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New draft regulation enshrines the risk based approach

New draft regulation enshrines the risk based approach

Update on the HM Treasury consultation covering Money Laundering and Terrorist Financing Regulations.



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Money Laundering

HM Treasury has published its consultation on the new Money Laundering and Terrorist Financing Regulations (the ‘Regulation’), which will take effect from this summer.  What can we learn from the proposed changes?

Focus on anti-money laundering risk assessments

The current regulations (Money Laundering Regulations 2007) may refer to risk assessment once, but the new regulation puts it at the heart of the Anti-Money laundering (AML) and Counter-Terrorist Financing (CTF) process. It details how risk assessments should be performed and how they can be used to drive an effective risk based approach (RBA). 

A documented and justified RBA will allow you to tailor your approach to due diligence and ensure proportionality to AML/CTF risks faced. This can include:

  • Simplified due diligence (‘SDD’) for instances where AML/CTF risks are low. The monetary thresholds in the old regulations have gone.
  • Proportionate enhanced due diligence (‘EDD’) for Politically Exposed Persons (‘PEPs’) and Correspondent Banking relationships presenting the highest AML/CTF risks.

Help is at hand

  • To assist firms, HM Treasury and Home Office will issue a new National Risk Assessment by 28th June 2018, with each supervisor assessing and reporting on the AML/CTF risks in the sectors and businesses they supervise.
  • Those sectors which historically had less guidance should also benefit from the creation of a new body, the Office for Professional Body Anti-Money Laundering Supervision (‘OPBAS’), which will ensure consistent standards across supervisors and that guidance is readily available.
  • In addition, professional bodies such as Estate Agents can apply to act as supervisors for their members under control of OPBAS, ensuring consistency in the application of the Regulation in practice.

What does this mean for you?

  • Overall, the Regulation aims to improve flexibility and empower you to decide on a risk mitigation approach that works best for you.
  • Reading the Regulation in conjunction with the Government’s Cutting Red Tape Review of AML and CTF regime report (published 16 March 2017), there is clearly a focus on making AML/CTF risk mitigation more efficient, risk based and responsive.
  • That said, you will need to be diligent in how you determine the right approach and ensuring a robust risk assessment process is the first step to doing that.
  • Such risk assessments should cover risks from your customers, countries, products/services, transactions and delivery channels at the very least. They should support the use of a RBA by justifying the decisions on when to apply SDD and also how to apply proportionate EDD for PEPs; which can help improve operational excellence overall.

For further details regarding the proposed changes by the Regulation and what it could mean for you, please contact Rob Cutler - Partner and Head of Financial Services Forensic at KPMG in the UK. 

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