ECSH81100 - Regulation18(4) concession
听of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017)听听requires a relevant business to maintain an up-to-date written record of the steps it has taken to comply with regulations 18(1) to (3) MLR 2017 which relate to the requirement for听a relevant business to complete a risk assessment.听
It also allows a supervisory authority to waive the requirement to keep such a written record, and to give notice to the business of that decision in writing. This is referred to as 鈥�the regulation 18(4) concession鈥�.听听
Regulation 18(5) MLR 2017 states that the supervisory authority may not grant a regulation 18(4) concession unless it considers that the risks of money laundering and terrorist financing听applicable to the sector in which the business operates听are clear and understood听by them.听听听听听听听
When can the concession be granted?听
The regulation 18(4) concession should only be granted to businesses听who can satisfy all听these requirements:鈥�听
Can demonstrate听a thorough and detailed understanding of the money laundering/terrorist financing (MLTF)听risk to which they are exposed.鈥�听
Are small听鈥� both in size and number of relevant transactions.听
Are sole traders.听
Are not working in/with,听or are exposed to, any higher risk context or customers.鈥�听
Are not complex businesses in nature or structure.鈥�听
Do not handle any cash.鈥�听
Are businesses of a type whose circumstances and dealings rarely change or vary.鈥�听
Can demonstrate听a good standard of MLR听2017听compliance in all other obligations.鈥��听
Have not been found to be in breach of MLR听2017听(unless in very exceptional circumstances details below).听
Does听not have any unspent听convictions听for relevant offences under Schedule 3听MLR 2017 (where a Beneficial Owner, officer听or manager (BOOM)听of the business has an unspent conviction for a relevant offences under Schedule 3听MLR 2017 the BOOM cannot be approved,听and听any approval granted is automatically invalidated).听
Are not new businesses, which have not undertaken a risk assessment and cannot demonstrate听a clear and detailed understanding of risk.鈥�听
No听concessions听have been granted to date;听therefore,听all existing听supervised听businesses should already have a written risk assessment in place in order to听be compliant with the MLR 2017.听听
We should not听grant the Regulation 18(4) concession to any business already registered with us which does not have an existing written risk assessment, since this would mean they have been in breach of regulation 18(4) MLR 2017 from at least the date of their registration or 1st January 2018 (when our unofficial 鈥済race period鈥� ended)听or the date they began undertaking relevant activity听if听they started trading after this date. To do otherwise risks granting the regulation 18(4) concession to businesses which are simply trying to avoid having to do one. However, this should not prevent a newly registered, low-risk, and compliant businesses from seeking a concession under regulation 18(4) MLR 2017.听
Larger, more complex businesses, those exposed to higher risk, those who are not sole traders听and those with low levels or standards of anti-money laundering (AML)听compliance, or a known history of non-compliance in any HMRC regime (in other words not just under the MLR听2017), should听not be allowed to benefit from the regulation 18(4) concession.听
In addition:听
This should be a concession only used in limited circumstances where businesses meet all听the relevant criteria and should only be granted with care.鈥�听
It should only be granted in response to a formal request by a business听(it must not be granted by HMRC听on its own initiative).听
A business听who is or has been carrying out relevant activity but听does not have the required written risk assessment听should be considered as being in breach of MLR听2017听unless they can produce written confirmation from HMRC that the concession was granted 鈥� and that this can be confirmed by HMRC鈥檚 own records.听
HMRC听should, in writing, withdraw a previously given concession if the businesses鈥�听circumstances change in such a way that any of the criteria listed above no longer apply.鈥�听
With regards to the qualifying criteria, where a business has previously been warned or sanctioned for not having a written record of their risk assessment,听they should not usually be granted a concession under regulation 18(4) MLR 2017.鈥�听
To what does the concession apply?听
The risk assessment referred to in regulation 18(1) MLR 2017, and to which the concession in regulation 18(4) MLR 2017 applies, requires a relevant听business to take into account听all the elements listed in regulation 18(2)(a) and (b) MLR 2017, and any further factors which the business has considered over and above the regulation 18(2) MLR 2017 list.鈥�听
The factors set out in regulation 18(2) MLR 2017 that must be taken into account听are as follows:听
Information made available by HMRC as supervisory authority under regulations 17(9) and 47 MLR 2017.听
Risk factors including factors relating to:听
Customers of the business.听
Countries or geographical areas in which the business operates.听
Products or services offered by the business.听
Transactions carried out by the business.听
Delivery channels used by the business.听
If HMRC听is concerned听that听the MLTF risk will be increased by the business not maintaining听an up-to-date written record of any of these factors, then the regulation 18(4) concession should not be granted.听
Operational considerations听
When writing to inform a business of our decision to grant the concession, we should make clear that they should regularly review whether all the requirements listed above听continue to be met.鈥� Our letter should explain that if听one or more of the requirements is no longer met, the business must immediately听re-assess and document its risks, then update policies, controls,听and procedures听as necessary.鈥� They should also write to inform HMRC that the concession is no longer applicable.听
When writing to inform a business that we will not be granting听the concession, we should make our reasons for that decision clear.听听
HMRC听needs to record which businesses听have been granted and refused the regulation 18(4) concession.听Checks need to be undertaken听at suitable intervals on businesses听which have been granted the concession听to ensure that the regulation 18(4)听MLR 2017 criteria still apply.鈥� We might also wish to consider 鈥榥udge鈥� interventions such as occasional emails reminding the business of the importance of reviewing whether the regulation 18(4) MLR 2017 criteria still apply.听
HMRC听should not,听and听cannot,听impose any form of sanction on a business for failing to keep听a written record of risk assessment when the concession has been given.鈥�听
The decision whether or not听to grant a concession is not appealable 鈥� regulation 18(4) decisions are not included in the list of appealable decisions within 听MLR 2017 - see听ECSH90000.听
Who should make the decision about whether the concession applies or should be removed?听
Whether a business听should be granted the regulation听18(4) concession is an operational decision.听Responsibility for the decision should sit with the Grade 7 Compliance Leads, although Risking should also be consulted on the decision.鈥�听
Similarly, removal of the concession where it has previously been granted is an operational decision, and consideration towards this course of action could be made when the business is unable to demonstrate听a sufficient understanding of risk and their own risk assessment. Removal of the concession should be confirmed in writing, and the business from that point will need to revert to maintaining听a written record of its risk assessment. A reasonable deadline should be provided for the business to comply with听regulation听18(4) MLR 2017 requirements.听It is an operational听decision as to whether the officer would want to review the risk assessment.鈥�听
Further information on Regulation 18听is available in ECSH63380.听
听听