Treatment of pooled client accounts under the Money Laundering Regulations 2017
Under the Money Laundering Regulations 2007, pooled client accounts (PCAs) were automatically subject to simplified due diligence (SDD) by banks.
The Money Laundering Regulations 2017 mean that PCAs are now subject to SDD only if the bank assesses its business relationship with a law firm as 'low risk'.
Banks may therefore require their business partners to provide evidence of the low risk nature of financial relationships.
In practice, for activities regulated under the Money Laundering Regulations (MLR) this may mean providing confirmation of the existence of an internal risk assessment, policies, controls and procedures, or evidence of appropriate risk-based due diligence.
It is harder to predict how and whether different banks might seek proof of ‘low risk’ relationships for activities not regulated under the MLR, such as litigation.
By omitting these activities from the Regulations, the UK government has implicitly recognised that such activities are inherently low risk for money laundering. Furthermore, the Solicitors’ Accounts Rules state only that PCAs are not be used as banking facilities and that all payments into a PCA must carry an underlying transaction.
Nonetheless, in the short-term some banks may request additional information, for example on the types of identity checks conducted on all clients (including clients in unregulated activities), to satisfy their own risk appetites and the requirements set out in various European guidelines for the banking sector.