EU 4th Money Laundering Directive: Challenges to UK transparency framework

22 November 2016

As the UK government consults on the implementation of the EU’s Fourth Money Laundering Directive (4MLD) questions are being raised as to its compatibility with the UK’s evolving transparency reporting framework.

Whilst the Directive is in support of the Government’s efforts to combat tax evasion, terrorism and money laundering one particular area of concern is the Directive’s fit with the UK’s existing PSC (people with significant control) register. The register was introduced in April this year with the aim of improving the transparency around the ownership and control of UK companies.  The Directive now requires all EEA member states to introduce similar regimes. However, current proposals propose a change to a 10% ownership threshold for certain types of companies and a public UBO register for trusts. Real time reporting in changes to beneficial and legal ownership may also be introduced. 

According to Matt Timmons, Director in PwC’s Entity Governance & Compliance Team: “We’ve been looking at confirmation statements and whether companies are disclosing the new UBO details, and have noticed mismatches. Either companies are misunderstanding the application of the rules or something else is going wrong. This is significant from a compliance perspective because, under the Directive, financial institutions are required to look at the UBO register before on-boarding new clients and renewing existing ones. Moreover, senior officers such as directors and company secretaries, will be required to disclose why they haven’t disclosed the PSC. In addition to the question of whether the framework strikes the right balance between privacy and transparency, the question now emerges as to whether or not it will in practice achieve what the government set out to achieve. Do these new rules create transparency, and are they achieving their purpose?”

As well as such inconsistencies in filings, disclosure requirements are also presenting potential obstacles to certain categories of business – notably private equity and venture capital firms – that weren’t previously there. “You’ll have institutions that are privately owned, particularly overseas institutions operating in the UK, that will struggle with this because they are going to be disclosing ownership at a level that they never thought they would want or need to disclose,” Mr Timmons added.

The Consultation on the Transposition of the Fourth Money Laundering Directive has now closed, however a further consultation on amendments to the UK PSC regime is open until 16 December 2016.

This article was initially published in Compliance Bytes, a monthly newsletter supplied to members of the International Compliance Association, www.int-comp.org and is reproduced with their permission.

For further information on these issues please speak to Matt Timmons on +44 (0) 20 7804 6561

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