Consultation on 4MLD and Fund Transfer Regulation Implementation (DEPP and EG) 17/10

20th June 2017

The FCA recently published a Consultation paper updating on 4MLD and the FTR’s regulation on the EU’s framework on anti-money laundering. MLR2017 is set to be implemented on 26 June 2017 replacing the Money Laundering regulations 2007 (MLR2007) and the Transfer of Funds (Information on the Payer) Regulations 2007 (TFR2007). The regulation aims to meet international standards set by the Financial Action Taskforce.

The objective of the new Regulations is to ensure that the UK’s and EU’s approach to Money Laundering and potential Terrorist Financing is up to date, effective and proportionate thus increasing customer trust and ensuring non- criminal conduct of business.

Key features of the consultation:

  • Outline of procedures which will need to be undertaken in order to prevent or detect money laundering and counter terrorist funding
  • A projection of the proposed changes to the DEPP and EG
  • A clarification on which factors are taken into consideration when considering implementation

Function of MLR2017

MLR2017 requires firms to undertake a broad assessment of the money laundering/terrorist financing risks that a firm face when dealing with clients. Such approach includes a risk-based approach by applying due diligence which will fluctuate in intensity depending on the client being dealt with.

Firms will be required to monitor their customers’ transactions and intervene when there is suspicion of any dubious activity. It also gives AML supervisors more power to deal with failure to comply to the regulations set in place.

MLR2017 has also specified further requirements in FTR on how payment service providers should handle cross border wire transfers. This will be done by collecting information on wire transfer payers and beneficiaries, and ensuring any information regarding a wire transfer is not incomplete.

Firms affected by 4MLD and FTR

The FCA’s proposals will be of particular interest to any persons who fall under the supervision of FCA rules and regulations. These include but are not limited to:

  • Banks and other credit institutions
  • Building societies
  • Wealth management firms
  • Investment managers
  • Auction platforms

Amendments to EG on applying its penalty policy

Regulation 74 MLR2017

FCA proposes changes to EG19.15.5 only, in order to show that their policy, when determining the level of financial penalty under regulation 74 MLR2017 includes having regard to the relevant factors in DEPP 6.2.1 and DEPP 6.5 to DEPP 6.5D. A number of factors include but are not limited to:

  • Nature, seriousness and impact of suspected breach
  • The conduct of the person following the breach
  • Previous disciplinary record and compliance history of the person
  • Whether the person in question has benefited from the breach
  • Whether the penalty imposed deters the firm from further committing a subsequent breach

Regulation 75 & 76 MLR2017

Allocation of power to cancel, suspend or restrict an authorisation or registration of an authorised person or payment service provider.

FCA will have power to temporarily or permanently prohibit an officer responsible for any contravention from holding a management role at a relevant person or payment service provider.

FCA proposes to insert a new provision, EG.15.5A, which will have regard to the factors listed in DEPP 6A when determining the course of action with regards to an authorisation or registration under 75 MLR2017, and when determining the duration of a prohibition under regulation 76 MLR2017.

Regulation 74, 75 & 76 MLR2017

The FCA propose to amend EG 19.15.6 which would clarify the function of the settlement discount regime under regulations 74, 75 & 76 MLR2017.

Amendment to DEPP and EG on decision making

Amendments to DEPP 2 Annex 1G and EG 19.15.3 have been proposed which will give the FCA new powers under MLR2017 to manage the risk of money laundering and terrorist financing effectively. The following decision making process has been proposed:

  • Under regulation 25 MLR2017 the RDC will decide whether or not to give a notice
  • Under regulation 58 MLR2017 FCA staff or the RDC will decide whether or not to give a notice proposing the refusal of an application for registration
  • Under regulation 58 MLR2017 FCA staff or the RDC will decide whether or not to give a notice proposing to cancel a person’s registration
  • The decision to give a notice invoking the powers under regulation 74, 75 & 76 MLR2017 will be taken by the RDC

Additional amendments to DEPP and EG

  • Amending the references to the ‘Money Laundering Regulations 2007’ in DEPP
  • Amending EG 19.14.3, 19.14.5 and 19.15.2 reflecting the expanded enforcement toolkit
  • Amending EG 19.15.2 and DEPP 2 Annex 1G and deleting EG 19.15.4 indicating the course of action which will be taken when proposing the imposition of a civil penalty
  • Amending EG 19.15.5 clarifying the procedure when deciding whether a person has failed to comply with a requirement of MLR2017
  • Deleting EG 19.16 to reflect the replacement of TFR2007 by MLR2017

Assessment of the effectiveness of new rules

By law (section 138I FSMA), the FCA must publish a cost benefit analysis (CBA) along with any proposed rules. The idea being supported by the obligation that any proposed rule should benefit the FCA and firms by ensuring that the UK’s Anti-Money Laundering and Counter Terrorist Financing regime is up to date, effective and proportionate.

Adherence with FCA’s general duties

The FCA believes the proposals set out in the CP have met their obligations contained in 1B of FSMA. The widening of the range of powers given to supervisors of the regulatory environment ensure that compliance will be increasingly more straightforward and are compatible with regards to the strategic objective, the advancement of its operational objectives and effective promotion of competition and trust in the interests of its consumers.

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