EU 4th Money Laundering Directive - conveyancing update

What effect will the introduction of the Fourth Money Laundering Directive have on the way firms conduct their anti-money laundering procedures?

he European Union’s Fourth Anti-Money Laundering Directive (EU4MLD) was implemented into UK law by 26 June, 2017. The directive includes fundamental changes to AML procedures at law firms, including changes to customer due diligence (CDD) and a strong focus on risk assessments.

 What’s changed?

  • Under previous Money Laundering Regulations (Third Money Laundering Directive), firms could automatically apply simplified CDD under certain circumstances. Under new regulations, firms can use these circumstances as a partial justification for simplified CDD only after conducting a documented risk assessment.
  • Exemption from enhanced CDD is no longer automatic. A decision to apply simplified CDD will need to be evidenced by a documented risk assessment and include PEP and Financial Sanctions screening.
  • Local politically-exposed persons (PEPs) must now be identified and are subject to the same scrutiny as foreign PEPs.
  • The regulations direct firms to develop risk-based policies, and practitioners to conduct client risk assessments as a part of their CDD.
  • UK regulations already incorporate a risk-based approach, but the new directive goes considerably further requiring documented client risk assessments.

For law firms this means:

  • Demonstrating that risk assessments are conducted and kept up-to date, including: clients, countries or geographic areas, products, services, relationships, transactions or delivery channels.
  • Policies and procedures that take the firm’s risk assessment into consideration.
  • Testing of internal policies, controls and procedures.
  • Training staff in conducting risk assessments, CDD and ongoing due-diligence.
  • Compliance reporting, electronic and hard copy records management.

Law firms with majority-owned subsidiaries in other countries where minimum AML requirements are not as stringent, must also implement the same procedures with the subsidiaries.

Additionally, for all businesses, CDD will be required when trading goods in cash with a value over €10,000 (rather than €15,000).

What should law firms be doing?

  • Review existing providers of CDD services for compliance with new regulations.
  • Review integrating AML risk assessment and compliance systems to reduce costs, streamline and unify procedures firm-wide.
  • Policies should be reviewed and approved by senior management
  • Implement staff training.
  • Money laundering reporting officers should:
    • Perform and document an internal risk assessment.
    • Update policies to incorporate Client Risk Assessments, ongoing due diligence, documentary evidence and compliance reporting.
    • Audit and test.