According to Chris Mangioni, Associate Director at Protiviti, banks, financial and credit institutions (including FinTechs and MSBs) as well as other “obliged entities” must be prepared to take urgent action if they haven't already.
4AMLD originally came into effect through local laws in the UK and other EEA (European Economic Area) jurisdictions in June 2017. This Directive and related legislation brought about some of the most comprehensive and high impact changes to the AML approach that the “obliged entities” have yet to experience.
In May 2019, the European Commission (EC) mandated that obliged European home-based regulated entities must conduct a full assessment of every non-EEA country which they have branches or subsidiaries based, by 3rd September. This includes the following:
If the obliged entity cannot effectively manage the ML/TF risks in a higher risk third country through the additional measures applied, then the organisation shall close-down some or all of their operations in that country. Upon request, the obliged entity must be able to demonstrate to their AML supervisors/regulators the extent of the additional measures applied to help mitigate any the ML/TF risks. EEA Member state AML supervisors can also require obliged entities to terminate business relationships or even cease operations in the higher risk third country jurisdictions identified.
If the obliged entity cannot effectively manage the ML/TF risks in a higher risk third country through the additional measures applied, then the organisation shall close-down some or all of their operations in that country.
These provisions are in addition to the stricter Enhanced Due Diligence (EDD) measures for relationships with clients from or established in the EC high-risk third country list. This list is considered to be a good starting point for firms assessing the ML/TF risks of non-EEA countries. Further, the FATF list of jurisdictions with strategic deficiencies should also have been considered as identifying potentially higher risk third countries.
Many organisations are assessing how to differentiate their TM and ongoing monitoring process for EC high-risk third countries. 4AMLD brought in a stricter EDD requirement for any business relationship or transaction with a person established in an EC high-risk third country (this is not required for branches or majority-owned subsidiaries of EEA entities, where they can show they comply with Group-wide EEA policies and procedures). This stricter requirement includes making enhancements to ongoing monitoring with an obligation to increase the degree and nature of monitoring of the business relationship in which the transaction is made to determine whether that transaction or that relationship appear to be suspicious. The increase in the monitoring of the business relationship should include the greater scrutiny of transactions.
The EC high-risk third country list originally consisted of 12 countries and now stands at 16 countries after changes made in 2019. One of the proposed additional countries in February 2019 included Saudi Arabia, however, this was retracted by the EC.
Firms that have not yet differentiated their TM and ongoing monitoring processes for clients based in EC high-risk third countries are potentially non-compliant with 4AMLD.
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Unlike 4AMLD, there is expected to be no grace period for firms after 10 January 2020. Therefore, it is critical that organisations are taking the necessary steps to plan and implement the necessary changes in advance of the 5th Anti-Money Laundering Directive (5AMLD) being transposed into local EEA law.
Although the date of the 5AMLD related UK Money Laundering Regulations is still to be confirmed, the law will be transposed before obliged entities need to comply with it by January 2020. Other EEA regulators are also progressing with publishing their transposition of 5AMLD into local law.
5AMLD will bring new services and entities into scope for obliged entities. These include crypto-asset related entities (virtual currencies), e-money entities, art intermediaries, tax advisors, letting agents, corporate service providers, high-value dealers and entities involved in the issuance and distribution of anonymous pre-paid payment cards.
Amongst other things, 5AMLD will:
5AMLD is also expected to clarify the technical specifics for EEA Company registry’s concerning ultimate beneficial ownership information. Further, it is likely to create additional reporting requirements upon obliged entities to report discrepancies identified on EEA company registers.
As 5AMLD is now less than 6 months from the final implementation date in early January 2020, what necessary steps and measures has your firm taken to help ensure it can comply from day 1 or face potential regulatory backlash and increased scrutiny, including possible associated reputational risks?
Sharing personal data with organisations in the EU is essential to thousands of SMEs, and we know that the financial services sector is one of those that is most reliant.
When the UK leaves the EU, it will become what is known as a 'third country' under the EU’s data protection laws.
This means that UK and EU/EEA organisations will need to take necessary action to ensure that personal data transfers from organisations in Europe to the UK are lawful.
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The benefits of taking action now means UK organisations won’t be at risk of losing access to the personal data they need to operate such as names, addresses or payroll details.
Financial service businesses should review their contracts relating to these personal data flows. Where absent, they need to update their contracts with additional clauses so that they can continue to receive personal data legally from the EU/EEA after Brexit.
For most financial service businesses, this will not be expensive and will not always require specialist advice.
Digital Secretary Nicky Morgan said: “If you receive personal data from the EU, you may need to update your contracts with European suppliers or partners to continue receiving this data legally after Brexit.
“So, I am urging all businesses and organisations to check and ensure they are ready for Brexit.
“There are simple safeguards you can put in place by following the guidance available. UK and EU businesses should get on the front foot and act now to avoid any unnecessary disruption.”
