PRINT THIS PAGE New anti-money laundering guidance for UK private equity firms15/03/2006. Source: SJ Berwin . Stephanie Biggs
With the FSA's heightened focus on anti-money laundering, all UK private equity firms should, according to SJ Berwin, be taking a hard look at their AML procedures and making sure that they come up to scratch. Last summer, the UK's regulator - the Financial Services Authority ('FSA') wrote to compliance officers at all British private equity houses putting them on notice that it had found anti-money laundering ('AML') procedures at a number of them to be inadequate. All UK private equity firms should, therefore, be taking a hard look at their AML procedures, making sure that they come up to scratch.
Now is the ideal time, as the FSA recently announced that its Money Laundering Sourcebook will be abolished in its entirety from 31 August 2006, to be replaced by a high-level obligation on firms to ensure that they have adequate systems and controls for identifying, assessing, monitoring and managing money laundering risk.
In deciding whether a firm has met this high-level obligation, the FSA will have regard to whether the guidance notes produced by the Joint Money Laundering Steering Group ('JMLSG') have been followed.
The JMLSG is made up of the leading UK trade associations in the financial services industry, including the British Venture Capital Association, and has, since 1990, produced guidance notes to assist firms in interpreting the UK money laundering regulations. The JMLSG has been undertaking a review of its guidance notes in parallel with the FSA's review of its money laundering regime, and on 31 January 2006 new guidance notes were published which are expected to come into force in around six months time.
The JMLSG says that the new guidance is a radical departure from previous advice, enabling firms to take a sharper, risk-based approach to the international fight against financial crime. Senior management will be expected to take a pro-active role in identifying the money laundering risks relevant to their businesses, and in developing and implementing procedures to mitigate those risks.
In many ways, the new guidance should be easier for firms to follow than the old anti-money laundering procedures, which were often difficult to apply in a private equity context. New sector-specific guidance for private equity businesses acknowledges that many of the counterparties dealt with by private equity firms are low risk, allowing firms to make sensible judgements about the level of due diligence needed.
However, in other ways, the new guidance may increase the burden on firms. Under a risk-based approach, firms and their staff will have to apply their minds to money laundering risk in a way that, perhaps, has not been the case to date. The new guidance makes it very clear that it is not enough simply to go through the motions of obtaining identity documents from investors or counterparties to transactions.
The onus is firmly on private equity houses to make a case by case assessment of actual money laundering risk, and staff will need to be alert to suspicious circumstances or unusual patterns of behaviour on an ongoing basis.
The JMLSG has made a significant effort to ensure that its new guidelines are relevant to private equity. Firms should take note - in future, it will be very difficult to find reasons not to follow them.
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. For more information on anti-money laundering guidance, or any aspect of private equity, please contact Stephanie Biggs (stephanie.biggs@sjberwin.com), or visit our website at www.sjberwin.com
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