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Read this issue for information on the prohibition on audit services and trust services to Russia, upcoming changes to the Register of Overseas Entities (ROE) Regulations, key points for the accountancy sector from recent changes to the Money Laundering Regulations, the risks of verification work relating to the ROE and access to new resources including a new AMLbites video. We also highlight useful helpline numbers and a demonstration of the upcoming new SARs portal.

Sanctions

Prohibition on provision of audit services and trust services to Russia comes into force

The government has extended regulations to prohibit the provision of auditing services and trust services to Russia, which came into force on 16 December 2022. The new prohibitions are introduced by the Russia (Sanctions) (EU Exit) (Amendment) (No.17) Regulations 2022.

BEIS has updated its Russia sanctions guidance for the ban on audit services. OFSI has updated its Russia guidance for the ban on trust services.

Auditing services

In Schedule 3J, paragraph 5, auditing services is defined as the examination of the accounting records and other supporting evidence of an organisation for the purpose of expressing an opinion as to

  1. whether financial statements of the organisation present fairly its position as at a given date, and
  2. the results of its operations for the period ending on that date, in accordance with generally accepted accounting principles.

There are exemptions. Firms can:

  • audit a Russian subsidiary of a credit institution for the purposes of the consolidated group accounts;
  • carry out any appointments in place before 16 December before the end of 31 May 2023; and
  • audit UK incorporated entities that are subsidiaries of a Russian parent to comply with UK statutory or regulatory obligations.

Trust services

New Regulation 18C sets out that firms can’t provide trust services to sanctioned individuals. In addition, firms and members can’t provide trust services to a person connected with Russia unless the services are an ongoing arrangement in place before 16 December 2022.

What does this mean?

You will need to consider how the new prohibitions apply to your client base, potential new clients, and given the exemptions outlined above, clients you may have accepted prior to 16 December, but not yet completed audit work for.

ICAEW’s article, Russia sanctions: how to check your client base, may be helpful in assessing current and potential clients. It recommends the following:

  • Savvy use of open source information already in the public domain can allow members to gain a more complete picture of who they will potentially be dealing with.
  • A simple internet search of the client’s name as part of wider background checks that could potentially raise concerns about the client’s activities.
  • More complex searches using strings of words, especially search terms that indicate relations to ‘Russia’ or ‘Russian companies’, perhaps even words that indicate undesirable relationships.
  • Newspapers, online news and subscription news services, as well as news aggregation services which may reduce time spent scouring multiple outlets.
  • ICAEW members, use our own client screening service for three name checks per week.

You should apply professional scepticism and review, document the information obtained and check for consistency with anything provided to you by the client.

If alarm bells ring when you are conducting research on clients, raise any concerns directly with them. Information that is in the public domain can be discussed openly – after all, your reputation could be at stake.

Being aware of and maintaining scepticism about changes in ownership will be important. Ignorance will not be a suitable defence for a lapse in compliance with the sanctions, therefore think carefully about the further due diligence you judge to be necessary.

Regulatory updates

Register of Overseas Entities Regulations – changes will take effect on 12 January

The amendments are designed to address concerns about the practical difficulties of verifying a person’s status as a beneficial owner.

Once the Statutory Instrument comes into force:

  • Certain information will no longer need to be verified:
    • All required information about a government or public authority who is a registrable beneficial owner, other than its “status” as a beneficial owner, and whether it is on the sanctions list
    • Any information about the beneficiaries of a pension scheme trust as defined by paragraph 3 of Schedule 3A (Excluded Trusts) to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.  Please see more on how to register a pension scheme with HMRC.  
    • Information which has been previously verified in relation to an overseas entity’s application for registration does not need to be verified again when it submits its update or applies for removal.
  • certain information may be verified using documents or information from a reliable source which is not independent of the person whose identity is being verified:
    • A beneficial owner’s “status” - the condition(s) a person meets to be a beneficial owner
    • The date on which they became a beneficial owner of the overseas entity
  • the term “any other close business relations" will be replaced with "an individual who is an officer of a legal entity or legal arrangement of which the person whose identity is
  • being verified is also an officer or who is engaged in a joint venture with that person".
  • the scope of the information which must be retained by a verifier will be expanded, so copies of any material obtained or received by the verifier must be retained.

Changes to the Money Laundering Regulations

In July, the Government published a new statutory instrument to amend the money laundering regulations: The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022)

Many of the proposed changes do not impact on the accountancy sector. However, there are a few key areas for ICAEW firms to be aware of:

  • There is a new requirement for all supervised firms to perform a proliferation financing (PF) risk assessment (similar to the AML firm-wide risk assessment) so that each firm can assess the risk it may be used to enable proliferation financing. This requirement came into effect 1 September 2022. We are currently updating the AML guidance for the accountancy sector to set out guidance on how firms can perform this risk assessment. 
  • The government has expanded the discrepancy reporting requirement to cover the ongoing business relationship. This means that when an ICAEW firm undertakes ongoing CDD they will also be required to report discrepancies against information held on the appropriate register as they would have under the existing provisions under Regulation 30A. The government has also decided to streamline the requirement so that it is clear only ‘material discrepancies’ need to be reported, and to provide a list setting out which types of discrepancy would be ‘material’. This requirement will come into force in April 2023.

Register of Overseas Entities – AML risks

The government introduced the register of overseas entities (ROE) on 1 August 2022. The ROE is designed to help identify foreign owners of UK property and address the risk that foreign criminals may launder money through UK property. As part of the registration process, an overseas entity must have its registrable beneficial owners verified and accountants may perform this verification work. ICAEW has published, in conjunction with AASG, an AML risk alert on the ROE.

You can read what the Register of Overseas Entities means for accountants. If you wish to perform the work you should read the BEIS guidance. The Law Society has also published guidance

UKFIU updates

Safe call - On 1 January 2023, the UKFIU will go live with a new number for their dedicated helpline for suspicious activity report (SAR) confidentiality breaches. The helpline is for reporting sectors to raise any concerns about inappropriate use of SARs or breaches of SAR confidentiality.

The new contact number is 020 7238 1860 and is a 24 hour line available from Monday to Sunday. This number is for reporting breaches of confidentiality only.

If you require further information please contact UKFIU Disclosure Team: UKFIU.DisclosureTeam@nca.gov.uk 

Vulnerable persons - The UKFIU had updated its guidance booklet on Reporting Routes for Vulnerable Persons.


UKFIU SARs in Action December 2022
- Available on the NCA website

New SARs portal
Watch this UKFIU webinar that showcases the new SARs portal

AML resources

Webinar: Money laundering risk – A practical guide

Join anti-money laundering professionals and members of ICAEW’s AML supervision team for this free AML webinar focusing on risk.

AMLbites: Trust and Company Service Providers

This short video has been recorded by ICAEW's AML supervisory team and covers why Trust and Company Service Providers are considered high risk. It looks at changes in legislation and red flags our firms should look out for. The video also highlights further ICAEW resources on this topic.

HMT published AML supervisory report 2020-22

Anti-money laundering helpline

ICAEW members can phone in anonymously by calling +44 (0)1908 248 250 if they wish to speak to an advisor about suspected illegal activity or any matter that may trigger a need to submit a suspicious activity report.

Access more information on how to contact us

Love business. Hate fraud

Access new cybercrime resources from the Fraud Advisory Panel including a guide, checklist and webinar.

Useful links

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