The Greek Debt Crisis was one of the more recent economic disasters that required three bailouts. While Greece is far from out of the woods, here's a brief history lesson on what happened.
It seems only yesterday the Competition and Markets Authority (CMA) decreed that larger banks’ long-standing customer relationships impeded competition and innovation.
Open Banking has opened the door for third parties to access bank held account data as well as giving the ability to initiate payments from a customer’s bank. Features designed to allow new services to be delivered giving users enhanced financial services along with new, safe and secure ways to pay.
Soon these opportunities will be reflected in the rest of Europe as all banks ready themselves for a September go-live date. So what can Europe learn from Open Banking in the UK?
State of the UK
It’s well versed that Open Banking has been slow to take off in the UK. Indeed, by the time the implementation date arrived only four of the UK's nine biggest banks were ready. Nonetheless, we are now seeing some signs of impressive applications powered by Open Banking setting the standard for Europe.
The biggest challenge in the UK was that the concept and technologies used were new, resulting in a number of iterations being required to deliver products that meet market needs.
A key differentiator in the UK has been the Government introducing the Open Banking Implementation Entity that sets and polices progress.
PwC has estimated £7.2 billion in revenue will be created by Open Banking by 2022.
The European Landscape
The European landscape looks quite different. With no equivalent regulatory or policing body and no specific government drive, we are anticipating considerable variation of standards from bank to bank. Lack of consistency in how Open Banking is deployed will slow adoption as the development of new services becomes more complex and users do not receive a common experience.
To address this there are groups such as STET in France and the Berlin Group working to define standards for implementing Open Banking. There is also pressure from various banking trade bodies such as DDK in Germany pushing for commonality in standards.
The development of standards by such groups will help to create consistency, yet it still begs the question as to who will enforce regulation and uphold financial institutions to the specified due dates?
Cooperation between the banks
Naturally, the scale of this European go-live is not as straightforward as the UK’s due to the number of banks involved. Yet, it has the potential to unlock financial services and technological innovations that could position Europe as one of the leading financial regions when it comes to Open Banking.
Indeed, PwC has estimated £7.2 billion in revenue will be created by Open Banking by 2022. European banks need to view this as an opportunity to enhance banking capabilities and deliver for increasingly tech-savvy consumers both within and cross country borders.
One lesson to be learnt from the UK is that embracing Open Banking allows banks and financial institutions to innovate and deliver exceptional services to their customers.
Embracing Open Banking
And what about the wider world? In Europe, there are two aspects of Open Banking, one covering access to data and the other dealing with payments. Adoption around the rest of the world is developing at a pace, with many countries either already living with viable applications or in the process of introducing legislation. Differing areas are focusing on specific aspects of Open Banking, for instance, Australia looks more to the data usage whereas India already has a successful payment infrastructure based on these principals.
Despite the local and regional nuances affecting markets yet to go live with Open Banking, one lesson to be learnt from the UK is that embracing Open Banking allows banks and financial institutions to innovate and deliver exceptional services to their customers. Open Banking requires banks to cooperate with others to deliver the desired objectives of innovation to meet the ever-changing needs of customers.
Then, and only then, will we witness an explosion of new products and services for consumers throughout Europe and realise the true benefits of Open Banking.
The deadline to negotiate the exit was recently prolonged to October 31st, 2019. What are financial and economic consequences going to be for the UK? Public opinion has changed a lot lately. Theresa May has stepped down from the position of the UK’s Prime Minister and got replaced by Boris Johnson on 24th July. He promised that Brexit is going to be executed by 1st November with or without a deal with the European Union. Labour party demands another vote, as their members don’t think that leaving the EU would be a good idea at this moment.
Great Britain would no longer have the tariff-free trade status with other European countries if they decide to leave without a deal. This would have a significant increase in exports cost and automatically make the UK goods more expensive in Europe and potentially weaker the British Pound.
The prices to import goods to the UK would be higher, which also means some of them would simply reconsider distribution to Britain.
The same thing would happen with European merchants. The prices to import goods to the UK would be higher, which also means some of them would simply reconsider distribution to Britain. One-third of the food is coming from the European Union, which means inflation and a lower standard of living would be inevitable for UK residents. No deal agreement could also reignite the issues with North Ireland. This country would stay with the UK but there would be a custom border introduced between them and the Republic of Ireland. The last two things we would like to mention as a potential consequence of no-deal exit are rights for EU citizens living in the UK and outstanding bills. In case of an exit like this UK would have to pay $51 billion of debt and find a solution to guarantee rights to EU people within their borders.
