June Regulation Update

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HM Treasury Publishes Consultation Response – Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022

The consultation response follows on from the government consultation (conducted between 22 July and 14 October 2021) inviting views and evidence on the steps the government proposed to take to amend the MLRs. The consultation response sets out the findings and the decisions the government has taken as a result. Many of the changes will be implemented through the Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022 (the Statutory Instrument).

The government is proceeding with the measures largely as consulted on, with a few exceptions, these include:

  • Account information service providers (AISPs) will be removed from the scope of the regulated sector, but payment initiation service providers (PISPs) will not.
  • Bill payment service providers (BPSPs) and telecoms, digital and IT payment service providers (TDITPSPs) will not be removed from the scope of the MLRs at this time.
  • No further measures will be required to clarify the range of activities considered to make a person a credit and financial institution for the purposes of regulation 10, as this work will require longer-term discussions with the industry to ensure that any changes do not have unintended consequences.

The proposed changes, many of which will come into force from September 2022, subject to parliamentary approval, include:

  • Enhanced measures for supervisors to access and assess SARs. Ultimately, to improve the effectiveness of firms risk-based approach to supervision.
  • A definition of Proliferation Financing (PF) to be added to MLRs in order to clarify the type of activity that would be considered PF. To implement international standards set by the Financial Action Task Force (FATF), regulations 16,17 and 18 of the MLRs will be supplemented requiring firms to undertake risk assessments.
  • Trust and Company Service Providers (TCSP) will be required to conduct Customer Due Diligence (CDD) on all business arrangements, irrespective of continuing relationships (including one-off arrangements).
  • Discrepancy reporting requirements are to be enhanced by including regulation 30A (requirement to report discrepancies in registers), and further discrepancy reporting regime measures to include reporting on the Register of Overseas Entities (ROE). Subject to Parliamentary approval these measures will come into force in April 2023.
  • Regulation 52 (disclosure by supervisory authorities) is to be amended in order to expand intelligence and information sharing to allow for reciprocal sharing from relevant authorities (specifically law enforcement).
  • Cryptoasset businesses will be expected to implement solutions to enable compliance with the Travel Rule. Amendments to the MLRs will not take effect until 1 September 2023, subject to Parliamentary approval.
  • HM Treasury has modified the proposed de minimis threshold, which is now set at EUR 1,000 – including aggregate transactions. Cryptoasset transfers are to be treated separately when calculating if the de minimis threshold has been cumulatively reached. Transfers of fiat currency will remain subject to a de minimis threshold under the FTR.
  • Instead of requiring the collection of beneficiary and originator information for all unhosted wallet transfers, cryptoasset businesses will only be expected to collect, but not verify, this information for transactions identified as posing an elevated risk of illicit finance.

Proposed acquirers of cryptoasset firms will be required to notify the FCA ahead of such acquisitions, allowing the FCA to undertake a ‘fit and proper’ assessment of the acquirer, providing the FCA with powers to object to any such acquisition before it takes place and cancel registration of the firm being acquired. The measure will also capture change in control offences under the MLRs in the new schedule 6B.

It will also allow the FCA and HMRC the discretion to publish information about decisions not to register an applicant for MLRs registration, aligning the treatment of notices of refusal with powers to publish notices for the cancellation and suspension of registrations. The measure will also allow the FCA to publish notices where they have objected to the acquisition of an already registered cryptoasset firm.

HM Treasury Consultation: Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022: Response

Updated webpage

CMA Publishes Final Report – Open Banking Lessons Learned Review

The final report, published by the Competition and Markets Authority (CMA), covers the Open Banking lessons learned review led by Kirstin Baker, who is one of the CMA’s independent non-executive Directors.

In 2020, the CMA received allegations relating to conduct at the Open Banking Implementation Entity (OBIE), and an independent investigation was undertaken. The investigation, published in October 2021, concluded that the then Trustee of the OBIE had not ensured that the organisation was properly managed in accordance with the Retail Banking Market Investigation Order 2017. The review also found that a lack of appropriate corporate governance had contributed directly to those organisational failings.

Overall, the Report finds that the CMA did not fully anticipate the scale and complexity of their remedy and also failed to foresee or manage some of the key risks inherent in the delivery of the project. In particular in relation to governance at the OBIE and relationships with key stakeholders.

The seven recommendations made to the CMA are as follows:

  • Build more effective board oversight and risk management of the end-to-end strategy for complex remedies.
  • Set out processes and governance for CMA board and executive oversight of the delivery and implementation of remedies.
  • Consider questions relating to implementation at the remedies design phase.
  • Ensure key factors are considered where a remedy establishes a new entity or large and enduring CMA function.
  • Include gateways in the remedy delivery and implementation process.
  • Implement effective and agile internal governance and stakeholder engagement in remedy delivery and implementation; and
  • Conduct an evaluation case study of complex market investigation remedies.

In March 2022, the CMA published a joint statement together with HM Treasury, the Financial Conduct Authority and the Payment Systems Regulator which set out their plan to establish a Joint Regulatory Oversight Committee to oversee the development of Open Banking beyond the scope of the CMA’s Open Banking remedies.

CMA Open Banking Lessons Learned Review: Report by Kirstin Baker CBE