Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

As many of our members will be aware, new anti-money laundering regulations came into effect on 26 June 2017.  The purpose of this briefing paper and the table of changes referred to below is to highlight key issues and changes applicable to the Scottish legal sector.

This is not a sea-change for our members - the fundamental tenets of AML compliance within the legal sector remain unchanged.

You will still have to:

  • Undertake AML Risk Assessments of clients and transactions
  • Untertake Client Due Diligence - know your clients, their background and the provenance of the funds in your client account
  • Put in place AML Policies & Procedures - note, however, the new regulations state that you must maintain a written record of these
  • Identify Politically Exposed Persons (PEPs) and apply enhanced due diligence 
  • Appoint a Money Laundering Reporting Officer
  • Provide relevant AML Training for your partners and staff
  • Keep adequate records of AML related activities

 Additionally - your obligations under the Proceeds of Crime Act 2002 remain unchanged:

  • The requirement to report suspicious activity to the National Crime Agency
  • Avoid "Tipping Off"
So what is changing? Are there any new requirements?

Generally there is a move towards extending the risk-based approach to AML compliance - giving our members more scope to vary the level of due diligence and monitoring they apply to particular clients or transactions - although the 2017 regulations are more prescriptive in terms of what practice units should be considering in their risk assessments.

Please see The MLRs 2017 - A Solicitors Guide to Key Changes for information on how the new regulations may affect your practice unit.

Potential estate agency issues - purchaser CDD requirements

There has been some concern raised by the profession that, where a solicitor also undertakes estate agency business, there may be a requirement to undertake due diligence (including verifying ID) on the purchaser of a property, in addition to their client.  It is our view that this is not the case. This query has arise from regulation 4(3).

Regulation 4(3) is as follows:-

"(3) For the purpose of these regulations, an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller), at the point when the purchaser's officer is accepted by the seller."

On the face of it, this might mean that a selling solicitor has to, as part of their estate agency service, AML check the purchaser as well as their client.

However:

  • Estate agency is defined in regulation 3, general interpretation:-

"Estate agent" has the meaning given by regulation 13(1)"

  • Regulation 13(1) is as follows:-

"13,-(1) In these regulations, "Estate agent" means a practice unit or sole practitioner, who, or whose employees, carry out estate agency work, when the work is being carried out."

  • Estate agency work is defined in regulation 13(2). The relevant part is in bold.

"(2) For the purposes of paragraph (1) "estate agency work" is to be read in accordance with section 1 of the estate agents act 1979(a) (estate agency work), but for those purposes references in that section to disposing of or acquiring an interest in land are (despite anything in section 2 of that act) to be taken to include references to disposing of or acquiring an estate or interest in land outside the United Kingdom where that estate or interest is capable of being owned or held as a separate interest."

  • Section 1(2) (a) of the estate agency act 1979 is immediately below.  The relevant part is in bold.

"(2) This act does not apply to things done - 

(a) in the course of his profession by a practising solicitor or a person employed by him or by an incorporated practice (within the meaning of the solicitors (scotland) act 1980) or a person employed by it"

Law Society conclusion

  • The 2017 regulations define estate agency work in terms of an act which does not apply to our members.
  • For that reason it is our view that solicitors are exempted from the definition of 'estate agents' in the 2017 regulations
  • Therefore, regulation 4(3) does not apply to our members

We will continue to issue further communications on this important topic as further information becomes available.

Please look out for:

  • Emails
  • Updates on the website
  • Journal articles
  • Webinars