Hard Brexit is the second alternative, and it is different in so many ways than the above-mentioned exit. This one would include a trade agreement with the EU; but this would require another re-schedule of the exit, as there is no enough time to negotiate it. Hard Brexit could have serious consequences on London as the financial centre. A lot of companies would stop using it as an English-speaking entry to the European Union economy. Also according to the latest research, more than six thousand people could lose jobs because of this and turn the real estate market into a disaster. There would be hundreds of office buildings in London sitting empty, without anyone to rent them. By comparing housing prices now and two years back, the price has already started to drop drastically. Another significant impact on UK companies would be the inability to place bids on public contracts in any European Union zone. This would take a massive toll on banking as well. Best betting sites experts have publish some odds that show that Hard Brexit deal would also increase costs of mobile phone services and airfares. Could the UK lose Scotland in case of Hard Brexit agreement? Potentially, yes. Scotland might have a bigger advantage of being an EU member, which also means a referendum to leave the United Kingdom. One of the most profitable industries in the UK is online gambling, and this one shouldn’t be affected much by any option.
Dealing with risk is a part of running any business, but CFOs can plan ahead to minimise any impact. When it comes to Brexit, they need to start planning for potential outcomes as soon as possible to be on the front foot. Simon Bittlestone, CEO of financial analytics firm Metapraxis, shares his tips on how to prepare for what’s to come post Brexit.
Synonymous with uncertainty
Brexit is throwing up so many unanswered questions - will Britain stay in the customs union? Will EU workers be allowed to stay in their UK-based jobs? How will leaving the EU impact profitability? C-suite executives, especially CFOs, are responsible for paving the way for a smooth transition and mitigating any potential negative impacts on the business effectively.
To do that, they need confidence in their decisions more than ever, and this is where technology can step in. Risk-taking will always come as part of the job description for business leaders and nothing can replace the instinct of an experienced leadership team. But amongst such high levels of uncertainty, and when negotiations with Brussels take a different turn every week, technology can help instil confidence that instinct is leading to the best strategic decisions.
Brexit or no Brexit, financial planning starts with target setting.
Planning pitfalls
Brexit or no Brexit, financial planning starts with target setting. Historically, businesses identify and outline their overall goals for the year in line with the business objectives. Keeping these targets realistic is vital for success, and doing so means understanding the importance of historical data. If the board can see performance trends within the context of the market, there is a far better chance of setting achievable goals from the start. Additionally, building a better picture of the company means management teams can understand all the business nuances and can better mitigate risk from the outset.
For finance to achieve data-driven success, it needs to overcome its greatest foible: Microsoft Excel. Though it can be customised to some extent, the tool cannot accurately reflect the complexity of an organisation with scale and agility and leaves the business vulnerable to human spreadsheet errors. It’s time to take advantage of financial analytics. Political and socio-economic factors are making markets more uncertain, so CFOs need to be far more agile when it comes to financial planning. The ability to run quick ‘what-if’ scenarios and see the potential impact of them is invaluable, and it’s just not possible with Excel.
Practical and proactive
With so many uncontrollable factors in the mix, companies need to retain an element of flexibility in their business planning. It’s no longer sustainable, or indeed sensible, to run a one-off annual planning session that cannot be tweaked throughout the year, as different factors come into play. If businesses want to keep achieving their set goals, they need to identify potential future uncertainties, risks and changes now, and be able to react to them on an ongoing basis.
It’s no longer sustainable, or indeed sensible, to run a one-off annual planning session that cannot be tweaked throughout the year, as different factors come into play.
Financial analytics can map all the key performance drivers across the business and build up a comprehensive picture of the history of the organisation, including how performance is affected by certain external events. In doing so, the business can effectively undergo scenario modelling – a game-changer when it comes to the endless questions and possibilities associated with Brexit.
Modelling the different possible outcomes of hypothetical situations will allow finance teams to better understand their potential impact. This can be done for both internal structural changes and external events to give invaluable insight to inform better strategic decisions. It’s possible for all this to happen in real-time in the boardroom: saving time, money and increasing chances of success too.
In the past, management teams could afford to be more insular in their approach – there was no need for anything other than internal factors to be taken into account, and planning was entirely focussed on the business’ own financial year. Now, it’s very different. There are so many uncontrollable factors impacting the market and contributing to financial uncertainty. CFOs don’t have to resign themselves to being unable to plan for this, they just need to have the right technology in place. Financial analytics and scenario modelling will allow CFOs to implement rolling plans that can adapt to fluctuations in the market. This agility is the key to weathering the Brexit storm.
Digital banks raised over $1.1bn in fresh funding throughout 2018 in Britain, a figure that is set to be dwarfed if the current pace of growth continues to demand the attention of investors. Claudio Alvarez, Partner at GP Bullhound, explains for Finance Monthly.
Europe is truly leading the fintech charge, accounting for roughly a third of global fundraising deals in 2019, up from only 15% in the fourth quarter of 2018 according to our data. These are digital firms raising globally significant levels of capital. Adyen, the Dutch payment system, is now one of the frontrunners to become Europe’s first titan, valued at over $50bn. Europe has become a breeding ground for businesses that can go on to challenge US tech dominance, and it is fintech where we will find most success. Europe’s unique capacity for incubating disruptors is a phenomenal trend to have emerged over the past few years.
