Last year the Government consulted on the implementation of the Fifth Money Laundering Directive: see our April 2019 briefing discussing the potential impact from a corporate law perspective. The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 have now been published and come into force on 10 January 2020.
Beneficial ownership: reporting discrepancies to Companies House
The new regulations amend the UK's existing money laundering regulations (MLRs) to introduce a requirement for relevant persons subject to the MLRs to check the beneficial ownership registers (i.e. PSC registers) of companies and other legal entities that are within the scope of the UK's PSC regime before they establish a business relationship with those entities. If a relevant person finds a discrepancy between the beneficial ownership information on the company's PSC register and the information which becomes available to them in the course of carrying out customer due diligence, that person must report the discrepancy to Companies House. There is an exception for legal professional privilege. If a discrepancy is reported, Companies House must take appropriate actions to investigate and, if necessary, resolve the discrepancy.
Scope for confusion: different tests for PSC register and anti-money laundering purposes
As the Government notes in its explanatory memorandum accompanying the new legislation, consultation responses regarding the new obligation to report discrepancies were mixed. The Law Society, in its response to the consultation, pointed out that the PSC regime tests and the beneficial ownership tests under 5MLD are not the same. Identifying a "discrepancy" may not therefore always be straightforward: a beneficial owner for money laundering purposes is not always a PSC, and vice versa. Obliged entities will need to take care when comparing PSC register information with information gathered as part of their customer due diligence checks.
Other 5MLD changes
From a corporate law perspective, the beneficial ownership-related changes above are the most significant ones required to be implemented by 5MLD. The 2019 amendment regulations introduce a number of other changes to the UK's anti-money laundering regime, which are not covered in this article, such as expanding the scope of the obliged entities subject to the MLRs to include cryptoasset exchanges, custodian wallet providers and high-value residential property letting agents.
Other transparency developments
As we mentioned in our April 2019 briefing, implementation of the beneficial ownership-related changes required by 5MLD is just one of a series of developments increasing transparency of beneficial ownership of companies. The Government published in 2018 a draft bill to establish a public register of beneficial owners of overseas entities that own or buy property in the UK (the Registration of Overseas Entities Bill – see our Transparency update July 2018: beneficial ownership of overseas entities holding UK property: details of proposed new register revealed). We note that in the December Queen's speech the Government confirmed its intention to progress this legislation.