HM Treasury approves LMA revisions to Sector 17 of the JMLSG Guidance10 October 2019
Following discussions between the LMA, its members, the Joint Money Laundering Steering Group ("JMLSG") and HM Treasury ("HMT"), Sector 17 of the JMLSG's guidance on the prevention of money laundering and the financing of terrorism in the UK financial services industry (the "Guidance"), which relates specifically to syndicated lending and which was re-written by the LMA in May 2018, has now been formally approved by HMT.
The guidance is reflective not only of the latest Money Laundering Regulations published by HMT ("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 particular, the approved Guidance states that:
- although a syndicated loan is a tri-partite arrangement from a structural perspective none of the MLA, the agent or the security trustee should be viewed as having a "customer" relationship with each individual lender in the syndicate;
- although the agent has a role to play with regard to effecting the transfer of loan commitments from a seller to a buyer, it should not be seen to have a customer relationship with that buyer;
- the extent to which the borrower becomes the "customer" of any buyer in the secondary market will depend on the circumstances (further detail being provided in sector 17.22 (B) of the Guidance).
Commenting on the revised Guidance, Amelia Slocombe, LMA Managing Director commented:
"An enormous administrative burden is created by the perception that full customer due diligence should be undertaken on every party to a syndicated loan transaction, regardless of whether a customer relationship exists under the MLR. This does not aid in the fight against money laundering - it merely reduces the efficiency of the market."
"The key practical implication of the revisions is 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."
For further information, please contact:
Amelia Slocombe, Managing Director
+44 (0)20 7006 4114