It’s true, European culture has always been more open to contactless and cashless, in contrast the US, where legislation and the existing banking infrastructure make adopting new technologies in banking slower and more convoluted. Europe has been able to take an early lead, while the US remains fixed on dollar bills.
As the ecosystem evolves, borders will become less relevant and markets more integrated, allowing the big players based in Europe to expand into further geographies with greater ease. European success garners the growth, momentum and trust needed to brave new regions and cultures. Monzo won’t be alone in the US for long.
As the ecosystem evolves, borders will become less relevant and markets more integrated, allowing the big players based in Europe to expand into further geographies with greater ease.
Whilst the Americans’ slow start has allowed European start-ups to become global players, it’s also true that the regulatory environment has distracted the European big banks and opened up the space for innovative and disruptive newcomers. While PSD2 has eaten up the resources of the incumbents, the likes of Monzo and Revolut have focused on consumer experience, product development and fundraising. The result? Newcomers are able to solve problems that older institutions simply don’t have the capacity to address.
However, a word of warning: traditional bricks and mortar banks aren’t dead yet. For one, digital banks will still need to justify the enormous valuations they’ve secured recently, and will have only proved their worth if, in 3 to 5 years’ time, they have managed to persuade consumers to transfer their primary accounts to them, which would allow digital banks to effectively execute on their financial marketplace strategies
Meanwhile, traditional banking institutions have a plethora of options to fend off the fintech threat and most are developing apps and systems that mimic those created by the digital counterparts. Innovation isn’t going to come from internal teams – it needs to be a priority for the old players and they need to invest in third party solutions to excel as truly functional digital platforms in a timely manner. In the first instance, the traditional banks will need to solve the issues that pushed consumers towards the fintechs and secondly, work on attracting consumers to stay by offering, and bettering, the services that make fintech’s most attractive.
Competition breeds innovation. For the fintech ecosystem as a whole, this new need for advancement is only good news – a rising tide lifts all ships. As traditional banks try to innovate and keep pace, we’ll see them investing in other verticals in the fintech market. Banks’ global total IT spend is forecast to reach $297bn by 2021, with cloud-based core banking platforms taking centre stage. Digital banking may have been the first firing pistol, but the knock-on effect of the fintech revolution is being felt across the board.
The fintech boom shows no sign of bust, market confidence is riding high and will continue supporting rapid growth. The aggressive advance of digital banks has opened doors for a whole host of fintech innovation - from cloud-based banking platforms to innovation in the payments sector. The number of verticals that sit within financial services creates a plethora of opportunity for ambitious and bullish fintechs to seize the day.
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Steven Smith, Europe Proposition Lead, Corporates, at Thomson Reuters, looks at the challenges that businesses face in being tax compliant across indirect tax, corporate tax returns and year-end accounts across multiple jurisdictions.
Governments around the world are rapidly moving away from the established ‘old’ standard of gathering taxpayers’ information. These changes are not uniform and vary from country to country, with, for example, Spain requesting invoice details every four days, Hungary demanding them at the point of invoicing, and Italy adopting a clearance model (with Greece following suit in 2020).
Fraud and tax avoidance are the driving forces behind governments refining tax processes. By adding transparency to the invoicing process, tax authorities can quickly identify where one party or another may be cheating the system. In countries, such as India, goods and services taxes (GST) have been introduced, which enable authorities to see both sides of a transaction. China has also introduced a very similar process. It really boils down to compliance and data. If a multinational organisation is striving to comply across different jurisdictions, it must be sure that its data is correct, even before an invoice is raised. Are the buyer details correct? Does the invoice meet the criteria to calculate the correct VAT liability? All of this data needs to be present before the finance department starts raising invoices.
Tax avoidance in the UK is not on the same scale when compared to countries like Brazil and Poland. Indeed, HMRC believes that UK corporate taxpayers are far more compliant and as a result it is very unlikely to introduce intrusive reporting such as Security Industry Association (SIA), however, there is still a gap that needs to be filled so initiatives such as Making Tax Digital (MTD) are only the start of more detailed information requests.
But meeting MTD in the UK is just one thing. It’s a very different story for multinationals. Many are firefighting and taking a ‘sticking plaster’ approach to help meet the myriad of tax requirements across different territories. They tend to focus on one particular country at a time, and that focus is driven by audits. And then once that requirement has been met, they simply switch their ‘firefighting’ mode to the next country and wherever the greater risk for non-compliance rests. However, they’re missing a huge opportunity by taking this case-by-case approach rather than looking at the entire organisation’s global footprint.
Meeting MTD in the UK is just one thing. It’s a very different story for multinationals. Many are firefighting and taking a ‘sticking plaster’ approach to help meet the myriad of tax requirements across different territories.
