LMA responds to the JMLSG consultation on the revisions to Parts II and III of its Guidance on the prevention of money laundering and the financing of terrorism in the UK financial services industry
30 May 2017The Loan Market Association (LMA) has responded to the Joint Money Laundering Steering Group (JMLSG) consultation on the revisions to Parts II and III of its Guidance on the prevention of money laundering and the financing of terrorism in the UK financial services industry (the "Guidance"). The consultation reflects the provisions of the proposed new Money Laundering Regulations published by HM Treasury on 15 March 2017 and includes specific amendments to Section 17 (syndicated lending) which aim to give guidance to firms when considering money laundering risks.
The LMA response raises a number of concerns with the wording of the Guidance, in particular that it does not sufficiently consider the practical impact of anti-money laundering (AML) and counter-terrorist financing (CTF) processes with respect to syndicated lending activity, nor the fact that deals will differ quite materially with regards to money laundering risk.
The LMA identifies that the Guidance does not accurately reflect market practice of the responsibilities related to money laundering risk and therefore encourages the JMLSG to revisit the Guidance. For example, the LMA recommends that; the emphasis of money laundering risk should be placed on the source of repayment proceeds and commercial rationale for repayment rather than its timing, statements should not suggest that reliance can be placed on the agent for customer due diligence since this is in direct contrast to LMA documentation, and the process for KYC checks should also be amended to take into account LMA market standard documentation.
The LMA goes on to recommend that, whilst it is important that the syndicated loan market as a whole receives uniform information regarding the application of AML and CTF procedures, it would be beneficial if the Guidance were divided into sub-groups (or case studies) which offer clarity on the need for proportionate assessment depending on the different risks inherent to certain geographies or types of borrower and lender. The LMA also suggests that the JMLSG align their Guidance with the Financial Conduct Authorities Financial Crime Guide in order to be more consistent with other financial services guidance.
Commenting on the LMA's response to the consultation, Nicholas Voisey, LMA Managing Director, commented:
"Satisfying AML and CTF requirements which are not clear, proportionate and consistent is inefficient and costly for both lenders and borrowers, therefore we would urge that the JMLSG ensures its Guidance accurately reflects the syndicated loan market. Where possible it should also align this guidance with that of other organisations to enable greater consistency for the effective application of AML and CTF regulations, in order to not negatively impact liquidity in the syndicated loan market or put any unnecessary burden on lenders and borrowers."