The Fifth Money Laundering Directive: Risk assessments and customer due diligence

6 January 2020

Letting agents will need to carry out a risk assessment and customer due diligence to ensure their processes are compliant under the The Money Laundering and Terrorist Financing (Amendment) Regulations 2019.

The Fifth Money Laundering Directive came into force on 10th January 2020, making lettings agencies subject to anti-money laundering legislation. The changes will fall under The Money Laundering and Terrorist Financing (Amendment) Regulations 2019. Under the regulations, letting agencies will need to meet certain responsibilities, including carrying out a risk assessment and customer due diligence on agreements with landlords and tenants where, for a period of a month or more, the rent during at least part of that period is equivalent to a monthly rent of €10,000 or more.

Carry out a risk assessment for money laundering

You will need to assess all the ways that your business could be exposed to money laundering and terrorism financing risks and put processes in place to deal with them. You will also need to stay on top of risk information and emerging trends from sources such as the National Risk Assessment and HMRC’s risk assessment, and update your procedures as necessary.

Your assessment should include the risks posed by your: 

  • customers and beneficial owners (the beneficial owner is the person who’s behind the customer and who owns or controls the customer, or it’s the person on whose behalf a transaction or activity is carried out)
  • services or transactions
  • financing methods
  • delivery channels, for example non face-to-face services
  • geographical areas of operation, including sending money to, from or through high risk third countries (for example countries identified by the EU or Financial Action Task Force as having deficient systems to prevent money laundering or terrorist financing)

Your risk assessment must be in writing and subject to regular review. They need to reflect changes to your business and the operating environment. The risk assessment must be given to HMRC when requested. Learn more about carrying out a money laundering risk assessment.

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How to carry out customer due diligence or "know your customer" checks

You will need to complete customer due diligence on all of your customers and beneficial owners. Customer due diligence - often referred to as "know your customer" or KYC checks - is the process of identifying your customers and confirming they are who they say they are, usually by obtaining their name, an official identification document, and their residential address.

  • when you establish a business relationship with a customer
  • when you suspect money laundering or terrorist financing
  • when you have doubts about a customer’s identification information that you obtained previously
  • when it’s necessary for existing customers - for example, if their circumstances change

You will also need to identify the ‘beneficial owner’ in some situations, for example  if someone else is acting on behalf of another person in a particular transaction, or if you need to establish the ownership structure of a company, partnership or trust. Learn more about carrying out customer due diligence.

It's important to note that this article isn't exhaustive and doesn't constitute legal advice. See gov.uk for more information on anti-money laundering regulations.

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