ECSH64075 - Regulation 63 - Duties of transfer of funds supervisory authorities


Category Heading 
 Description 
The Law https://www.legislation.gov.uk/uksi/2017/692/regulation/63
What it means HMRC must ensure that MSB Money Transmitters, Bill Payment Service Providers (BPSP) and Telecommunications Digital IT Payment Service Providers (TDITPSP), which it supervises, comply with the Funds Transfer Regulations and information on payer (REGULATION (EU) 2015/847 – Information of payer Transfer of funds regulations (FTR)) and additionally liaise with other external stakeholders (including internationally) to undertake joint actions combatting Money Laundering, Terrorist Financing and Proliferation Financing which includes but isn’t limited to the development and implementation of new government policies and guidance for example petitioning to further develop regulations. It also requires that where HMRC identify a reason to know or suspect ML/TF/PF or have reasonable grounds for it, that they raise a SAR to the NCA. 
Purpose Defines and establishes the duties (what the supervisors must do – paragraph 1(a)-(d)) of HMRC as the supervisory authority of payment service providers (for HMRC this is MSB Money Transmitters, BPSPs and TDITPSPs) in compliance with the FTR. 
 
It additionally provides some key definitions (paragraph 10a) and b)) and a framework (paragraphs 2 to 7) to which HMRC can ensure that it complies with the FTR for the purposes of the supervision of money transmitters under the MLRs, and where required engages with other (relevant and named) stakeholders to combat the risks posed to the Money Transmitter sub-sector of MSBs.  
Time Line 1 January 2007 – Regulation EC 1781/2006 
15th December 2007 - MLR 2007  
26 June 2017 - REGULATION (EU) 2015/847 
26th June 2017 – MLR 2017 
What to esatablish Having established under Regulation 62 that the business is an MSB Money Transmitter, a BPSP or a TDITPSP and that HMRC are its supervisor under the FTR; 
Whether the MSB Money Transmitter, a BPSP or a TDITPSP is aware of the FTR and their requirement to comply (paragraph 1(b)) with them. 

Where the business “Firm Status” is showing as an Authorised Payment Institution (API) or registered small payment institution (SPI), officers will need to check the HMRC MLR registers to ensure that the business does appear therefore HMRC is the supervisor as a payment service provider for the purposes of the Transfer of Funds Regulations (Regulation (EU) 2015/847 – Information of payer Transfer of funds regulations). Officers will therefore need to determine whether the business complies with Regulation 64 of the MLRs.   
 
If it does not appear on the HMRC MLR Register (or officers are needing to ensure that they don’t have dual supervision or require supervision by the FCA instead), officers will need to review the “Activities and Services” section of the FCA website to see whether the business provides any other services than Payment Services. For example the “Activities and Services” section may show dropdowns for Payments Services & E-Money, Banking, Insurance, Mortgages and Home finance, Consumer Credit, Pensions, Investments or Other Services (where the dropdown will open up to describe the other services provided).  
 
If the “Activities and Services” section of the FCA website contains anything in addition to “Payment Services” the FCA is the supervisor for the purposes of the Transfer of Funds Regulations (Regulation (EU) 2015/847 – Information of payer Transfer of funds regulations and HMRC are not the business supervisor for these purposes.  
Whether the MSB Money Transmitter, BPSP or TDITPSP offers a service as a Payment Service Provider in the UK, however has its head office in a country other than the UK 
Whether the MSB Money Transmitter, BPSP or TDITPSP has its head office in the UK, however offers a service as a Payment Service Provider in any other country(ies) 
Whether the MSB Money Transmitter, BPSP or TDITPSP has/is engaged in Money Laundering, Terrorist Financing or Proliferation Financing or whether the HMRC officer suspects or has reasonable grounds for knowing/suspecting that this may be the case.  
How to test compliance and evidence to obtain 
 Ask generally about the regulations which they are aware of for the purpose of Money Transmission, BPSP or TDITPSP services they offer.  
Where the business does not mention them, ask specifically whether the business is aware of the FTR - based on their response ask follow up questions to determine (officers will need to review Regulation 64 information from the MLR toolkit for further information on what the business is required to do and to formulate follow up questions to be asked of the business) what they know about whether they need to comply, and what actions (how) do they comply with them. 
 
If the business has not heard of the FTRs, this should be clearly and fully noted, subsequently ensuring that the business is aware of their requirements under the FTR through discussion with them. Officers will need to point the business to the FTR (EU document located on Gov.uk) the relevant areas of HMRC guidance (MSB guidance) and Regulation 64 of the MLRs as a minimum and ensure it is aware of its obligation to report breaches of the FTR to HMRC. 
Where the business is familiar with/heard of the FTR, officers will need to ask the business about what they understand their requirements/obligations (officers will need to review Regulation 64 information from the MLR toolkit for further information on what the business is required to do) are.  
 
Officers will also pose a hypothetical question concerning if the business became aware of another person’s non-compliance with the FTR, what would their reactions to this be. Once answered, if they haven’t already stated to raise this to HMRC as their supervise, officers will encourage the business to do this.  
Where officers haven’t been able to determine where the businesses head office is located from their application, E-sip and searches on publicly available information, they will need to ask where the head office is located.  
 
