Practice Assurance and Money Laundering. Update Presented by John Selwood

Transcription

1 Practice Assurance and Money Laundering Update 2017 Presented by John Selwood

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8 Highlights New AML rules and refresher New data protection regulations New client money regulations QAD Report

9 Overview 8 year review cycle Desktop reviews Phone visits AML, Client Money, data protection and Investment Business are still areas of focus Quality of financial statements is an issue

10 Anti-Money Laundering refresher and update

11 4 th Anti- Money Laundering Directive Approved by EU Parliament 20 May 2015 EU member states required to implement by 26 June 2017 Consultation Launched by HM Treasury in September 2016 Consultation closed 10 November 2016 Money Laundering Regulations Issued in draft in March Further consultation closed 12 April Final regulations issued 22 June 2017

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13 4 th AMLD Who is in scope General Accountancy sector Relevant persons acting in the course of business carried on by them in the UK No change Letting agents Estate agency work only Gambling sector Small business exclusion High value dealers Broadening of scope didn t materialise < 100K financial activity Threshold decreases to 10,000 (from 15,000)

14 4 th AMLD Roles Senior management Member of senior management must take overall responsibility for compliance Approval required for policies/procedures and PEP business relationship CPD required Notify supervisor within 14 days of appointment Nominated officer (MLRO) Role may be combined with senior management responsibility Role requirements listed in draft CCAB guidance Deputies/delegates may be appropriate Notify supervisor within 14 days of appointment

15 4 th AMLD Risk based approach to due diligence Extension of approach Country level (Treasury/Home Office) Regulator level (e.g. ICAEW/ACCA) Organisation level (individual firm) Risk analysis Procedures devised to respond to risks Requires senior management approval Regular updating will respond to changing risk profile

16 4 th AMLD Risk based approach to due diligence How? Organisational level and service line level? Client service geography channel risk High medium low Prompts in Appendix E of draft CCAB guidance Response to elevated risks Enhanced due diligence More regular due diligence reviews Additional controls in relation to service offerings

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18 Customer due diligence Normal risk Photo identity or Non photo identity and proof of address or date of birth High risk Photo identity Additional piece of evidence

19 Customer due diligence refresher Evidence of the existence of the entity (company etc) A full list of the principals - management On a risk basis, verify the identity of a sample of principals A full list of any individuals who are beneficial owners, being: those who own or control (directly or indirectly) more than 25% of the entity

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21 Example 1 You have approached to act for a local start up business which specialises in the manufacture of soaps. Would seem fine for most firms would not expect identification/risk assessment/info gathering to be a problem

22 Example 2 You have been approached to act for a Canadian national who has a significant investment in a Ukrainian oil business. Issues at the risk assessment stage!

23 Example 3 You have been approached to act for a Nigerian entertainer who is touring in the UK. It is proving difficult to get confirmation of his residential address. Problems with information gathering stage would need to consider carefully why the relevant confirmation was not available

24 4 th AMLD Politically Exposed Persons Politically Exposed Persons Who? Natural persons entrusted with public functions Includes UK PEPs Includes family members of PEPs Spouse/civil partner of PEP Children of PEP and spouses or civil partners of PEP s children Parents of PEP Also consider known close associates of PEPs

25 4 th AMLD Politically Exposed Persons Politically Exposed Persons What? Consider risks on case by case basis Also: Obtain senior management approval for establishing/continuing business relationships Take adequate measures to establish source of wealth and source of funds involved in business relationship or transaction Conduct enhanced ongoing monitoring of business relationship

26 Ongoing due diligence Checklist 1. Have there been any changes in the directors or partners? Have we got ID? 2. Have there been changes to shareholdings / beneficial owners? 3. Has there been any change to the nature of the business? 4. Are there any unusual transactions we have not been able to substantiate? 5. Are there any cash transactions outside the normal transactions of the business we cannot substantiate? 6. Are there any other issues which increase the level of perceived risk?

27 AML Reporting the basics Proceeds from crime Knowledge or suspicion For tax offences intent is usually needed for it to be criminal Warn once, then report

28 Poll 1 You notice that a whole quarter s input VAT has been reclaimed twice due to an error. Is that reportable?

29 Poll 2 Whilst preparing the next year s accounts you see that the VAT over-claim has not been corrected. Is that reportable?

30 Poll 3 When finalising the self assessment ITR for 2015/16, the client let s slip that they are having trouble evicting a tenant in one of their investment properties. There is no reported property income in the tax returns. Is this reportable?

31 Poll 4 You ask the question about the investment properties alluded to above. After some perseverance on your part the client admits many years of undisclosed income on a number of properties. They refuse to declare the income in previous years and begrudgingly agree to declare income in future. What do you do?

