IMPLEMENTING A RISK BASED APPROACH TO THE 3^rd EU DIRECTIVE ON MONEY LAUNDERING AND TERRORIST FINANCE

New anti-money laundering regulations came into effect in the UK on 15th December 2007.

The UK faces serious and ever changing threats from crime and terrorism, and finance is the lifeblood of both. Government policy is to detect, disrupt and deter crime and terrorism through a range of strategies, including measures to restrict criminal access to the financial system. The UK is part of a wider international effort to meet these challenges, and participates in international talks to make sure the rules remain effective. New international recommendations were issued in 2003, and in turn the European Union adopted the Third Money Laundering Directive, now implemented in UK law as the Money Laundering Regulations 2007.

What are the rules?

The Money Laundering Regulations require firms to put preventative measures in place. They require firms to ensure that they know their customers (including conducting customer identification and verification and undertake ongoing monitoring where applicable), to keep records of identity and to train their staff on the requirements of the Regulations. The Proceeds of Crime Act 2002 and the Terrorism Act 2000 provide the criminal offences of money laundering and terrorist financing and impose obligations on firms and individuals to report suspicions of money laundering or terrorist financing.

In summary the new Regulations:

• Provide more detailed obligations regarding customer due diligence, for example, explicit requirements for firms to undertake ongoing monitoring of business relationships and for firms to identify not just the customer, but the beneficial owner of the customer;

• Require firms to vary customer due diligence and monitoring according to the risk of money laundering or terrorist financing;

• Require firms to take enhanced customer due diligence measures in higher risk situations, while allowing firms to take reduced identification measures for specific situations with a lower risk of money laundering;

• Allow firms to rely on certain other firms for undertaking customer identification;

• Clarify the arrangements for supervision of firms, including those that will be supervised for the first time.

Which businesses are covered?

Most UK financial firms (banks, building societies, money transmitters, bureaux de change, cheque cashers, savings and investment firms) are covered. In addition the Regulations cover legal professionals (when undertaking some activities) accountants, tax advisers, auditors, insolvency practitioners, estate agents, casinos, high value dealers when dealing in goods worth over 15,000 Euro and trust or company service providers.

What is the Risk-Based Approach?

An inter-governmental body known as the Financial Action Task Force (FATF) has recently published guidance which permits institutions to adopt proportionate risk management processes. This approach will provide the right balance between deterrence, detection and record keeping, whilst not being too burdensome on the public. The Risk-Based Approach encourages financial and other institutions affected by the new legilsation to provide measures which are commensurate to the risks identified.

How can Risk Angels help?

Our qualified risk practitioners understand the risk business and have developed a robust risk management process which enables institutions of all sizes to implement the risk based approach. Our proven processes and training delivery has been mapped to the Financial Action Task Force recommendations which will enable your key people to take proportionate measures to protect your clients, systems and organisation from the threats. We know that regulatory bodies expect high standards of compliance and our experience working with them enables us to understand the inspection regimes and how you can prepare and develop processes and policies to meet every requirement.