Regulations set to come into force in December will be costly and could lead to a drop in competitiveness, according to a survey
Frances Gibb, The Times Legal Editor
New money laundering regulations to take effect later this year will create more costs and red tape for businesses — hampering their competitivenss, according to a new survey of law firms today.
The survey shows that 52 per cent believe the Money Laundering Regulations 2007 will need extra financial investment — they predict due dilligence costs will rise by 10-29 per cent — and half fear they will undermine the competitiveness of the UK economy.
The survey, by the legal information providers Lexis Nexis, also finds that law firms have already started to make significant investment to prepare for the regulations introduction at the end of the year, although the Government has only just published final details on compliance; and two thirds of law firms have invested in extra staff training.
The Money Laundering Regulations 2007, designed to combat money laundering and the financing of terrorism, are the UK’s response to the EU Third Money Laundering Directive that must be implemented into UK law by December.
Under the new regulations, it is anticipated that law firms will need to make changes to how they conduct money laundering checks, identify beneficial owners, monitor business relationships and determine whether a customer is a "politically exposed" person.
Failure to comply could severely damage business reputation and lead to fines, business closure and even prison. Half of the law firms polled believed that the main benefit of the regulations would be the reduced likelihood of falling victim to financial crime.
The research also shows that the principal concern facing 38 per cent of all law firms is the reputational risk if found to be non-compliant. The second most important concern, for one-third of law firms, is the financial risk if fined due to non-compliance.
Mark Dunn, a business consultant for risk and compliance at LexisNexis, said: “Law firms are sceptical about the money laundering regulations but are pragmatic enough to know that early action to comply is preferable to the high costs of financial crime. Today’s research quantifies for the first time concerns that have long been raised.
"The regulations are trying to combat a very real and pressing issue for the UK — money laundering and in particular its use to finance terrorism, and it’s encouraging that half of all law firms believe that the new regulations will mitigate the business risk of being exposed to the threat of financial crime and money laundering."
But, he added: "The regulatory authorities are likely to clamp down hard on law firms that do not adhere to the new regulations so companies need to make sure that they don’t run the risk of being penalised. At the same time, this provides an opportunity to review existing due diligence processes – and potentially to improve business efficiencies and save money along the way.”
Overview of statistics:
* 52 per cent believe the new regulations will require additional financial investment.
* Out of these, half believe their overall due diligence costs will increase by as much as 10-29 per cent
* 50 per cent believe the regulations will undermine the competitiveness of UK PLC
* 68 per cent of law firms have started to invest in training resources to bring staff up to speed with the changes and 48 per cent have started to invest in personnel to perform due diligence checks
* 50 per cent believe that the new regulations will mitigate the business risk of being exposed to the threat of financial crime and money laundering
* The principal concern facing 38 per cent of all law firms is the reputational risk if found to be non-compliant
* The second most important concern for a third of law firms is the financial risk if fined due to non-compliance
* 40 per cent see no benefits to the new regulations
http://business.timesonline.co.uk/tol/business/law/article2147209.ece
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