The sticking plaster approach of hopping from one country audit to the next has left a huge mess and many organisations are now in the position where they could be much smarter in the way they store and utilise their tax data. Organisations need to review how much business they’re doing country by country and prioritise by compliance risks. Now is the time to clean up and identify and rectify problem areas before the authorities come calling.
No company is the same and so it is difficult for businesses to know which country to concentrate their efforts on at a particular time. What they can do though is connect the tax dots. By working with a technology partner that operates across multiple jurisdictions and by prioritising countries, organisations can work to meet immediate requirements and add other countries as they come onboard. Working with one partner to meet these requirements means there’s no need to repeatedly hire new people, partners or add different processes as all the tools are available in one place.
Connecting the dots isn’t just about working more effectively across multiple countries though. It’s also about how invoices and indirect tax relates to the company’s corporate tax position, about corporate pricing arrangements and corporate income tax. And it’s about connecting all that internal information and driving greater collaboration across the tax and finance departments so that all parties have a clearer view of the organisation’s financial position.
MTD is just a tiny piece of the indirect tax puzzle, yet keeping records digitally will not only help to ensure a business is compliant but will also provide far greater insight into operations. Global businesses will always have more important, more urgent things to focus on, but they’d be mistaken to ignore the opportunity digital tax has to offer the business, as well as the tax authorities.
Oxford Economics recently published research titled “the big business of small business”, which states bank lending to SMEs has fallen 3% since 2015. This is in the face of a rise in credit provisions to large companies of 43%. The report states that SMEs are being given the ‘cold shoulder’ resulting in an impact on recovery against small businesses.
Sam Moore, Managing Director of Oxford Economics, says the findings of the research offer a “stark reminder” of “the uphill challenges which small businesses face when dealing with the traditional banking sector”. Although SMEs are responsible for half of all employment in industrialised countries and 50-60% of GDP, the focus of banks is still on loaning primarily to larger firms. A primary factor for this is the “lingering effect” of the financial crisis ten years ago, with the impact it had on the small business lending market still being prominent today.
The way consumers access their money and choose financial products has changed drastically due to technology continuing to advance at an incredibly fast pace. Oxford Economics state that it is estimated a third of all digital consumers now use a form of FinTech (Financial technology). This ranges from apps which allow you to take a loan out, online banking or invest in stocks and shares, among other things.
Small businesses, due to the poor treatment they are receiving from banks, are also beginning to get on board with FinTech. As the financial services landscape changes due to a number of innovations within the sector, the reliance on traditional banks has fallen substantially in favour of a FinTech solution.
A merchant cash advance - or MCA - is a form of alternative business finance for small firms and sole traders. Whereas traditional bank loans require borrowers to pay back a set amount of funds on set dates over time, a merchant cash advance – also known as a business cash advance – works on a rather different basis, with the amount repaid at any one time proportional to turnover. That’s because it’s a form of finance based on a company’s credit or debit card transactions.
Given the difficulty of obtaining a traditional bank loan for many businesses, it’s understandable that a great number turn to this innovative source of finance.
There are many advantages to a merchant cash advance. For instance, during busier periods when a business is making more money, more of the MCA will automatically be paid back, compared to leaner times when it won’t pay so much. With an MCA, there’s also no need to worry about keeping a certain amount of money to one side to pay on a set date - it really is a flexible, scalable and manageable form of business finance
With high approval rates, approvals within as little as 24 hours, zero APR, no fixed term, no other hidden charges and no need to provide security or a business plan, merchant cash advances are becoming an ever-more invaluable part of many firms’ cash-flow management.
An MCA also frees you up to use another type of finance alongside it, such as a bank loan or equipment lease, in the knowledge that the MCA won’t imperil your entire financial future in the way that other loans can if you are unable to keep up with the repayments.
Given such wide-ranging advantages as the above, it’s no surprise that so many firms that may otherwise struggle to obtain finance – especially those in the leisure sector, such as bars, restaurants, clubs and shops – are increasingly deciding to use their future credit card receipts as a means of securing quick funding through an MCA.
Here Jamie Johnson, CEO and Co-founder at FJP Investment, discusses with Finance Monthly the real impact of Brexit on the UK property market.
While it may seem like the country has ground to a standstill as the political standoff in Westminster continues, we cannot let this overshadow the activity and trends underpinning many of the UK’s leading sectors.
The property sector is a case in point – domestic and foreign investment continues to pour into the market, increasing house prices grow and in turn producing attractive investment opportunities. Recent research suggests that property investors also stand undeterred despite Brexit uncertainty –almost half (45%) of property investors have expanded their property portfolio since the EU referendum, whereas only 7% said they had sold one or more homes as a direct result of Brexit.
To understand why the UK continues to be a prime property hotspot despite the current state of political affairs, it can be valuable to reflect on how the sector has fared over the last two and a half years. This including understanding the key trends that have played a central role in shaping the real estate market.
In times of uncertainty or transitions, commentators like to take a keen interest into how different sectors are performing in London. As a cosmopolitan hub renowned for its residential and commercial real estate opportunities, the capital has faced some challenges. Since the EU referendum, house prices have largely stagnated, and in some postcodes even fallen.
