LMA revisions to Chapter 17 of the JMLSG Guidance on the prevention of money laundering and the financing of terrorism in the UK financial services industry go live on JMLSG website22 May 2018
More than 12 months on from the publication of a consultation by JMLSG in 2017 on proposed 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"), Chapter 17, which relates specifically to syndicated lending and which has been re-written by the LMA, has now been approved and published by the JMLSG board.
The production of the revised Guidance is the result of extensive consultation with numerous LMA members, including representatives of the LMA's Loan Operations Committee. It is reflective not only of the provisions of the latest Money Laundering Regulations published by HM Treasury on 15 March 2017 ("MLR"), but also includes specific amendments to ensure that market participants entering into a syndicated loan transaction, whether in the capacity of arranger, agent, lender (in the primary market) or seller, buyer, grantor or participant (in the secondary market) consider the risks that could arise from a money laundering ("ML") or terrorist financing ("TL") perspective.
The Guidance is intended to provide a clear description of the primary and secondary syndicated loan markets, an assessment of where the risks are most likely to arise when considering ML and TL, and to explain the different types of relationships that exist between the parties to a syndicated loan transaction and the instances where this will translate into a direct customer relationship between those parties. It also emphasises the generally low risk nature of the market from a ML and TL perspective, and sets out the reasons to explain why this is the case.
In addition, the revised Guidance now states that, although a syndicated loan is a tri-partite arrangement from a structural perspective and each finance party should, as part of an overarching financial crime risk assessment, take account of the risk profile of the transaction and of each party involved, none of the MLA, the agent or the security trustee should be viewed as having a direct "customer" relationship with each individual lender in the syndicate. Similarly, none of the agent, security trustee or MLA is a customer of that lender. Finally, in a secondary context, although the agent has a role to play with regard to effecting the transfer of loan commitments from a seller to a buyer, it will not have a customer relationship with that buyer.
The practical implications of this are that full "know your customer" checks need not be carried out in respect of those parties with whom no customer relationship exists, unless the facts and circumstances suggest otherwise. It is hoped that this will allow resources to be redirected to where the risk of ML and TL are most likely to arise and allow the market to operate more efficiently.
Commenting on the revised Guidance, Amelia Slocombe, LMA Director and Head of Legal, commented:
"At the present time, an enormous administrative burden is created by the perception that full customer due diligence and beneficial ownership checks should be undertaken on every party to a syndicated loan transaction, regardless of whether a customer relationship exists between those parties. This does not aid in the fight against money laundering - it merely reduces the efficiency of the market and potentially masks areas of legitimate risk. If greater focus can now be given to genuine customer relationships and the risk that those relationships may present, the likelihood of money laundering and terrorist financing going unchecked should be greatly reduced."