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AML Update – July 2018: Register of Overseas Entities Bill

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management


Following a commitment given at the Anti-Corruption Summit in 2016 and a consultation which took place last year (see the Government’s response here) the UK Government has, this week, laid draft legislation before Parliament with the aim of establishing a beneficial ownership register of overseas entities that own property in the UK. 

The draft Register of Overseas Entities Bill aims to enhance the UK’s anti-money laundering framework with the Government hoping that it will lead to transparency in the UK property market, which has been described as a “destination of choice to launder the proceeds of overseas crime and corruption[1].  In addition to the draft Bill, the Government has also issued an overview document which explains how the proposed register will work.

Key provisions of the draft Bill include:

  • creation of a beneficial ownership register maintained by Companies House.  Any overseas entity wishing to own land in the UK will be required to identify their beneficial owners and register them, along with details of the company itself (unless specific exemptions apply).  The Government acknowledges that although registration under the Bill is prima facie voluntary, the Government notes that failure to do so will result in an overseas entity being unable to register ownership with the Land Registry (meaning that they cannot obtain full legal title) and that certain dispositions of land, which require registration, will be unable to be properly conducted[2].  As such, whilst voluntary, failure to register will prevent overseas entities from selling or purchasing property in the UK
  • a requirement, once registered, to update information annually;
  • the ability for the Secretary of State to issue a notice requiring an overseas entity to register within 6 months (if they already own UK property and is not already registered or exempt);
  • a requirement for overseas entities to give an information notice to any persons which it knows or reasonably believes is a registrable beneficial owner, with such a notice requiring that person to provide certain information needed for the purposes of registration.  In addition, the Bill enables entities to issue information notices to persons which it reasonably believes knows the identity of a beneficial owner;
  • the establishment of new criminal offences (carrying penalties of between 2 and 5 years imprisonment and/or fines), including:
    • failure to comply with an information notice issued by an overseas entity
    • knowingly or recklessly providing false statements in response to an information notice
    • knowingly or recklessly making or delivering misleading, false or deceptive statements or documents to the registrar
    • failing to comply with a notice compelling registration
    • failing to update information held on the register
    • making a disposition of property which cannot be registered

The Department for Business, Energy and Industrial strategy has opened a consultation seeking views on the technical aspects of the Bill which is open until 17 September 2018.

FCA publishes 2017/2018 annual report on Anti-money laundering (“AML”)

The FCA has recently published its annual AML report on AML which reaffirms that financial crime and AML remain one of the FCA’s key priorities.

The report includes findings and outcomes from the FCA’s proactive supervision, some of which we have summarised below:

  • Systematic AML Programme (SAMLP): The second round of reviews of 14 major retail and investment banks showed that overall firms have made significant improvements in their AML controls. Changes to control structures have been well designed and firms are identifying and mitigating risks effectively. Some weaknesses were identified, specifically around client risk assessments which only considered a limited number of factors . It was also noted that in some cases there was a failure to record justifications for risk-based decisions.  The SAMLP highlighted that some firms had more work to do to fully comply with the MLRs 2017 and that the regulator expects firms to conduct impact assessments for any regulatory or legal change and implement changes in a reasonable time frame. Weaknesses were also found in firms’ anti-bribery and corruption frameworks and it is suggested that this is due to increased focus on AML controls. The FCA noted that it expects firms to manage and mitigate all their financial crime risks at all times.
  • Regular AML inspections of other high risk firms: The FCA continues to see good senior management engagement and an improved AML culture, noting that AML policies and procedures are generally of a good standard, albeit some firms struggle with adequate execution of these. Risk assessments have improved with better focus on actual risks. Smaller overseas banks were found to be seriously deficient, particularly in effective application of enhanced due diligence and in turn, effective identification and monitoring of high risk customers. In certain serious cases, additional action was taken by the FCA including 4 formal investigations and the appointment of skilled persons to conduct reviews of 7 firms.
  • Financial Crime Risk Assurance Programme: This has now become a permanent part of the FCA’s proactive supervision and has led to one formal investigation.
  • Reactive work and enforcement:  The FCA is currently investigating 75 firms and individuals for AML issues, many of which utilise both criminal and civil powers under the Financial Services and Markets Act and MLRs 2017. The regulator noted that the recent increase in the number of AML investigations is representative of its change of overall approach to opening investigations earlier and more quickly when serious misconduct is suspected, in line with its Approach to Enforcement document published in March 2018.

Looking ahead, the FCA will continue to review its approach to AML supervision using information from the new data return process to improve how work is targeted, also taking into account the findings of the FATF Mutual Evaluation which is due to be published in at the end of 2018.

The full report can be access here.

[1]                Nicky Morgan – Chair of the Treasury Committee conducting the economic crime inquiry

[2]                Amendments are proposed to the Land Registration Act 2002 to enforce this