However, focusing on primarily on London risks overlooking the progress taking place in regional markets. Indeed, national house prices have actually been on an upwards trajectory in recent months, driven largely by strong growth in places like the Midlands and North of England.
Birmingham (up 16%), Manchester and Leicester (both up 15%) have experienced the fastest rates of house price growth since the June 2016 referendum, followed by Nottingham (14%), Leeds (12%), Liverpool and Sheffield (both 11%). In real terms, this means that the average property in Birmingham now stands at £163,400, while the average house in Manchester costs around £168,000. For an investor, this attractive capital growth few assets can match.
So, what are the underlying reasons for these strong performances? Much of it comes down to large-scale regeneration projects which are reviving infrastructure, construction and transport links. Some of the construction works include the redevelopment of land close to new stations that are being created for High Speed 2 (HS2).
Significant public and private investment is undoubtedly bolstering the sector, yet another important trend to note is the volume of property transactions taking place even at the height of Brexit uncertainty.
In January of this year – just weeks from the original Brexit deadline, and without a clear vision of what the UK’s transition from the EU would entail in practical terms – the number of transactions on residential properties with a value of £40,000 or greater was 101,170, or 1.3% more than a year prior.
This is testament to the underlying popularity of property as an asset class able to deliver long-term returns, and weather political and economic transitions. In fact, recent research revealed that Brexit hasn’t dampened investor sentiments towards property; the survey of over 500 property investors revealed that 39% plan to increase the size of their property portfolio in 2019, regardless of the ongoing negotiations.
Notwithstanding the obvious challenges facing the UK – namely, setting out a clear direction for the future of the country outside of the EU – there are some pressing national priorities that also deserve attention.
Perhaps most important of all is the housing crisis. At present, there are simply not enough affordable and accessible houses on the market to meet growing demand. And while the government has set targets to address this issue, there is an overwhelming fear that these goals will ultimately fail to materialise.
Last year, Prime Minster Theresa May committed the government to delivering 300,000 new homes a year by the mid-2020s. Although a positive step in the right direction, the current pace of progress suggests that construction efforts will fall short of reaching this target.
Figures released by the housing ministry in March 2019 showed that building work began on 40,580 homes in England during the final quarter of 2018. This is down 8% on the previous three months. Further to this, a National Audit Office report recently concluded that half of councils are expected to miss house building targets.
While Brexit has largely taken priority over important issues, the Government cannot put off committing the necessary time and resources towards rebalancing housing supply and demand. Creative reforms are needed, and debt investment projects, such as off-plan property investments, are but one of the many solutions that could promote the construction of new-build properties.
Despite the current obstacles facing the property market, UK real estate has proven itself to be a resilient asset class even in times of hardship. Bricks and mortar remains a popular destination for domestic and international investment, and looking beyond the more immediate challenges lying on the horizon, it is important to recognise the resilience of property as a leading and desirable asset class.
Here, encompass industry adviser Dr Henry Balani, a financial services expert and academic, examines the key developments within the latest directive and what they will mean.
What is 5MLD and how is it different from previous anti-money laundering directives?
5MLD represents the latest update to the Anti-Money Laundering (AML) directives put out by the European Union (EU). Like those before it, its goal is to stay current and on top of changes in money laundering techniques that criminal actors have been adopting.
Financial crime continues in whatever form is available to these bad actors, and regulators need to adapt to these changing circumstances with new updates. 5MLD is especially pressing, given the high-profile terrorist attacks in Paris and Brussels in 2015 and 2016 respectively. In both cases, terrorists used non-conventional techniques to finance their criminal activity, including the use of pre-paid cards, which under 4MLD was not adequately covered for potential money laundering abuse.
The Panama Papers leak in early 2016 also highlighted the shadowy nature of how corporations can hide the true owners of shell companies that are used for illicit activities.
Politically Exposed Person definition clarified
There are several major updates that distinguish 5MLD from 4MLD, with the first clarifying the definition of a Politically Exposed Person (PEP).
Under 5MLD, member states will be required to identify beneficial owners and to maintain public registers of these.
By virtue of their positions, PEPs are more susceptible to corruption, given their government role and influence. Corruption is a predicate crime to money laundering, and financial institutions have to conduct enhanced due diligence on their PEP customers due to this increased risk.
Previously, there was no clear definition of a PEP – for example, while the Mayor of London is a PEP, what about the Lord Mayor? How about a Mayor of a small village in Spain? To achieve some level of consistency, member states will now need to maintain a list of prominent public functions that Obliged Entities (OE) – institutions that are required to comply with the Money Laundering Directives – like financial organisations, can then use to develop their due diligence procedures.
While this change is a step in the right direction, there are still challenges, which are largely due to the inconsistent definitions of these functions, especially across all the different EU member states.
