Obligations in the regulated sector

Obligations in the regulated sector

Contents

Relevant persons

The Money Laundering Regulations 2007 (the 2007 Regulations) impose obligations on 'relevant persons' to implement management systems that will enable the detection of money laundering and terrorist funding activities.

Relevant persons are those acting in the course of businesses carried on in the UK in the following areas:

  • Credit institutions
  • Financial institutions
  • Auditors, insolvency practitioners, external accountants and tax advisers
  • Independent legal professionals
  • Trust or company service providers
  • Estate agents
  • High value dealers
  • Casinos

These business areas are further defined in regulation 3 of the 2007 Regulations; but note, in particular, that:

  • Auditor means any firm or individual who is a statutory auditor within the meaning of Part 42 of the Companies Act 2006, when carrying out statutory audit work within the meaning of section 1210 of that Act
  • Insolvency practitioner means any person who acts as an insolvency practitioner within the meaning of section 388 of the Insolvency Act 1986 or article 3 of the Insolvency (Northern Ireland) Order 1989
  • External accountant means a firm or sole practitioner who by way of business provides accountancy services to other persons, when providing such services
  • Tax adviser means a firm or sole practitioner who by way of business provides advice about the tax affairs of other persons, when providing such services
  • Independent legal professional means a firm or sole practitioner who by way of business provides legal or notarial services to other persons, when participating in financial or real property transactions concerning
    • The buying and selling of real property or business entities
    • The managing of client money, securities or other assets
    • The opening or management of bank, savings or securities accounts
    • The organisation of contributions necessary for the creation, operation or management of companies
    • The creation, operation or management of trusts, companies or similar structures, and, for this purpose, a person participates in a transaction by assisting in the planning or execution of the transaction or otherwise acting for or on behalf of a client in the transaction
  • Trust or company service provider means a firm or sole practitioner who by way of business provides any of the following services to other persons
    • Forming companies or other legal persons
    • Acting, or arranging for another person to act as a director or secretary of a company, or as a partner of a partnership, or in a similar position in relation to other legal persons
    • Providing a registered office, business address, correspondence or administrative address or other related services for a company, partnership or any other legal person or arrangement
    • Acting, or arranging for another person to act, as a trustee of an express trust or similar legal arrangement or as a nominee shareholder for a person other than a company whose securities are listed on a regulated market, when providing such services

Relevant persons subject to the provisions of the UK anti-money laundering/counter terrorist financing regime are referred to as being part of the regulated sector.

Note that the UK anti-money laundering regime does not apply to some services that relevant persons may undertake and applying the regime's requirements to all their services may in these cases be unnecessarily costly. Many businesses will find it easier, and more effective, to apply the requirements to all their services. However, that is a decision for each business to take.

Where businesses choose to outsource or subcontract work to non-regulated entities, they should bear in mind that they remain subject to the obligation to maintain appropriate risk management procedures to prevent money laundering activity.

Accountants and lawyers

The extent to which the 2007 Regulations apply to the activities of accountants and lawyers is considered in more detail below.

Accountants

An external accountant is defined as someone who provides 'accountancy services' by way of business to other persons, when providing such services. The 2007 Regulations do not define the term accountancy services. The Consultative Committee of Accountancy Bodies (the body representing the Institute of Chartered Accountants in England and Wales; the Institute of Chartered Accountants of Scotland; the Institute of Chartered Accountants in Ireland; the Association of Chartered Certified Accountants; the Chartered Institute of Management Accountants; and the Chartered Institute of Public and Finance and Accountancy) considers that accountancy services include any service provided under a contract for services (i.e. not a contract of employment) which pertains to the recording, review, analysis, calculation or reporting of financial information.

Services provided by relevant persons in the course of business in the regulated sector will be subject to the 2007 Regulations even if provided to the client on a pro bono or unremunerated basis.

Those involved in the provision of management consultancy services or interim management should be particularly alert to the possibility that they could be within the scope of the anti-money laundering regime to the extent they supply any of the regulated services when acting under a contract for services in the course of business.

Lawyers

The definition of an independent legal professional does not include lawyers employed by a public authority or working in-house.

The 2007 Regulations only apply to certain activities where there is a high risk of money laundering occurring. As such, they apply where lawyers participate in financial or real property transactions concerning:

  • Buying and selling of real property or business entities
  • Managing of client money, securities or other assets
  • Opening or management of bank, savings or securities accounts
  • Organisation of contributions necessary for the creation, operation or management of companies
  • Creation, operation or management of trusts, companies or similar structures

A lawyer participates in a transaction even though they only assist in the planning or execution of the transaction or otherwise act for or on behalf of a client in the transaction.

In terms of the activities covered, note that:

  • Managing client money is narrower than handling it
  • Opening or managing a bank account is wider than simply opening a client account. It would be likely to cover a lawyer acting as a trustee, attorney or a receiver

The Treasury has confirmed that the following would not generally be viewed as participation in financial transactions:

  • Preparing a home information pack or any document or information for inclusion in a HIP - it is specifically excluded under the 2007 Regulations
  • Payment on account of costs to a lawyer or payment of a lawyer's bill
  • Provision of legal advice
  • Participation in litigation or a form of alternative dispute resolution
  • Will-writing, although any accompanying taxation advice may be covered
  • Publicly-funded work