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Summer of consultations – read our responses

19 October 2011

As reported in the August anti-money laundering update, consultations are taking place across government on standards and laws which underpin the anti-money laundering regime, here in the UK and across the world.

We outline our key representations to these consultations below: 

HM Treasury consultation on the Money Laundering Regulations

HM Treasury are currently considering the responses to their consultation on the Money Laundering Regulations 2007.

Most of the questions within the consultation looked at ensuring that the government supervisors, such as HM Revenues and Customs and the Office of Fair Trading had sufficient regulatory powers to discharge their role. The Law Society has supported the proposal that they should have the same powers to regulate money service bureaux, consumer credit financial institutions, estate agents and trust and company service providers, for money laundering as the Solicitors Regulation Authority (SRA) has when supervising solicitors.

The other important and controversial consultation question is on whether to remove the criminal sanctions for a breach of the Regulations. The Law Society is encouraging the government to be more proportionate in their application of the Regulations. We fully support the retention of the know your customer (KYC) requirements. However, we have suggested that removing criminal sanctions for failure to get the right due diligence documents may help encourage all firms in the regulated sector to take a balanced approach in applying these requirements to all their clients, most of whom are law abiding individuals and businesses.

We support strong regulatory sanctions for those who commit serious breaches of the regulations and possible de-registration for those who repeatedly refuse to comply with the regulations.

One further reason we have for suggesting the removal of the criminal sanctions is that a regulated entity who tries to do the right thing under the regulations, but makes a mistake, will, as currently drafted have saved money as a result of a 'crime'. This means they will now be a money launderer and should be subject to reports to the serious organised crime agency.

FATF consultation on the 40+9 standards

The Financial Action Taskforce (FATF) has completed the second stage of its public consultation process as it reviews the international standards which set the framework for anti-money laundering and counter-terrorist financing regulation. We anticipate the new standards being released in February 2012. This phase of the consultation focused extensively on beneficial ownership requirements.

The Law Society supports the continuation of the existing beneficial ownership requirements at FATF level, albeit with an increased focus on the existing risk based approach. We have strongly encouraged FATF to take steps to ensure that non-compliant or partially complaint countries, follow the UK's example and require all states to have basic company registers and to properly regulate trust and company service providers.

The Law Society has strongly argued against requirements for all nominee shareholdings and all trusts to be listed on a public register. We believe there are many legitimate and lawful reasons why shares may be held by nominees and for people to make use of trusts in their private financial arrangements. The current evidence provided by FATF of the occasional criminal abuse of trusts and nominee shareholdings is not sufficient as to warrant such a wholesale violation of the fundamental right to privacy as the proposals would achieve.

FSA consultation on the Financial Crime Guide

The Law Society has generally welcomed the draft Financial Crime Guide published by the Financial Services Authority (FSA). We believe that the inclusion of questions which firms should ask themselves in assessing their own policies and procedures will greatly assist in embedding the risk-based approach to compliance. This in turn should help firms to develop cost effective and proportionate responses to the risks that they actually face from financial crime.