New Money Laundering Regulations – what it means to you August 2, 2017

The FCA has recently made changes to money laundering regulations to bring it into line with an earlier EU directive. This means you need to do some things differently. Even if you’re not in the UK/EU, keep reading – these changes might be coming your way soon!

The Financial Conduct Authority (FCA) is the UK’s financial regulator, responsible for the oversight of 56,000 firms’ adherence to the Financial Services and Markets Act 2000. For Money Transfer Operators they issue licenses for UK/EU corridors.

From June 26th 2017 there have been some changes to the Money Laundering Regulations (MLR) which in turn affect the process of licence acquisition for remittance. This will change the way in which you need to plan for both licence accreditation and licence updates for your remittance corridors. It will also demand more from your record keeping and customer due diligence.

Main changes

The main changes for businesses registered for anti-money laundering supervision are as follows:

  • More clarity around risk assessment policies and procedures
  • How customer due diligence is carried out
  • How staff training is recorded
  • Record keeping
  • New procedures for larger, more complex businesses.

The main changes specifically affecting Money Service Businesses (MSBs) are:

  • HMRC will extend the Fit and Proper test to senior managers in MSB principals and to MSB agents.
  • Removal of the €1,000 de minimis limit where customer details did not need to be recorded, for money transfers funded by cash or anonymous e-money – details of all such transactions must be kept. A business that pays cash (above €10,000) for goods must register with HMRC as a high value dealer
  • Money transmitters are also affected by the new EU Transfer of Funds Regulations (Regulation (EU) 2015/847) which 2017 MLR implements.

[Source: HMRC]

Regulatory bodies recommend you look at how these changes affect your business and what changes you will now need to make to your procedures. We will explore them here.

Probable repercussions

For all MSBs, the implications of the new regulations could be summarised as follows:

  1. More record keeping
  2. Better record keeping
  3. Better Know Your Customer (KYC) processes
  4. More robust transaction tracking
  5. An ability to demonstrate all of the above.

For certain MSBs these changes could well be the catalyst for changing your underlying IT system. For example, MSBs with these characteristics:

  • Potential new entrants to the market
  • Those seeking license re-accreditation
  • Those reliant on a home-grown system of spreadsheets, documents etc
  • Those who have a 3rd party system that is ageing and/or cannot be upgraded (i.e. ‘legacy’)
  • Those who have traditionally been focused on small, cash based transactions.

We draw these conclusions from our history of working with firms for whom compliance and record keeping had previously been a big headache. The reality now is that to get up to where the regulations demand you should be requires a modern IT system. Future proofing yourself against as yet unseen changes requires choosing the right modern IT system.

Key theme 1 – Potential new entrants/license re-accreditation

Industry watchers believe that the ramifications of this legislation means that a MSB seeking license accreditation (or re-accreditation) will need to have a system in place BEFORE they get their license, and that being able to demonstrate that they have a system in place will be an essential part of gaining accreditation.

There is some logic to this school of thought. With a stronger emphasis on being able to demonstrate how customer due diligence is carried out, and more emphasis on being able to demonstrate effective record keeping, it is not a huge leap to realise that it would be impossible to demonstrate both without having an IT system already in place.

Certainly, an accreditor will expect you to be using technology to manage the KYC process. They will also expect a decent level of integration (for consistency and low error rate) with your record keeping processes.

The removal of the lower limit of €1,000 for unrecorded transactions adds further weight to the need to have something in place during the accreditation process. Focusing on the lower end of the remittance market no longer excuses you.

This does not necessarily mean that you need to bear additional pre-accreditation cost though. An system provider that takes a partnership led approach should be able to offer something to help you through this stage of building your money service business. RemitONE, for example, offer a 12 month demonstration system free of charge that you can use to show that you have a platform in place and have built up some level of competence around KYC and record keeping.

Key themes 2 – impact on home grown/legacy systems

For those MSBs operating on home grown or legacy systems which cannot be upgraded, these regulations could well be ‘the straw that breaks the camel’s back’.

You probably knew this day would arrive sometime soon, but understandably, you’ve been putting it off. For smaller MSBs, the requirement for full record keeping of even the smallest transaction could put a strain on your hand crafted technology that has supported your business to date. For larger firms with a 3rd party legacy system the ‘new procedures for larger, more complex businesses’ are likely to be outside of your current system’s capability.

For all MSBs operating with a poor technical platform, stronger record keeping and stronger customer due diligence is likely to put a significant strain on your operation.

That said, the technology market supporting MSBs and remittance in particular is fairly strong and buoyant. Choose an End to End provider who not only provide a technology platform but who have a network of integrations with the market and business consultants to help you through some of the challenges you face.

An End to End provider should have a broad capability to support your transition; consulting, technology, hosted platforms, integrations, plus a network of specialists and partners for you to work with. A decent end to end vendor will provide advice, guidance and support all the way through the process as well as introduce you to an umbrella of relationships that will be valuable to your remittance business.

Further Considerations – PSD2 coming down-track

There’s more regulation affecting money transfer businesses on the way via the Second Payment Services Directive due January 2018.

PSD2 is an important step towards a Digital Single Market in Europe, building on the Payments Services Regulations of 2009. PSD2 has the ambition of increasing competition, improving economies of scale and enhancing transparency.

PSD2 will bring further transparency and standardisation, a formalisation of distribution channels, bring more ‘underground’ transactions into the regulated fold, require stronger ID verification for both sender and recipient and will increase the importance of payment gateways.

PSD2 will have an impact on MSBs operating in the remittance market, and will have a knock on effect on technology platforms and requirements.

We will explore PSD2 and its ramifications in a thought leadership papers at a later date.

Where to go for help

A modern platform can help you to remain compliant and absorb today’s and future legislative changes.

But that’s only part of the story. As an end-to-end provider we understand the need to look at the market in its entirety and to offer products & services that; a). help new money transfer providers at every step of the way towards launch, and b). help existing providers to manage change that can affect their particular trading corridors at any time.

These experiences add further insight into how modern technology can support your remittance business. We look forward to sharing our client stories with you. Come and talk to us:

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