Once the head office location has been determined, where the head office is in another country however the business is conducting money transmission, BPSP or TDITPSP services in the UK, officers will need to check that the business is supervised for MLR purposes by the head office home country – this could be done through searches of the relevant countries supervisory registers where required, however may also require Tech engagement. If it is identified that a business head office is not registered in its home country for MLR purposes, an IR will need to be submitted.  
During the discussions with the Money Transmitter, BPSP or TDITPSP, officers will need to ask which other countries (if any) it offers a payment service from – this can be done through discussion, however evidence will be gathered by reviewing transactional data (where the money transmitter, BPSP or TDITPSP is paying out in the UK) and reviewing the senders location.  
 
Additionally, for MSBs Money Transmitters, officers will need to ascertain through discussions whether the Money Transmitter has a pay-out partner in the destination countries (to which officers will need to gather the name(s) of – these may be banks or other money transmitters), or whether they offer this service (paying out) themselves through their own branches/locations/agents/staff.  

During the discussions with the Money Transmitter, BPSP or TDITPSP, officers will need to ask which other countries (if any) it offers a payment service from – this can be done through discussion, however evidence will be gathered by reviewing transactional data (where the money transmitter, BPSP or TDITPSP is paying out in the UK) and reviewing the senders location.  
 
Additionally, for MSBs Money Transmitters, officers will need to ascertain through discussions whether the Money Transmitter has a pay-out partner in the destination countries (to which officers will need to gather the name(s) of – these may be banks or other money transmitters), or whether they offer this service (paying out) themselves through their own branches/locations/agents/staff.  
 
Once the information is gathered concerning where else the business offers payment services from, and the destination country(ies) where they pay-out on behalf of their customers, officers will need to check that the business is supervised for MLR purposes by the relevant supervisor for the respective country. This could be done through searches of the relevant countries supervisory registers where required, through gathering the registration information from the business during the life of the intervention, however may also require Tech engagement if the business doesn’t provide this and explains that they aren’t able to if it is identified that a business is not registered in the respective other countries for MLR purposes, an IR will need to be submitted.  
Officers MUST familiarise themselves with the risks and indicators of ML/TF/PF of MSB money transmitters, BPSPs, and TDITPSPs and consequently when reviewing the transactional information and during discussions with the MSB money transmitter, BPSP or TDITPSP consider whether any of the risks and indicators are being identified, thus giving the officer grounds to know, suspect, or have reasonable grounds for knowing/suspecting that ML/TF/PF may be occurring, officers MUST raise a SAR to the NCA 
Scenario
 During the course of a compliance intervention into an MSB Money Transmitter (MT) who also provides airline ticketing as a service, a HMRC officer requests the transactional information for the money transmission it had undertaken on behalf of its customers.   
During the intervention, the officer asked the business whether it had any repeat (returning) and regular customers, to which the MSB MT explained that this was not the case as it offers the money transmission as an ancillary service to the ticketing which was their main source of income and main trade, and only does money transmission for its ticketing customers, no others.  
 
When reviewing and analysing the transactional information, the officer identifies that there are several customers who are sending below the financial thresholds biweekly to the same series of beneficiaries, however all of which with the reason for transaction as “holiday spending money”.    
 
The officer also identifies through the transactional information that many of the customers share the same addresses, are sending on the same days (which are the busiest for the business) and that all of the customers were showing as being either unemployed or tradesmen.  
 
When reviewing the transactions, the officer identifies that each person has transmitted around £12,000 over the year, and that this has been occurring for the previous 5 years.  The officer also identifiesa number of addresses where circa £70,000 was sent each year.  

When the officer reviews the CDD records gathered for these transactions, the officer notices that there are no source of funds for the transactions as they were below the financial thresholds. When asked, the MT explained that they didn’t find the transactions suspicious as each customer was sending money in preparation for going on holiday, which they go on annually and to which they book the tickets from him.   
 
Because the MT transactions were labelled as “holiday spending money”, the officer asked to see records of the ticketing sales to confirm they matched the MT transactions. The business provided the ticketing sales via a spreadsheet. When reviewing this information, the officer identified that the names transmitting the large sums of money had only purchased tickets once around 5 years ago, however had been regularly transmitting money since.   

The officer asked the MT whether they found these transactions suspicious or had raised any SARs concerning any of these transactions to which the business explained not.  
 
At this stage, the officer suspected that the business was fraudulently sending transactions with the passports of previous ticketing customers without their knowledge, or that the households or customers were splitting transactions to stay below thresholds.  
 
As the officer knows, suspects, or has reasonable grounds for knowing or suspecting that the MSB IS or HAS engaged in money Laundering (laid out in POCA 2002 S327-S333), the officer decides to raise a SAR, thus notifying the NCA through the internal gateway channels which have been established. For further information on this, please talk to your teams SAR SPOC.  

In the above, if the officer failed to raise the SAR when they knew, suspected, or had reasonable grounds for knowing or suspecting that the MSB had engaged in money Laundering. HMRC and the officer would be in breach of Regulation 63(5) of the MLRs, having failed to notify the NCA. 
Best Practice 
 Officers to familiarise themselves with MSB Money Transmitter, BPSP and TDITPSP requirements laid out in the FTR to ensure that they are able to fully and adequately ascertain whether the business complies with FTR and MLR and so that they can have robust discussions with the business concerning ML/TF/PF risk of non-compliance and potential consequences (anecdotally societally and business in relation to compliance checks)  
AMP Not Relevant to this sector 
ASP Not Relevant to this sector 
EAB Not Relevant to this sector 
LAB Not Relevant to this sector 
HVD Not Relevant to this sector 
MSB Described in how to test compliance above 
TCSP Not Relevant to this sector 
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