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HMT- Transposition Of 4MLD

Response To The Consultation

We limit our response in what follows to those areas of most relevance to credit unions and on which the sector has strong views.

  • Question 3 – it would appear appropriate that CDD measures are applied to existing customers where they seek a new class of product. This should be applied on a risk-based basis so that unless there is some reason for further scrutiny, historical provision of information should be acceptable.  It would be burdensome and inappropriate to ask customers for the same information repeatedly where there is no reason to consider their risk profile has changed.
  • Question 4 – A change of names or marital status would necessitate some CDD measures.  Address may also require this in certain circumstances.  Once again, expectations should be based on risk assessment and be proportionate to the circumstances and risk profile of the customer. 

  • Question 5 – CDD measures are more costly for small businesses to carry out, especially where they involve third party validation services where the cost is often linked to volume.  Credit unions who are seeking to serve hard to reach sections of society can be more heavily hit by extra costs than other institutions who serve more profitable markets.  As a corollary of this, credit union members tend to be lower risk due to the restricted locations and markets credit unions serve.  The risk-based approach and proportionality are crucial to managing the costs of CDD for small providers such as credit unions.

  • Question 6 – For credit unions, like other small organisations, it would be helpful if guidance or clarification could be provided to them in terms of the conversion of Euro-denominated thresholds. It is difficult for small organisations to maintain this independently of external guidance and some structure.  The recent volatility of the pound, for instance, presents significant difficulties for credit unions seeking to apply a Euro-denominated threshold.  It would be helpful if some mechanism for periodic setting of the appropriate threshold could be established to assist small institutions in their compliance.

  • Question 7 – Credit unions support the retention of the list of products which warrant SDD.  In particular it’s important to retain clarity around the ability to use SDD measures in relation to products offered with a view to extending financial inclusion.  Many credit unions actively seek to extend financial inclusion and use SDD measures to accommodate individuals who struggle to provide standardised ID documentation.  The removal of this list may well exacerbate exclusion.

  • Question 49 – We have serious concerns as regards the de-risking phenomenon and how it is affecting the appetite of banks to provide correspondent banking services to payment service providers such as credit unions.  There is growing evidence that banks are increasingly reluctant to provide such services given the perceived risk that they could be held accountable for the transactions of their customers’ customers.  While we appreciate that FATF and other bodies are looking seriously at these issues, we would take this opportunity to once again make the case for a proportionate and sensible approach to correspondent banking so that institutions that provide services to others that are regulated for money laundering prevention in their own right are not concerned that they are equally responsible for any activity by that entity as the entity itself.  A failure to respond to de-risking could have a serious chilling effect on the provision of correspondent banking which is negative for competition and choice in banking and generally detrimental to market outcomes for consumers.

  • Questions 50-59 – Our overarching concern with the application of PEPs requirements and attendant EDD measures to domestic PEPs is that there will be significant new costs for small PSPs who have such relationships with local political and other public figures.  In general we would like to see clear guidance as to how such high-risk individuals can be treated on a scale of risk

  • Question 60 – We respond on beneficial ownership only to make the clear that we feel there is no case for beneficial ownership tests in relation to credit unions.  Credit unions are co-operative societies who are owned in equal proportion by all their members.  Therefore they have no clear ownership by any one or small group of individuals and are therefore not at risk of being used for laundering money in the way other corporate forms may be. 

The full PDF version of this consultation response is available to download on the right-hand side