More of a spotlight on information sharing
The second update relates to information sharing by EU member states’ Financial Intelligence Units (FIU). FIUs are tasked with identifying potential money laundering activity based on information received by financial institutions that report suspicious activity. Sharing information across member states helps improve criminal activity detection, especially when these criminal activities move across borders.
5MLD requires member states to set up centralised bank account registers to identify account holders, including the Ultimate Beneficial Owners (UBO) of these accounts. Ultimately, OEs will need to be able to set up efficient processes to share their customer account information with the FIUs.
The Paris and Brussels attacks have heightened the role of law enforcement in identifying terrorists, which results in these agencies requesting customer account information without the need for suspicious activity reports (SARs).
Under 5MLD, member states will be required to identify beneficial owners and to maintain public registers of these.
Previously, law enforcement agencies would only act on potential money laundering suspicions based on the filing of SARs by OEs. However, 5MLD now allows law enforcement agencies the ability to track potential terrorists without these SARs. OEs will need to be able to provide timely, accurate and relevant customer account information as needed.
More transparency is now required when identifying UBOs
Another significant update within 5MLD relates to the need for additional transparency related to identifying UBOs of corporations.
The Panama Papers leak made clear that many shell companies were used for both legitimate and nefarious business transactions. Shell companies make it easy to ‘hide’ assets of corrupt government officials (PEPs). The Prime Minister of Iceland is one prominent PEP uncovered in the Panama Papers leak, resulting in his removal due to less than transparent financial transactions.
Under 5MLD, member states will be required to identify beneficial owners and to maintain public registers of these. The result of such public registers is an increase in transparency, making it more challenging to disguise illicit transactions including terrorism and money laundering.
Added screening around virtual currencies
The rise of new financial technologies has provided consumers with greater choice and flexibility in conducting financial transactions across borders. An example is the introduction of cryptocurrency, including bitcoins.
Virtual currency exchanges and custodian wallet providers have now sprung up to service consumers. However, criminals also take advantage of these financial technologies. The innovation from cryptocurrency requires regulations to prevent widespread abuse. 5MLD changes require virtual currency exchanges to screen their customers for potential money laundering. Banks will also now need to screen these virtual currency exchanges as well, including their customers.
Cryptocurrency already holds great promise when it comes to driving greater efficiency and lowering costs for cross-border transactions, and the 5MLD requirements can help in greater adoption of this new technology.
5MLD changes require virtual currency exchanges to screen their customers for potential money laundering.
Lower identification threshold for pre-paid cards
Other innovations in financial technology have also resulted in the greater use of pre-paid cards. Unfortunately, post analysis of the Paris and Brussels attacks revealed that the terrorists financed their activities using these prepaid cards. These anonymous instruments made it easy for them to disguise their identities, consequently meaning it was difficult for law enforcement agencies to track their financing operations.
As a direct result of these attacks, 5MLD now lowers the identification threshold of these prepaid cards to over €150 (down from €250), with any remote payment transactions over €50. Any institution selling prepaid cards will need to conduct due diligence checks on their customers to identify suspicious transactions.
It is clear that technology innovation and new payments processes are driving greater ease of use in financial transactions globally. While they benefit the general public, bad actors will always be looking to take advantage of these trends to finance their illicit activities.
5MLD represents a significant step forward in addressing these loopholes. However, technology change, especially in financial services, continues to accelerate. 6MLD is already in discussion amongst EU regulators. And it is clearer than ever that there is a need to make it count if we are to stay vigilant and on top of the never-ending fight against money laundering and terrorism.
Website: https://www.encompasscorporation.com/
When registering a company in Ireland, what are the most important legal considerations that should be taken into account?
When you start a Limited Company in Ireland you need to guarantee that you meet all the legal requirements. Together with selecting a distinguishing name for your company, the things that need to be taken into consideration include: the company needs to have at least one director who’s a resident of the EEA as otherwise, a non-EEA resident bond needs to be provided; have a secretary; have at least one shareholder; have a registered office address and you’d also need to decide on how many shares will be allocated and issued. After your company is registered, the main on-going compliance requirements are as follows: All companies must submit and file an annual return every year, together with abridged accounts to the Registrar of Companies. Failure to do so will result in substantial penalty fees and possible strike-off proceedings, as well as loss of the audit exemption for two years if applicable. The first Annual Return is due six months after incorporation (no accounts required). The only exception to this are Unlimited Companies in certain circumstances.
Every company whose turnover or group turnover exceeds €8.8 million must prepare and file audited accounts. Most registered charities (Companies Limited by Guarantee) must also file audited accounts.
A Corporation Tax Return must be made every year and if the company is VAT registered, VAT returns must be made every two months.
Ireland has one of the lowest corporate tax rates in the world at 12.5%.
How can non-residents avoid difficulties when attempting a company formation in Ireland? Why is it important to contact a specialist?
