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New Money Laundering Regulations

Important new regulations are coming into force that all businesses, including estate agencies, need to be aware of and adhere to.
 
There is a growing focus on money laundering, and HMRC has been increasingly strident in their approach to compliance. Fines imposed on estate agents have been as much as &169,000, and our own Park Lane office has recently been inspected (see previous newsletter, dated the 22nd December 2015). News
 
This new requirement is part of the government’s drive to increase transparency and trust in UK companies, whilst at the same time tackling crimes such as terrorist financing and money laundering.
 
Here is a brief guide to the new legislation:
 
What are the latest changes?

From 6 April 2016, most UK companies and limited liability partnerships (LLPs) will be required to keep and maintain a new register – a register of persons with significant control (PSC) over the company or LLP.
 
Companies and LLPs will need to keep this information internally from 6 April 2016 and will need to file this information at Companies House from 30 June 2016 – either as part of the new annual confirmation process (which will replace the annual return in June 2016) or on a new incorporation.
 
What is a PSC register?
 
The PSC register will identify and record people who have significant control over the company/LLP and contain stipulated information about them.
 
In summary, companies and LLPs will need to:
• keep an internal register of their PSCs from 6 April 2016
• take reasonable steps to identify those persons who should be registered on the PSC register
• enter the required information on the PSC register - and keep this information updated
• make the PSC register available for public inspection free of charge or provide copies on request for an optional flat fee of &12
• file information about their PSCs at Companies House (as set out above) from 30 June 2016 onwards.
PSCs will be under a corresponding duty to notify the company/LLP of their interest.  Failure of the PSC or the company/LLP to comply with these duties is an offence.  And if a relevant person fails to respond to a company’s requests for information, this may eventually result in the company being able to apply restrictions (for example restrictions on transfer) on the affected shares.
All companies must keep a PSC register – even if they have no PSCs or the process of investigating who may be a PSC is still ongoing. The PSC register can never be empty - and there is prescribed wording to be included depending on the specific circumstances.
 
Who is a PSC?
 
Very broadly speaking, a person is a PSC if he/she:
1. holds, directly or indirectly, more than 25% of the nominal value of the company’s issued shares;
2. holds, directly or indirectly, more than 25% of the voting rights in the company;
3. holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company;
4. has the right to exercise, or actually exercise, significant influence or control over the company; or
5. exercises or has the right to exercise significant influence or control over a trust or firm, which itself meets any of the above conditions.
The test for LLPs is very similar but is amended to reflect their different ownership structure.
What do you need to do?
Based on what is currently known, it is likely that at the very least a company/LLP will need to contact its shareholders/members to ask them to confirm or provide details to enable completion of the PSC register. Both the Regulations and statutory guidance are still in draft form at this stage, so it is probably best to start your compliance process by considering whether you have any potential PSCs and possibly what procedures you will need to put in place in order to ensure you take 'reasonable steps' to identify them. 
For companies/LLPs with a simple ownership structure, this should not involve too much additional work.
 
What information is recorded?

Personal information: For individuals on the PSC Register, certain personal information will need to be disclosed including name, service address, nationality, date of birth and usual residential address.  The Act and the Regulations contain safeguards on how this personal information may be used and disclosed.
An application may be made to Companies House to omit material from the public register or to prevent disclosure of PSC Register information. However, this will be limited to circumstances where there is a serious risk of violence or intimidation towards a registrable person or someone who lives with them. There will be no protection afforded for cases of commercial sensitivity or confidentiality.
A key point to note is that from 6 April 2016, a company's PSC Register must not be blank. 
 
How will the PSC Register be made available to the public?

A company's PSC Register will need to be kept at its registered office (or other inspection address) and be available for public inspection in the same way as for the register of members.  The information on the PSC Register will also need to be confirmed to Companies House at least every 12 months and will be held by it on a publically searchable database.  In addition, from June 2016 companies will be able to elect to keep their PSC Register (as well as other statutory registers) at Companies House.
Companies will also be obliged to provide free access to the PSC Register and copies of it to any person on request for a flat fee of &12 per copy.
 
