Anti-money laundering, terrorist financing, and know your client obligations
FCA-authorised firms are required, pursuant to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on Payer) Regulations 2017 (“MLRs”), to implement anti-money laundering (“AML”) measures.
The AML requirements set out under the MLRs create a number of obligations which would apply to regulated online platforms including:
Online platforms commonly implement some of the following measures to meet AML obligations:
Firms should also be aware that a new anti-money laundering provision, the fifth Money Laundering Directive (“MLD5”) is due to be implemented across member states, including the UK (depending on Brexit), by 2020. This will create a number of new obligations including which may affect online platforms, including the mutual recognition of the latest developments in electronic identification schemes to allow for quicker and easier due diligence checks.
In summary, under FSMA a person is not permitted to issue a “financial promotion” unless the financial promotion is:
Any contravention of the financial promotion regime is a criminal offence.
A communication will only constitute a “financial promotion” if it satisfies each of the following criteria (as above, if one is not satisfied, then it will not amount to a financial promotion):
Online platforms commonly implement the following measures to help them discharge their financial promotion obligations:
Firms should also be aware that the FCA issued a “Dear CEO” Letter for all regulated firms earlier this year. This letter was to remind CEOs that firms carrying out both regulated and unregulated activity are not permitted to issue financial promotions which suggest all their activity is regulated by the FCA. Online platforms should therefore consider their financial promotions carefully to ensure that they do not misrepresent the scope of their existing permissions.
As published in Butterworths Journal of International Banking & Financial Law, June 2019.