Getting the correct advice from a specialist is a must when selecting the correct structure of the company to be able to avail of the Irish preferential corporate tax regime. The type of structure you choose depends on the kind of business you are running, with whom you will be doing business and your attitude to risk. It is advisable to get the advice of a company formation specialist like Fidutrust Formations Ltd when considering the structure for your business. Another important aspect is whether the beneficial owner is an EU resident or not. If a non-EU resident wishes to set up a company in Ireland, they need to have an EU resident director in the structure. If they cannot provide one, a non-resident director bond must be put in place. Many of our non-EEA clients ask what a non-resident bond is and why it is required and the explanation is quite simple - it ensures the company for a sum of €25,400 and its purpose is to make sure that it completes the required submissions with the Revenue Commissioners and the Companies Registration Office.
Our company could assist in obtaining this bond or could provide a nominee director to comply with the regulation of having an EU resident in the structure.
Why should people consider registering their company in Ireland? What makes the country attractive?
Ireland is attractive because it has one of the lowest corporate tax rates in the world at 12.5%. Additionally, a thriving research, development and investment sector, with strong government support for productive collaboration between industry and academia, is present in Ireland too. Other benefits are a strong legal framework for development, exploitation and protection of intellectual property rights; a strategic location with easy access to the European, Middle-East and Africa (EMEA) region; excellent IT skills and infrastructure; and an advanced telecommunications infrastructure, with state-of-the-art optical networks and international connectivity. Ireland also offers strategic clusters of leading global companies in life sciences, ICT, engineering, services, digital media, and consumer brands.
Ireland came 11th (out of 82 countries) in the recent Business Environment Ranking of the Economist Intelligence Unit’s ‘Most attractive business locations in the world’ ranking. The country is politically stable, has a respected regulatory regime, is considered to be a low bureaucracy and offers a low-tax environment that is very supportive of entrepreneurs. The World Bank’s ‘Doing business’ report rates Ireland as the easiest place in the European Union to start a business due to having the most business-friendly tax regime out of any country in Europe or the Americas.
Tell us about the tax-efficient structures that are available to businesses in Ireland?
One of the most beneficial elements available in Ireland is a range of specialist tax vehicles. These entities are set up to take advantage of beneficial tax rates and relaxed reporting standards, allowing companies to avoid certain public declarations of funds and profits. These vehicles known as Qualifying Investor Alternative Investment Funds (QIAIF) can come in five different formats, with the Irish Collective Asset-management Vehicle (ICAV).
The World Bank’s ‘Doing business’ report rates Ireland as the easiest place in the European Union to start a business due to having the most business-friendly tax regime out of any country in Europe or the Americas.
Qualifying Investor Alternative Investment Funds (QIAIF) were created to counteract some of the bad press previous tax saving schemes in Ireland had obtained and to compete with other offshore jurisdictions.
Some QIAIF vehicles select the tax transparent Limited Partnership type. However, since their introduction in 2014, the Irish Collective Asset-management Vehicle (ICAV) has been the preferred choice for both US-based or linked investors, outperforming options in several other jurisdictions.
Would an investment into a new company formation in Ireland guarantee a residency permit for non-EEA nationals?
There are two ways in which non-EEA nationals can invest or start a business in Ireland and receive a residency permit or a business visa. The first one is called an Immigrant Investment Program that provides a range of investment options which allows approved non-EEA investors and their immediate family to enter Ireland on multi-entry visas and remain here for up to five years with the possibility of ongoing renewal. The client would have to have a net worth of at least €2MM and be able to invest in one of the categories under this scheme.
The second one is called a Startup Entrepreneur Program and it allows a non-EEA national with a high-potential startup and minimum funding of €75,000 to come and set up a business in Ireland. If you are enrolled in this program, you will receive a 12-month business visa that could be extended after it expires. We would be happy to provide more information on these programs to anyone interested in finding out more
Do you provide assistance with business bank account openings in Ireland or other jurisdictions?
We do and this is our main specialisation. There is a huge demand on the market for bank account opening services, given recent issues in Latvia and Cyprus, and we are proud to be one of the leading agencies in Europe that provide operational, holding, crypto and transactional business bank accounts in the major EU, US, Asian, Swiss and off-shore banks for companies domiciled all over the world. We can open bank accounts for all types of legal entity structures and for most countries of residence of the beneficial owners.
About Fidutrust Formations Ltd & Apex Fidutrust AG
Fidutrust Formations Ltd provides assistance on a wide range of consulting and legal services in Ireland in the field of registration and administration of companies, partnerships, trusts and funds as well as consultancy in Irish civil and business law. Apex Fidutrust AG is a fiduciary and financial intermediary firm providing corporate, banking, asset and wealth management services in Switzerland.
Contact details
Fidutrust Formations Ltd
19 Charnwood Court, Clonsilla, Dublin 15
Contact number: +353 1 559 39 08
Mob: + 353 86 896 82 79
Email: mikhail@irishcompany.eu