Duties and penalties
 
The new legislation will impose clear and unequivocal obligations both on companies and on persons with significant control.
Companies must take reasonable steps to identify those persons and legal entities which should be included on its PSC Register and must keep it up to date. If companies do not comply with their duties in relation to the PSC Register, they, and their directors, face criminal liability.
Registrable persons (PSCs) and legal entities must respond to notices and provide information, or volunteer such information where the company doesn’t contact them. Failure to respond to a company’s request for information will entitle the company, effectively, to freeze their interest until compliance. This may lead to a loss of dividend, voting and other rights while the interest is frozen.
 
Where to find the new rules and guidance

The rules are to be implemented by the insertion of a new part 21A and schedules 1A and 1B into the Companies Act 2006 ("Act") with the detail surrounding certain provisions being contained in The People with Significant Control Regulations 2016 ("Regulations"), the final draft of which can be found here.
 
In addition, The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 here apply the provisions to LLPs. 
 
The most up-to-date versions of these can be found on the Government website here.

In addition, we are also expecting the Government to publish non-statutory guidance aimed at assisting PSCs in understanding their obligations under the new law, but this has not been made available yet.

 

What issues may there be with the PSC Register?
The major issue facing companies and LLPs required to keep the new PSC Register will be putting in place the internal processes necessary to enable them to compile and maintain the register and, where this has not already begun, companies should start this process now.

 

The way forward
Because full guidance on “significant influence or control” is not being made available until October, the full impact on businesses is currently unknown. However, given the short timescale to proposed implementation, companies should take steps to ensure they will be able to comply in time.

 

 

HMRC Visits Park Lane

HMRC are currently undertaking inspections of estate agents' office(s) across the UK, to review their compliance with regards to anti-money laundering regulations
 
Our Park Lane office underwent such a review last week, and we wanted to share some key learnings with you.
 
We were (very courteously) given four weeks’ notice of the visit, but we understand other similar inspections at estate agents have been held on as little as 48 hours’ warning.
 
Our interview took two hours (apparently shorter than normal), and involved two HMRC members of staff. They followed a carefully prepared checklist and wrote detailed notes after every question.
 
The first section covered the business itself, where we were required to produce personal ID, and then company details such as bank account information, names of directors and shareholders, number of offices, opening hours, and details of the premises (leased or owned). We were then questioned on the types of business managed, with examples e.g. residential, commercial, overseas, buyer services, working with trusts etc
 
We were then required to produce relevant AML information including proof of registration (our certificate), details of the anti-money laundering officer and their deputy, evidence of employee training, and a copy of the company policy. We also volunteered proof of registration with the NCA. It was made clear that we needed to be able to provide ready access to files for all properties currently on the market, and also for historical vendors covering the last 5 years. A number of these were then carefully checked (see below).
 
A number of property files were picked at random and fully checked for CDD and best practice; there were tests around the edges such as ‘whose signature is this?’, ‘what is the location and motivation of the vendor?’, ‘did you know the solicitors?’, ‘how did you check their veracity?’. Interestingly, our inspectors showed no interest in any lettings or landlord checks, probably a result of the premium location.

 

 

So what is our learning and advice to member agents?


• Have your AML file ready, complete, and up to date; include names of your staff, your policy, details of the MO and deputies, training certificates and relevant notes, and any supporting information such as partners for secondary external checks
• Ensure that your property files are correct, complete, and up to date: any confidential information should be kept secure at all times (e.g. a locked filing cabinet)
• Take the time to register with the NCA for SARs
• Utilizing secondary checks such as ETSOS seem to help
• Whilst not legally required, we strongly suggest you undertake a land registry check on every vendor and landlord, and keep the details in the relevant file

 

As a professional membership body who promotes higher standards, it is incumbent on all of us to take time to read this email thoroughly and implement any necessary changes – whether or not you have a visit scheduled!

 

 

 

Categories: General


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