HM Treasury is consulting interested parties about its draft of a new version of the UK's Money Laundering Regulations. It is also proposing to create a new anti-money-laundering unit under the auspices of the Financial Conduct Authority.

The new Office for Professional Body AML Supervision will work with professional bodies to help, and ensure, firms' compliance with the regulations. In hosting it, the Financial Conduct Authority will keep it at arm's length from its existing supervisory function. It will fund it by levying a new fee on "professional body supervisors," making itself a kind of regulator's regulator. The FCA will consult interested parties about this in due course, with the new body appearing some time early next year. Meanwhile, the Financial Times has reported that the Cabinet Office is undertaking an audit of all the agencies that counter financial crime, including the FCA, the Serious Fraud Office, HM Revenue & Customs, the National Crime Agency and several police forces. The whole flurry of activity is designed to please inspectors from the Financial Action Task Force, the world's AML standard-setter, who will be visiting the UK this year or next. The new body will also try to simplify the plethora of AML rules that apply to different lines of business.

The Treasury consulted the public about the transposition of the European Union's fourth money-laundering directive in September, outlined its plans to implement the directive and also the EU's fund transfer regulation, which accompanies it. The consultative exercise ended in November. A number of key decisions emerged, including:

• a requirement for HMRC to act as the registry authority for all trust and company service providers who are not registered by the FCA or by HMRC itself;
• a decision to keep letting agents inside the scope of the new regulations in cases where they carry out estate agency work in accordance with section 1 Estate Agents Act 1979; and
• a decision not to allow pooled client accounts to be automatically subject to so-called simplified due diligence, but instead for this to be applied on a risk-based approach.

Pooled client accounts

The consultative document asked about the risks relating to pooled client accounts and mitigating actions; the effect of removing simplified due diligence or SDD for pooled client accounts; views on the retention of SDD measures on pooled client accounts; and views on the way in which some European guidelines treat pooled client accounts.

Many respondents argued that pooled client accounts did not pose much risk, both because the funds were overseen by regulated sectors and because checks were carried out on clients before funds were deposited. These respondents also stressed the administrative burdens they would face if they had to make their checks more rigorous, claiming that they would have to perform "duplicative customer due diligence." They also complained that firms large and small found it difficult to hold information about accounts.

Others, however, thought that the risks were as high or low as the quality of the firm in question and that money launderers might exploit pooled client accounts. Examples included the combining of tainted and clean money, or sending money to the account and then reclaiming it, claiming an erroneous transfer. Indeed, some law enforcement agencies in the UK have seen cases where client accounts have been used to provide personal banking facilities to criminals, to move and store large sums of criminal proceeds and to obscure the audit trail of criminal funds.

Given that there was no consensus that pooled client accounts always present a low risk of money laundering, the government view is that such accounts should not be subject to simplified due diligence automatically, but rather on a risk-related basis. The government has therefore included them in the new regulations on that basis.

The closing date for comments to be submitted about the draft regulations is 12 April. The people of the United Kingdom voted to leave the European Union on 23 June last year but until exit negotiations are concluded, the UK remains a full member of that governmental club and all the obligations of EU membership remain in force. During this period the government will continue to obey and indeed extend EU law.

Punishments aplenty

Where there are serious, repeated, or systematic breaches of customer due diligence, reporting obligations, recordkeeping or internal controls, the EU directive calls for at least the following sanctions and measures to be available:

• a public statement identifying the natural or legal person and the nature of the breach;
• an order requiring the natural or legal person to cease the conduct and not repeat it;
• where an obliged entity is subject to an authorisation, withdrawal or suspension of the authorisation
• a temporary ban against any person discharging managerial responsibilities in an obliged entity, or any other natural person, held responsible for the breach, from exercising managerial functions in obliged entities; and
• maximum administrative pecuniary sanctions of at least twice the amount of the benefit derived from the breach, where it can be determined, or at least €1 million.

The regulations provide HMRC and the FCA with the power to impose an appropriate civil penalty on any relevant person as long as they are satisfied that he or it has breached a relevant requirement. When they use this power, they must publish information on the type and nature of the breach and the identity of the natural or legal person whom they have punished.