Money laundering and terrorist financing pose a serious threat to the global financial system, and governments around the world have taken measures to combat these crimes. In the UK, the Money Laundering and Terrorist Financing (MLTF) Regulations 2022 came into effect in September 2022 and aim to strengthen the country's anti-money laundering (AML) and counter-terrorist financing (CTF) framework.
One of the key requirements of the MLTF Regulations 2022 is the reform of the responsibility for firms to report discrepancies in beneficial ownership and person of significant control (PSC) information to Companies House. This includes the need for firms to identify and manage discrepancies in customer information, which could be linked to or indicate potential money laundering or terrorist financing activity or apparent concealment of details of the customer’s business.
From 1 April 2023 the definition of ‘material discrepancy’ amendment (MLTF 2022) came into effect, but how exactly should firms go about identifying and managing this in accordance with the MLTF Regulations 2022?
Definition of Material Discrepancy
A material discrepancy is a significant difference or inconsistency in the information provided by a customer or beneficial owner, which cannot be reasonably explained. A material discrepancy can be in the form of errors in customer names, different addresses provided, or a missing entry for a PSC or registrable beneficial owner.Identifying Material Discrepancies
Firms should have processes in place to identify material discrepancies in customer information, such as comparing information provided by the customer with information from Companies House or HMRC. These processes should be integrated into the firm's customer onboarding procedures so that any discrepancies can be identified at an early stage.
The MLTF Regulations 2022 require firms to identify and manage material discrepancies in customer information as part of their AML and CTF procedures. This includes conducting enhanced due diligence (EDD) on customers where a material discrepancy is identified, to determine whether there is a legitimate reason for the discrepancy or whether it could be indicative of money laundering or terrorist financing activity.
Managing Material Discrepancies
If the firm determines that a material discrepancy is indicative of potential money laundering or terrorist financing activity, whether at onboarding or during ongoing monitoring, the discrepancy must be reported to the relevant authorities, and appropriate action taken to prevent the activity from taking place. This may include refusing to enter into a business relationship with the customer or terminating an existing relationship.
As part of their regulatory due diligence, firms should also keep records of material discrepancies and the actions taken in response to them as evidence of their compliance with the MLTF Regulations 2022, including whether a suspicious activity report (SAR) was submitted to the National Crime Authority (NCA) in addition to the material discrepancy reporting.
Conclusion
Effective identification and management of material discrepancies in customer information is a key component of AML and CTF procedures under the MLTF Regulations 2022. Firms must have processes in place to identify material discrepancies, conduct the appropriate regulatory due diligence where necessary, and take appropriate action to prevent potential money laundering, terrorist financing activity or apparent concealment of details of the customer’s business. By implementing robust procedures for managing material discrepancies, firms can help to protect themselves and the wider financial system from the risks of financial crime.
Author - Lisa Bradford - Senior Manager
Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as and when, our team of specialists can serve as your right hand in meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.
Are you looking for help with your Money Laundering and Terrorist Financing Regulation arrangements, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.