The publication in early September of the CCAB’s draft publication ‘ Anti-Money Laundering and Terrorist Financing: Guidance for the Accountancy Sector’ has brought the 5th EU Anti-Money Laundering Directive back into focus. Remember the legislation did come into force way back in January.
Based on the many AML courses that we’ve run over the last 10 months, here are the five aspects of the new Directive which we find practitioners are most focussed on:
1. More due diligence checks may be needed when advising on tax
The ‘regulated sector’ is slightly expanded to include ‘material aid or assistance or advice in connection with the tax affairs of other persons whether direct or through a third party.’ The key change here might be where a firm with specialist tax expertise is helping another firm’s client with tax. Previously the specialist firm may have left due diligence checks on the end client to the intermediary firm. Checks will now need to be done and documented by specialist firm direct.
2. PSC register checks will be needed as part of onboarding
This has been a much commented on aspect of the new legislation. The draft CCAB guidance makes clear that it will only be required at the point of initial onboarding. If a new client company’s entry on the register of persons with significant control (PSC) doesn’t tally with the firm’s understanding, then the firm will need to take steps to rectify the public record. Reassuringly the draft guidance indicates that this will need to be done within 30 days and if the client rectifies any error themselves no action will need be taken by the firm.
We are hearing anecdotally that some firms are finding that certain new clients are not proving willing to rectify errors on the register and therefore they are having to reach out to Companies House to flag errors and inconsistencies.
3. Training requirements are beefed up for subcontractors
The MLRO will need to ensure that subcontractors that they employ are adequately trained in respect of their obligations in this area. If they are not, the MLRO will need to ensure adequate training is provided. This assessment may a require a review of subcontractors’ training records.
We get many questions here from subcontractors who ask if they are themselves ‘accountancy service providers’. If so, they would need to comply with the AML regime in their own right, independently of a firm that they might work through. The short answer here is that this depends – but it would be very unlikely if the individual were solely working through other accountancy practices.
4. Risk assessment conclusions may change
Firms that use off the shelf AML systems (most do) will see some subtle tweaks in risk assessment questionnaires. The reality is that most of the time what was normal – or high – risk before still will be.
The soundings that we get from firms of all sizes though is that professional bodies would expect a careful assessment of risk and for some (albeit often a minority) of clients to be classified as higher risk with more detailed due diligence checks (‘enhanced due diligence’ or ‘EDD’) required as a result.
5. Use of electronic databases may become more common
The new regulations state that ‘information may be regarded as obtained from a reliable source which is independent of the person whose identity is being verified where … it is obtained by means of an electronic identification process and that process is secure from fraud and misuse and capable of providing an appropriate level of assurance that the person claiming a particular identity is in fact the person with that identity.’
This in no way means that electronic databases are now mandatory but the comment in the regulations acknowledges that robust electronic databases are very much to be encouraged. We are observing far more firms using such databases as a central plank of their onboarding systems, especially in the current climate where meeting new clients face to face can be somewhat tricky.
Peter Herbert and Edward Rands will provide more insights into AML compliance and implementation of the 5th Directive during Insight Training’s annual Practice Regulation Update which is taking place on 19 November. For more information and to book on, click here.
Peter Herbert, November 2020