On 10 January 2020, the Fifth Money Laundering Directive (5MLD) was implemented in the UK via The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 [http://www.legislation.gov.uk/uksi/2019/1511/contents/made]. While not as profound a set of changes as came in with 4MLD, by now regulated financial institutions should have updated their customer due diligence (CDD) procedures in the following areas:
A. NO MORE SIMPLIFIED DUE DILIGENCE
All customers that are bodies corporate must be identified and identification as an authorised firm or listed on a regulated market is no longer sufficient. Identification involves gathering information on management and beneficial owners, and there are new requirements in relation to the latter that go beyond 4MLD’s reasonable efforts standards that firms dealing with customers with complex or opaque ownership structures will need to consider from a procedural point of view.
B. CDD FOR NEW RELATIONSHIPS WITH COMPANIES, TRUSTS OR OTHER LEGAL ENTITIES SUBJECT TO BENEFICIAL OWNERSHIP REGISTRATION REQUIREMENT
Proof of registration on the relevant register must be obtained and retained. Firms that deal with trusts will need to deal with issues that arise as a result of the Trust Registration Service register’s non-public status.
C. REPORTING DISCREPANCIES
Firms are now required to report discrepancies between beneficial ownership information they have on file and information on beneficial ownership they obtain from register searches. Again, policies and procedures should include internal notification and reporting systems.
D. ENHANCED DUE DILIGENCE
Six enhanced due diligence measures are now prescribed in the legislation and must be applied when a transaction involves a customer established in a high risk country, or the transaction is one that involves one or more of three stipulated risk features. None of these requirements will cause radical change for firms, but there are subtle differences from the predecessor legislation, and the new stipulated measures will have to be reflected in written policies.
E. REFRESHING CDD
In addition to the existing requirement to refresh CDD on an appropriate risk-sensitive basis, firms will now be required to refresh on the occurrence of either of two bases involving extraneous legal requirements. Again, policies on the obligation to refresh should be updated.