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The Joint Money Laundering Steering Group: AML final guidance for consumer credit providers

Close-up of credit cards on a computer keyboard Print publication

01/04/2014

Following consultation on 29 January 2014, on 11 March 2014 the Joint Money Laundering Steering Group’s (JMSLG) board approved the final guidance for consumer credit firms relating to their compliance with anti-money laundering (AML) obligations. This was published on 20 March 2014.

This amends the JMLSG’s AML and counter-terrorist financing (CTF) guidance for the financial services sector by inserting a new chapter 11a (consumer credit providers) into the sector-specific guidance in Part II and is produced in the context of the FCA’s assumption of responsibility for supervising such firms’ compliance with the AML obligations from 1 April 2014.

The guidance has been amended to set out and clarify consumer credit providers’ duties for compliance with money laundering and terrorist financing risks. It also provides guidance on assessing the risk of money laundering and carrying out customer due diligence (CDD).

The guidance contains a note stating that it is incomplete on its own and should be read in conjunction with the main guidance set out in Part I.

Consumer credit providers are subject to the full provisions of UK law and regulation relating to the prevention of money laundering and terrorist financing and the guidance in Part I will apply to all consumer credit providers. Consumer credit providers are also subject to the FCA financial crime rules in SYSC 6.1.1 and 6.3.

Consumer credit providers covered by this guidance include both unsecured credit providers and secured lenders.

Products provided include:

  • Store card and other revolving credit facilities [1]
  • Point of sale or other retail finance
  • Personal loans or short term credit
  • Second charge lending [2]

The amounts lent are generally under the £25,000 threshold (although not always and for periods of between two or five years (longer for larger value finance or home improvements by way of secured loans or shorter for short-term, low value loans or interest free finance) [3]. It also applies to businesses who sell goods or services on credit (although hire purchase is addressed in Sector 11: Motor Finance).

Consumer Credit providers must adhere to the Part I guidelines which include:

  • Risk
  • Customer Due Diligence
  • Suspicious transactions
  • Staff awareness and training
  • Record Keeping.

Risk

Whilst overall the provision of consumer credit carries a low inherent money laundering/terrorist financing risk, the main risk arises through lump sum repayment or early termination or settlement. Consumer credit providers should be aware that these transactions carry the risk that funds have come from a criminal source. Care should therefore be taken when accepting occasional payments from third parties and upon settlement of an agreement firms must be alert to any unknown nature of the source of funds, which may increase the risk of receiving proceeds of crime.

Procedures and controls used for identifying potential money laundering are usually transactional-based, to identify unusual transactional movements, unusual deposits, unusual advance payments or unusual repayment patterns.

Customer Due Diligence (CDD)

Consumer credit firms must follow the requirements of JMLSG Part I, Chapter 5 to verify and identify all relevant parties to a relationship. The borrower tends to be a private individual although occasionally will be for business purposes for a sole trader or partnership.

  • Part I 5.3.2-5.3.7 provides guidance on identification and verification of customers
  • Part I 5.3.8-5.3.13 provides further detail on identification and verification of a beneficial owner
  • Part I 5.3.14-4.3.18 provides guidance on the requirements for existing customers.

Suspicious Transactions

Guidance on monitoring customer transactions and activity is set out in Part I, section 5.7, whereas Guidance on internal reporting, reviewing internal reports and making appropriate external reports to the National Crime Agency (NCA) is given in Part 1, Chapter 6. When to seek consent to proceed with a suspicious transaction can also be found in Part I, Chapter 6.

Staff awareness and training

Staff that are alert to the risks of money laundering/terrorist financing and those well trained in the identification of unusual activities or transactions are one of the most important controls over the prevention and detection of money laundering. Guidance on staff awareness, training and alertness is given in Part I, Chapter 7.

Record-keeping

General guidance on record-keeping can be found in Part I, Chapter 8. Verification of a customer identity may be by documents or electronically and it is important that copies of documents or electronic search results are made and retained for five years from the date the business relationship with the customer has ended.

 

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[1] Credit Card issues are, however, covered by separate guidance in Part II, Sector 2: Credit Cards
[2] But not first charge lending
[3] There are no time constraints on revolving credit

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