accounts will no longer be able to apply simplified due diligence to them.

The key message of this Directive is to take a risk-based approach to anti-money laundering through the introduction of national risk assessments and risk-based policies.  As a high risk target for money laundering, law firms will be required to have policies in place for documenting and maintaining risk assessments.  It will be necessary for training on how risk-based CDD can be undertaken and written policies and procedures put in place, with internal auditing of these if required.

As part of Article 30 of the Directive, law firms will be required to maintain accurate and current information on beneficial ownership which will be kept in a central register, possibly the PSC register, accessible in all cases to competent authorities and Financial Intelligence Units without restriction.  This register will allow for access to this information across Europe, which could make CDD an easier process for law firms

What will law firms need to do?

In the run up to the implementation in June, there are a number of actions law firms will need to take to ensure they are prepared.  Each firm will be required to appoint Money Laundering Reporting Officers (MLROs) whose responsibilities will include:

  • Undertaking an internal risk assessment to understand the Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) risks within the firm.
  • Updating policies in line with the changes to the directive and incorporate the risk assessment
  • Testing procedures put in place through an auditing system

There will also be a requirement for all employees to undertake AML training to become familiar with the changes brought in by the Directive.  They will also need to be aware of how to perform and document risk-based assessment of money laundering and access the beneficial ownership registry.

LegalinX-7Side are hosting an accredited course covering this topic.  Please click the link below for further details.