Brexit and AML

The UK has voted to leave the EU.  I am devastated, of course, but that is a personal sadness.  From a professional point of view, my concern is what will happen to the AML legislation that we in the UK have already, and what will happen to the new legislation that is making its way towards us.  Bearing in mind that I am not a lawyer, my understanding of the situation is quite simplistic – and if you are making big plans for change, you will certainly want to check with a lawyer before doing anything based on my overview.

But – as I understand it – the process of leaving the EU will not start until the UK PM (whoever he or she may be in the coming months) invokes Article 50 of the Lisbon Treaty, which contains the rules for exit.  Once that happens, the requirement is for the exit process to be completed within two years.

Until exit is complete, the UK is still fully (politically, financially and legally, if not emotionally) part of the EU, and still covered by the requirements of EU legislation (e.g. the Third Money Laundering Directive, as reflected in the UK’s Money Laundering Regulations 2007).

The transposition of the Fourth Money Laundering Directive into UK legislation – with a transposition deadline of 26 June 2017 – is however in doubt, as the UK government has yet to say what it will do about EU legislation that is only partway through the transposition process.  The UK is only the second nation ever to leave the EU, and so models of how it should work are thin on the ground.  It may be that the UK – in line with other countries that are not EU anyway, such as Guernsey – will decide to keep the provisions of MLD4.  Or it may be that it will decide to plough its own furrow (I should imagine that the beneficial ownership register – the PSC register – is looking a bit rocky at the moment).  Or it may be (and I fear that this is the most likely) that the new government will be so overworked, confused and chaotic that AML will drop to such a low point on their agenda that we will not see it again for a decade.  But I will keep you posted.

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9 Responses to Brexit and AML

  1. David Winch says:

    My own view is that UK AML is in line with FATF recommendations & will continue to be so. I do not expect Brexit to have any impact on our AML requirements in terms of compliance with international standards (which are in turn reflected in MLD4). But of course I may be proved wrong.

    We were promised in the Queen’s Speech a new Criminal Finances Bill which would include (unspecified) new anti corruption powers, a new offence of failing to prevent the facilitation of tax evasion, new proceeds of crime legislation (relating to confiscation and / or civil recovery) and a refocussing of the Suspicious Activity Reports regime.

    I think Parliament may have to devote itself to other more pressing matters now – so the Criminal Finances Bill (which has not yet been published) may never appear.

    We live in interesting times!

  2. A succinct reminder about the proposed new legislation, David – thank you. As for existing AML (and other) legislation that springs from European legislation, the UK can either (a) implement everything (rewriting slightly to remove references to EU legislation) and then repeal as we go along, or (b) draft it all from scratch.
    Best wishes from Susan

    • David Winch says:

      I suggest that – fundamentally – UK AML legislation does not spring from EU legislation, it springs from FATF recommendations.
      So I don’t see any reason to amend MLR 2007 as a consequence of Brexit. But I do see new MLRs as a result of recent new FATF recommendations (the same changes that are in EU MLD4).
      So, in effect, I see the UK implementing EU MLD4 but not BECAUSE it is an EU Directive, instead doing it because it is an FATF recommendation.
      I think that is your option (a)?
      Of course that same argument does not apply to EU regulations outside the AML sphere. That is a whole different ball game (in which the UK may comply with certain EU regulations in order to sell UK products within the EU post-brexit).

  3. I see your point, David, but I do think there will be a difference. For instance, the FATF Recs require merely that “countries should ensure that there is adequate, accurate and timely
    information on the beneficial ownership and control of legal persons that can be obtained or
    accessed in a timely fashion by competent authorities”. It is MLD4 that has said that beneficial ownership information should be held in a register that is (a) central, and (b) accessible to obliged entities and anyone else who can show a legitimate interest, as well as to the FATF’s required “competent authorities”. So yes, the FATF is the basis of MLD4, but MLD4 goes further. The UK’s decision will be whether to do the FATF standard, or the MLD4 one.
    Best wishes from Susan

  4. David Winch says:

    But we have already implemented legislation on PSCs (persons with significant control) – see Parts 7 & 8 of the Small Business, Enterprise and Employment Act 2015 and the changes to returns to be made to Companies House (with effect from 30 June 2016).

  5. Indeed we have – I gave this by way of an example. There are dozens of other points at which the FATF Recs and MLD4 differ. And if the obligation to meet MLD4 is removed, there is always the option to repeal existing legislation, particularly if the decision is made to re-draft anything that was brought in as a result of an EU directive or regulation.
    Best wishes from Susan

  6. Robert James Long says:

    I don’t think there will be any immediate changes and of course a lot depends on what we negotiate with the EU. Its unclear if the laws outlined in the Queens speech will be pursued, arguable the government that gave that speech has bigger things to worry about and arguable doesn’t have the legitimacy to pursue its former agenda (I imagine those proposed statutes assumed that what has happened would not have come to pass). So I am not so sure we will see the refocused SAR regime, not in the life time of this parliament anyway.

    Longer term I would worry that in the event our Financial service sector shrinks there would be some pressure to relax our AML, to attract a certain class of investors. Oh goody

    The only thing I can say is that Law enforcement are going to continue to work together on it. We’ll leave the fine points to our masters and betters, but on a day to day basis we will just try get things done!

  7. Thank you for your reassuring and measured comment, Robert. My concerns are too numerous to cover, but among them: what will this mean for law enforcement co-operation, particularly around SARs and AML; what about the talk I have heard of the UK dropping its corporation tax rate to 10% to retain/attract business once we are no longer EU; how will regulated firms attract the best staff, when foreigners will leave in droves, and our brightest young people will follow the opportunities (which may well not be in the UK). Can you tell which way I voted?!
    Best wishes from Susan
    PS I do have a new business plan: I’m going to make and sell T-shirts saying “I’m one of the 48%” for Brits to wear while on holiday in Europe.

    • David Winch says:

      I think your T-shirt should say “I know nurrthing – I from Gibraltar” – even if it’s not true!
      Kind regards

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