Hot on the heels of Parliamentary criticism, Treasury has now published its response to the consultation on MLD5 implementation. The response confirms the Treasury’s position in:
- expanding the definition of “tax advisor” in line with MLD5;
- confirming that it will not bring private landlords who do not involve agents within the scope of the letting agency provisions, and that merely publishing advertisements or information or providing a communication channel will not constitute letting agency activity. On the €10,000 monthly rental threshold, some respondents thought it should be lower, or that there should be no threshold, but most agreed with it, so it has been retained. There was strong agreement that CDD should apply to both landlord and tenant in affected contracts – and HMRC’s guidance will provide further clarity on this. Treasury also confirmed that HMRC will be the appropriate supervisor, and that estate agents already registered with it will be required to indicate their letting agency work when they renew their registrations;
- on crypto-assets, responses were divided. Some respondents thought that as the market is currently small, the response should not be disproportionate. Others said the market, and the risks, were increasing. The Government also thinks the risks have evolved since MLD5 was adopted, and has, with the agreement of most respondents, amended the MLD5 definition of crypto-asset to capture the Cryptoasset Taskforce definitions. Treasury also confirmed the extension of scope to custodian wallet providers and fiat/crypto exchange providers, as well as bringing crypto-ATMs within scope, with no value threshold (to prevent smurfing). Treasury has also brought those issuing crypto-assets within scope and noted that a UK exchange dealing in privacy coins would be regulated, but has, for the moment, not included firms that facilitate P2P exchange services. It is also clear that publishers of open-source software and non-custodian wallet providers are outside scope. Treasury is also sympathetic to the difficulties of complying with the FATF standards on beneficiary information, and will allow a delay to allow firms to develop compliance solutions. FCA is the crypto-supervisor, and JMLSG has produced Treasury-approved guidance for the sector;
- art intermediaries are covered as proposed, and Treasury noted the need to clarity and proportionality in CDD requirements. HMRC will supervise the sector, and the British Art Market Federation has developed guidance for the sector, which Treasury has approved;
- on e-money, respondents agreed with the lowering of the thresholds, but did not agree that payments using anonymous pre-paid cards should be banned. The Government has legislated for UK entities to accept payment from such cards with overseas issuers only where the issuer is from an “equivalent” jurisdiction;
- on CDD, respondents asked for more clarity on acceptable electronic identity providers, but Treasury notes it would be overly restrictive for the MLRs to go into detail on specific technologies or processes;
- respondents agreed with the requirement for verifying the identity of senior managing officials and were happy for there to be an explicit requirement for relevant persons to understand the ownership and control structure of customers, but following responses, Treasury has not proceeded with its proposal to remove the words “reasonable measures” from Regulation 28(3)B) and 4 (c);
- respondents agreed that relevant persons should check relevant registers and that the customer should provide information when requested;
- on EDD requirements, respondents supported the definition of what “involving high-risk third countries” meant, and agreed the FCA guidance on PEPs was appropriate;
- most respondents were happy with the approach to meeting the requirements on discrepancies in Beneficial Ownership information, but there was no clear view on whether there should be a public warning mechanism – so that has not been carried forward because of the risk of tipping off;
- on trusts, we await HMRC’s consultation, but respondents called for specific and proportionate definition of “express trust”, and expressed concerns that many lay trustees would not be aware of their obligation to register. The majority of respondents agreed that a deadline of 31 March 2021 should be acceptable, provided the process is fully operational and guidance is in place. The Government also notes the need to get the right balance between providing access to beneficial ownership information (which can largely be done by self-declaration) and the need to protect individuals’ data;
- responses on the central bank account register raised some technical issues but there was no preference for any particular model. Although some respondents thought it disproportionate to include low-risk accounts on the register, the Government has included all retail and wholesale accounts, as well as many building society and some credit union accounts, to maintain a level playing field. The response also notes the entities to which the Government intends information will be available;
- on miscellaneous matters, Treasury will support updating of guidance to ensure firms that operate pooled client accounts are considered low-risk and can perform simplified DD;
- on enforcement, Treasury is considering further its proposal to make individual action possible against “managers” as well as controlling officers, as responses indicated this could lead junior managers to be unfairly blamed for senior leadership failings; and
- on training, Treasury noted responses from the MSB sector on training of agents, and noted that these agents are within scope of the training requirements, and that the relevant entity must ensure, partly through training, that its agents are fit and proper.