32 Poll 5 When preparing year end financial statements you notice several large commission payments to overseas agents. These agents do not appear to do anything in particular other than assisting with contract negotiations. You suspect that these are bribes. Is this reportable?

33 Data protection regulation

34 General Data Protection Regulation (GDPR) What? EU-wide data security regime effective 25 May 2018 Why? Part of strategy to prevent and respond to cyber disruptions and attacks Increasing protection for consumers more onus on secure and correct handling of personal data Non-compliance? Maximum fine for breach from $500,000 to $20M or 4% of annual turnover, whichever is greater

35 GDPR overview Obligation on data processors to maintain records Obligation on data controllers to ensure contracts with processors comply Accountability need to document how you comply Potential need for privacy impact assessments Higher standards for consent Enhanced rights for individuals (e.g. right to be forgotten) Responsibility - an appropriately senior individual must be responsible for GDPR compliance Obligation to maintain secure systems and to report breaches quickly

36 GDPR firms to do 1. Appoint data protection officer (larger practices) or person responsible for compliance with GDPR 2. Consider what data is held in respect of clients/employees and how it is used 3. Implement measures to ensure an appropriate level of security- based on a risk assessment 4. Consider making clients and employees aware of data held privacy notices

37 GDPR firms to do 5. Consider seeking consent for holding data 6. Establish procedures to ensure right to be forgotten though balance against legal obligations (e.g. AML) 7. Review use of data processors (e.g. providers of cloud computing services) to ensure they are compliant

38 GDPR firms to do 8. Establish adequate procedures to respond to data breaches 9. Consider what is required to document compliance 10. Staff and client - training

39 New client money regulations

40 Client money - overview Trust bank letter Alternates Payment authority Deducting fees from clients monies Regulator issues Separate a/c if > 10k for > 30 days Client in title of client bank account? Annual compliance review

41 New ICAEW rules from 1 Jan a A client bank account should only be used for receiving or making payments which relate to accountancy services which the Firm is performing, has performed or has been engaged to perform for the client. The Firm must take steps to obtain and hold sufficient information to ensure that the client bank account is being used for a lawful and legitimate purpose and for bona fide transactions.

42 Poll 6 You act for a property management company. Rents are banked into your client monies account. Payments out relate to tax, dividends and your fees. Can that money be held as client money?

43 Poll 7 Your firm provides an outsourced payroll function to a number of clients. The client monies account is used for this purpose. Can that money be held as client money?

44 Poll 8 A former client has recently retired and left the UK. Before leaving he made an advance payment to your firm for finalising his UK accounting and tax affairs. Can that money be held as client money?

45 QAD report

46 In a small number of cases, we were very concerned to see that firms had prepared the accounts but had not adopted FRS102 when they should have done FRSSE? OLD UK GAAP? ICAEW

47 Audit essential 2017 ICAEW Audit monitoring Some FRS 102 accounts reviewed as part of audit visits A substantial sample of audited FRS 102 accounts from Companies House reviewed as a separate exercise

48 1. Primary statements Don t always tie up! Items in the wrong statement No Noncontrolling interest when needed

49 Generally we find that good accounting policy disclosures are more detailed under FRS Accounting policy disclosures

50 Accounting policy disclosures Unchanged! Up to date but incomplete

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55 3. Transition disclosures Many entities have no transition adjustments..it is good practice to state this fact Better disclosure is sometimes needed

56 4. Financial instruments Disclosures Directors loans Derivatives

57 4. Financial instruments Long term debt disclosures FRS Interest rate Maturity Repayment schedule Restrictions

58 4. Financial instruments Directors loans Few examples of discounting Often dismissed as immaterial is it? we suspect that difficulty with the calculation is a factor Are long term debts really long term?

59 4. Financial instruments Derivatives Must be on balance sheet!

60 5. Business combinations and goodwill Disclosures for all acquisitions in the period Goodwill UEL Intangibles on acquisition

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62 5. Business combinations Goodwill Useful economic live Cannot be indefinite! Limited to 10 years only when there is uncertainty Disclosure - useful life and reasons on acquisition

63 6. Investment property and PPE Gains and losses presentation can be confused Disclosures can by confusing

64 Properties at fair value Property, plant and equipment Investment properties Option to revalue Must be at FV FVTOCI with a PPE reserve FVTP&L no separate reserve required Alternative accounting rules Not alternative accounting rules no T&FV override

65 7. Deferred tax Being missed on investment property revaluations Required for all gains Being posted to the wrong place!

66 Underlying causes Insufficient CPD Over-reliance on software Firm wide systems including review

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