Money Laundering Regulations 2017: government rush threatens a teething period for property auctioneers

by Hogan Lovells
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New money laundering regulations could prove to be a headache for property auctioneers until those affected get to grips with the changes, according to leading figures in the industry.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “Regulations”), as laid in Parliament on 22 June 2017 and coming into force just four days later on 26 June 2017, replace the previous regulations (the Money Laundering Regulations 2007 (MLR 2007) and the Transfer of Funds (Information on the Payer) Regulations 2007) and are intended to improve upon and plug certain gaps in the MLR 2007. The Regulations transpose the EU’s 4th Anti Money Laundering Directive into UK law and impose (amongst other changes) more rigorous due diligence demands on all those affected, including property auctioneers, requiring them to conduct more thorough due diligence to verify the identity of buyers and sellers, and to check the source of buyer’s funds.

There should normally be a minimum of 21 days between such statutory instruments being laid and coming into effect but, due to the general election, the government was forced to rush through the Regulations in order to meet the EU deadline of 26 June and avoid incurring fines if that deadline was not met.

As a result, auctioneers are having to get to grips with the new demands over a short period of time. The auction market is likely to be impacted particularly by the more stringent client due diligence (CDD) checks as, to date, auction houses have often only asked for a person’s ID once a bid has been accepted. Guidance just published by HMRC indicates that the new minimum CDD requirements include: completing customer due diligence on all customers and beneficial owners before entering into a business relationship or occasional transaction; and identifying and verifying a person acting on behalf of a customer, such as a person bidding at an auction on another’s behalf (including verifying that they have authority to act).

Despite the frustrations that auctioneers and their customers could face in the short-term, the RICS Real Estate Auction Group (RREAG) has commented[1] that transparency and a commitment to anti-money laundering is essential in the industry, and RREAG is consulting with HMRC on how the Regulations will be implemented and complied with going forward.

It is also hoped that HMRC will take into account the short amount of time businesses have had to acclimatise when assessing compliance whilst the Regulations are in their infancy.

In addition, as noted in HMRC’s consultation document, elements of the 4th Anti Money Laundering Directive were reopened following terrorist attacks in Europe and the leak of the “Panama papers” and those negotiations are still ongoing. The government intends to separately consult on the amended directive once it has been published in the Official Journal of the European Union and has come into force. Further changes may therefore be on their way.

As for Brexit, until exit negotiations are concluded, the UK remains a full member of the European Union. During this period, HMRC has confirmed that the government will continue to negotiate, implement and apply EU legislation.

 

[1]               See “Letter to the Editor”, EGi, 04/07/2017

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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