The regulations transpose the fourth Money Laundering Directive (4MLD) into UK law and repeal the Money Laundering Regulations 2007 (MLR 2007). The fourth Money Laundering Directive was updated to reflect changes to the Financial Action Task Force (FATF) Anti-Money Laundering and Terrorist Financing recommendations.
The MLR 2017 contain several amendments which require the supervised estate agency sector to make significant changes to their processes and procedures to comply with the regulations. Below is a high-level summary of some of the key issues which impact the estate agency sector:
Real estate businesses which fall within the scope of the regulations must register with HMRC. Under the MLR 2017, it is a criminal offence to act as a beneficial owner, officer or manager of an estate agent without having been approved by HMRC. This prohibition is not breached if an application is submitted before 26 June 2018.
Parent undertakings, which are regulated under MLR 2017 in group companies, are obligated to ensure that the anti-money laundering (AML) policies and procedures they establish apply to all subsidiaries and branches, including those situated outside of the UK when engaging in any regulated activity.
Firm-wide risk assessments
The MLR 2017 requires a firm-wide risk assessment to be conducted taking into account specific risk factors as listed in the MLR 2017. A written record of the firm-wide risk assessment must be maintained.
Customer Due diligence (CDD)
All estate agents must carry out CDD on their customers and the beneficial owners of their customers prior to entering into a business relationship with them and at other specified times. In contrast to the position under the MLR 2007, the MLR 2017 specifically states that estate agents are considered to be entering into a business relationship with a purchaser as well as a seller at the point when the purchaser’s offer is accepted by the seller. The MLR 2017 continues to permit estate agents to rely on CDD carried out by certain other regulated entities including fellow estate agents. However, the responsibility for meeting the MLR 2017 CDD requirements are non-delegable.
Simplified Due Diligence (SDD)
Under the MLR 2017, there will cease to be "automatic" SDD requirements. Instead, various risk factors will need to be considered in deciding whether SDD is appropriate; it will only be appropriate if there is a low risk of money laundering or terrorist financing.
Enhanced Due Diligence (EDD)
Must be applied on a risk-sensitive basis in any situation which presents a higher risk of money laundering or terrorist financing. The MLR 2017 sets out specific circumstances in respect of which EDD must be applied.
Politically exposed Persons (PEPs)
In an important departure from the MLR 2007, the MLR 2017 now defines PEPs as including domestic PEPs as well as foreign PEPs. Regulated firms must have in place appropriate risk-management systems and procedures to determine whether a customer, or the beneficial owner of a customer, is a PEP or a family member or a known close associate of a PEP.
Training and controls
The MLR 2017 extends the requirement to provide relevant employees with regular AML training to include training on data protection. The MLR 2017 imposes a number of additional obligations including those aimed at ensuring top-level commitment is given to AML issues and that independent audit functions assess the adequacy of procedures.
The FCA and the Joint Money Laundering Supervisory Group have issued relevant guidance for their respective supervised sectors. HMRC’s guidance is in draft in respect of estate agents so should be reviewed once the final version is made available.
This is a summary of the key changes brought about by the regulations. This is not a complete guide to all changes and does not constitute specific legal advice, but seeks to highlight certain key issues. We thank Zia Ullah, Partner at Eversheds Sutherland and Helen Harvey, Associate at Eversheds Sutherland and Alex Ktorides, Partner Gordon Dadds for providing this summary.