April 11, 2023 Reporting material differences
Financial institutions, auditors, external accountants, and estate agents are just some of the organisations which are required to carry out due diligence checks under the money laundering regulations. These ‘obliged entities’ are therefore required to identify any discrepancies between information gathered and Company House records in respect of people with significant control (PSCs) of companies and limited liability partnerships as well as beneficial owners of overseas entities.
On 1 April 2023, an amendment to the Money Laundering and Terrorist Financing Regulations 2022 came into effect. This introduced two significant changes to the due diligence and reporting process. Firstly, with effect from 1 April obliged entities must only report material discrepancies if they can reasonably be considered to be linked to one or more scenarios consisting of: money laundering, terrorist financing, or concealing details of the business or of the customer.
Whilst obliged entities don’t have to consider whether concealment is deliberate or not, they do need to satisfy themselves as to whether information obtained could be seen as concealing PSC or registrable beneficial owner information from the register and report accordingly. In order to assist obliged entities, the Government has issued a set of guidelines which outline a range of scenarios.
For example, when it comes to the names of PSCs, a material difference may be seen to arise in cases where the names provided are sufficiently different as to potentially relate to different people whilst minor spelling mistakes may not be material. So, the guidelines say, John Smythe v John Smith could be seen as a material difference whilst John Smith v Jon Smith may not be. Where discrepancies are considered not to be material, the guidelines recommend that a written record is retained which outlines the rationale behind the decision and furthermore that a recommendation is made to the relevant organisation to correct any inaccuracies in their records.
The other change brought in by the April 2023 regulation change is that discrepancies need to be considered throughout the term of a business relationship rather than just at the start. This will require ongoing monitoring and regular reviews. The guidelines are not prescriptive on how often that monitoring should take place, recommending that entities seek advice from their supervisory body. However, the guidelines do highlight the fact that each and every interaction with a customer has the potential to change the risk profile. Accordingly, entities should look to a risk based approach to decide whether those interactions might require a further due diligence review.
