In Part I, we introduced the basis upon which Money Laundering is founded in the FCA handbook and, specifically, the duties placed on a Firm relating to the identification of its clients. In Part II, we look at the exceptions before then moving on to the topic of internal and external reporting.
When does a Firm not have to comply with the client identification requirements?
Firstly, it is important (although perhaps obvious to note) that none of the following apply if the Firm knows or suspects, or has reasonable grounds to know or suspect, that the client or person purported to act on its behalf is, or appears to be, engaged in money laundering.
It is absolutely vital that all Firm staff who handle any transactions, or are managerially responsible for transactions, are fully trained in Anti Money Laundering procedures. This is because not only can they be subject to criminal charges, the Firm will be taken to know or suspect this illicit behaviour, not just the employees, and thereby could be breaching not only FCA guidance but also the Money Laundering Regulations 2017, as amended. This means their licence to trade could be under threat.
A firm does not, however, need to apply identification procedures in the following instances, where the client is a:
- Credit or financial institution;
- Authorised professional firm;
- Body regulated by an overseas authority with comparable provisions as per the Money Laundering Directive.
There are other circumstances in which identification is not required:
- Where the transaction is a one-off with a value less than €15,000 or one of a number which amount to less than €15,000. This is a curious situation, particularly for money service businesses. There is no specific guidance for that sector and yet it would be inconceivable that no identification were required for the transactions they undertook on behalf of clients, regardless of the beneficiaries’ jurisdiction, for amounts of even half of this threshold; or
- The client (other than a money service operator) has been introduced by a person with written assurance that they hold identification evidence and that person is categorised under (a), (b) and / or (c), above; or
- The proceeds of a one-off transaction are payable to the client but then to be invested on his behalf, subject of a record and can only be either reinvested on his behalf or paid directly to him; or
- When the transaction relates to a long-term insurance contract[1].
Moving on – the requirement to internally report
Firms are required to “take reasonable steps” to ensure that any Firm staff member that handles, or any managerial staff responsible for handling, regulated transactions promptly reports to the Firm’s MLRO, or the person to whom the responsibilities of the MLRO have been delegated, information arising out of their knowledge, or suspicion, or their reasonable grounds to know or suspect, a person is engaged in money laundering.
This means the Firm must also establish and maintain arrangements that provide for disciplining any member of staff who fails to do so, without a reasonable excuse. A Firm may decide to put in place a consultation system, allowing that staff member to discuss the potential report with their line manager first before doing so to the MLRO, however this must not be used to prevent reports reaching the MLRO.
Please note that the duty to report does not arise if the knowledge or suspicion, or reasonable grounds for the same, came as a result of the Firm’s engagement as a professional legal advisor, unless that information is shared with a view to “furthering a criminal purpose or in contravention of a provision of the regulatory system…[2]”
What must the MLRO be provided with in order to perform their duties?
Reasonable steps must be taken by a Firm to provide either its MLRO, or to whom their duties have been delegated, access to know your business information. This means:
- The financial circumstances of a client / those acting on behalf of the client; and
- The features of the transactions entered into by the Firm for the client.
Should the MLRO consider there to be a need to make a report to NCIS, they will need to have had access to this information in order to make an informed decision.
What should be reported to NCIS?
Having taken the reasonable steps to ensure internal reports are made to the MLRO, or their delegated individual, they must be considered and, if any of the following are made out, a report to NCIS must be made promptly –
If the MLRO of their delegate “knows or suspects; or has reasonable grounds to know or suspect; that a person has been engaged in money laundering…[3]”
In order for the MLRO or its delegate to be able to do this, the Firm should:
Require them to consider a report having considered all the information available;
Provide them with access to all the information that could be relevant, including the know your business information;
Ensure that if any of the grounds for knowledge or suspicion are made out, a report to NCIS is made. It is vital that the submission of that report is not subject to the consent or approval of anyone else at the Firm, ensuring the independence of the MLRO / their delegate.
As a side note, a sole trader is not required to nominate an MLRO. However, they still must promptly report their knowledge or suspicion of such matters in just the same way.
Conclusion
The internal procedures and requirements relating to Anti-Money Laundering are strict and place considerable responsibility on not just the MLRO but on all those involved in client transactions. Regular training is absolutely vital to ensure staff sufficiently understand the importance of this and that they recognise the signs that could prompt an internal report.
Get Regulated is a preeminent advisor in the duties of an MLRO and provides access to the highest quality policies and procedures and training to help protect your business. If you have any questions at all or need advice, we would be delighted to hear from you.
Oliver Al-Falah, the founder of Get Regulated, is a solicitor of over 10 years’ experience. He has acted on behalf of many regulated clients in the course of multiple investigations by HMRC and the FCA, with that experience brought to bear for the clients of Get Regulated; ensuring they get the best possible compliance infrastructure and training. Our main contact details are:
Telephone: +442036271105.
Email: regulate@getregulated.co.uk.
[1] https://www.handbook.fca.org.uk/handbook/ML/3/2.html?date=2005-04-02
