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Draft Money Laundering Regulation is coming

Wednesday 31 May 2017

The UK Government are due to implement new rules on anti-money laundering, which are to come into force on 26 June 2017.

The draft regulations, which will transpose the EU's Fourth Money Laundering Directive, will alter the approach to customer due diligence, seek to prevent new means of terrorist financing including through e-money and prepaid cards, improve transparency of beneficial ownership of companies and trusts, and effectively enforce sanctions.

These International standards will ensure that there are controls and procedures in place to combat the risk of money laundering and terrorist financing across a number of sectors including estate agency.

Our sector and others are covered by European measures, and in 2015 the European Parliament agreed the Fourth Money Laundering Directive. Under the decision making process all European Union Member States, including the UK, were given two years to transpose the requirements into national law.

Importantly, EU Member States have been given the discretion to make decisions on certain aspects of the Directive, and in March 2017 the UK Government published and consulted on draft Money Laundering Regulations.

The Government’s final policy decisions must be implemented through legislation to come into force by 26 June 2017.

What is being proposed and what does this mean for you?

The application of the Money Laundering Regulations will not be extended to include lettings activity. However, where letting agents carry out estate agency work in accordance with the Estate Agents Act 1979 they will need to register. Despite NAEA Propertymark’s belief that lettings activity should be covered, the Government has said that there was a lack of evidence provided to justify the inclusion of lettings activity.

An estate agent is to be considered as entering into a business relationship with a purchaser as well with as a seller. This means that estate agency businesses must apply customer due diligence to both contracting parties in a transaction.

Businesses will be permitted to rely on the due diligence carried out by any business subject to the regulations, while still holding ultimate responsibility for meeting the client due diligence requirements. This is relevant for sub-agents and on the issue of reliance and record keeping.

Under the rules, EU Member States must hold adequate, accurate and current information on the beneficial ownership of corporate and other legal entities incorporated within their territory in a central register. The UK has already legislated to require transparency of the beneficial ownership of UK companies and recently consulted on the matter.

For High Value Dealers (any business or sole trader that receives high value cash payments in exchange for goods) the threshold over which persons accepting cash payments for goods have to conduct customer due diligence, has been reduced from 15,000 euros to 10,000 euros. 

EU Referendum

Despite the UK’s decision to leave the EU on 23 June, the Government have confirmed that until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force.

General Election

The domestic implementation of these new anti-money laundering provisions involves an incredibly tight schedule. On 12 April this year the UK government ended its consultation on the draft regulations on tackling money laundering. There is currently no date for when the final version of these regulations will be issued, but we do know that they will be in force by 26 June this year.

What should you do?

Ensure you are fully compliant with the current rules – such as the requirement for a nominated person within your business to act as a Money Laundering Reporting Officer:

  • Do you fully understand the new rules and how will your business be affected by the changes?
  • Are senior staff aware of the impact of the new Directive?
  • Is addition staff training required?
  • How will your business take a more risk-based approach? 

What are we doing?

NAEA Propertymark has met with HMRC and expressed concerns to the Treasury about the need for clarification on when a business relationship starts.

We have pushed HMRC to define ‘purchaser’ and are awaiting further guidance on this. We understand that customer due diligence should be done when an offer has been accepted and before the agency issues the memorandum of sale. Any earlier, such as at the point of an offer is made, would interfere with agents’ legal obligation to pass the offer to the vendor for consideration.

NAEA Propertymark will provide updated guidance as soon as the final regulation has been released, and will be hosting a series of events across the country, covering the latest developments and bringing you the most up-to-date information.

Our Financial Crime Update is run throughout the year, and brings you the latest in changes to the supervisory arrangements for estate agents.

You can also keep up-to-date on financial compliance updates by attending one of our NAEA Propertymark Masterclasses.