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End of transition period guidance: anti-money laundering
This guidance sets out the implications from the end of the Brexit transition period in the field of anti-money laundering (AML) compliance.
- for UK law firms and lawyers responsible for ensuring AML compliance
- regardless of whether a future relationship agreement is ratified by the UK and EU
The post-2020 outlook
Once the UK exits the transition period at the end of 2020, solicitors should be aware of the following points:
Third country entities
Under the Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019, the definition of a ‘third country’ becomes a country outside the UK, as opposed to outside the EEA.
EU nationals/clients will consequently become third-country entities for the purposes of AML compliance.
Transactions and business relationships involving EU nationals/clients should be subject to third country considerations and criteria.
For example, an EU customer seeking residence rights or citizenship in exchange for transfers of capital, purchase of a property, governments bonds or investment in corporate entities, is a ‘customer risk factor’ to be considered in respect of compliance with regulation 33 (obligations to apply enhanced due diligence).
Changes to the AML framework
There is not expected to be any immediate change to the AML framework for the UK.
The UK transposed the 5th Anti-Money Laundering Directive into UK law and the government has not announced to date any proposal to deviate from those standards/requirements as of 1 January 2021.
Further, while the UK has opted out of transposing the 6th Anti-Money Laundering Directive, due by 13 December 2020, this is primarily due to the fact that many of its requirements are already covered by existing UK law.
One exception is the proposed new offence of corporate liability, where the UK government has announced a secondary review to be taken forward by the Law Commission.
Financial Action Taskforce
The UK will continue to be a member of the Financial Action Taskforce (FATF) and is expected to continue to follow, if not exceed, its guidelines and recommendations on global standards.
The UK became a member of the FATF in 1990.
In the event that there is a future relationship agreement between the EU and UK, it’s possible that it will include non-regression clauses in relation to AML standards.
The draft EU legal text contained proposals which would affirm the need for regulated entities and trusts to provide information on beneficial ownership, to be publicly available on central registers.
The proposals would also affirm the obligation on entities to take a risk-based approach to customer due diligence, both for new customers and for reviewing existing relationships.
In practice, both of these points reflect the existing UK approach.
Criminal judicial co-operation
Criminal law practitioners should also be aware that AML is specifically listed as one of the offences to be covered by criminal judicial co-operation provisions in both the UK and EU draft legal texts for the future relationship.
In the event of an FTA being concluded, it’s consequently likely that such provisions would be incorporated.
Longer term, we’ll continue to monitor any upcoming regulatory shifts brought forward by the government and work with members on ensuring AML best practice.