Charities and internal investigations
The FCA has recently published its proposed guidance on the treatment of politically exposed persons (PEPs) under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Money Laundering Regulations).
This follows a number of recent announcements by the Government in connection with cracking down on money laundering (see our related blog here). Particularly relevant is the launch of its consultation on the Money Laundering Regulations earlier this month, along with the publication of its response on transposing the Fourth Money Laundering Directive (4MLD) and Fund Transfer Regulation (see here). The Money Laundering Regulations aim to transpose 4MLD and give effect to the international standards set by the Financial Action Task Force (FATF) and they are expected to come into force on 26 June 2017. This consultation closes on 12 April of this year.
These new regulations introduce a number of changes, including a requirement on financial services firms to take a proportionate approach to enhanced due diligence measures (EDD) when it comes to assessing PEPs, their family members and known close associates. It requires firms to assess the level of risk associated with a particular person and the extent of the EDD to be applied on a case-by-case basis. The Government has made it clear that it is not acceptable for firms to refuse to establish a business relationship or carry out a transaction solely based on someone’s status as a PEP or being connected to PEPs; instead it expects that those holding politically exposed positions in the UK should generally be treated as lower-risk and that firms should apply EDD accordingly.
The FCA’s new guidance, predominantly aimed at regulated firms and financial institutions, provides clarity on what indicators may suggest a PEP (and/or their family members and/or known close associates) pose a lower or higher risk; it considers that a PEP’s geographical location and personal and professional characteristics can impact this. It outlines what measures firms may take in terms of establishing whether a customer is a PEP as well as in identifying the source of their wealth and funds. It differentiates between what is acceptable in lower versus higher risk situations and suggests that those who pose a lower risk should be subject to less scrutiny. For example, whilst the new regulations may stipulate that a PEP should be treated as such for a minimum of 12 months after leaving office, the FCA advises that it will not normally be necessary to do so for longer than this in lower risk situations and encourages firms to cease applying any enhanced measures to their family and close associates when a PEP has left office.
Clearer guidance on such matters is always welcome and is particularly timely in light of the anticipated introduction of the new regulations. The FCA is seeking for views on the impact of this guidance from those affected by 18 April 2017: see here for the full consultation.
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