What does this mean for advisers?
Financial advisers may generally interact with the art and antiquities markets in one of two ways:
- Art and antiquities as investments, ie high-value collections, individual investment pieces and investments in art funds.
- Art and antiquities as collateral, ie obtaining financing using a client’s existing stored value in art or antiquities.
So, what are the particular risks to advisers given this new regulatory environment?
In the UK, there is no definitive list of entities or persons that fall within the definition of an AMP, but this may include financial advisers acting as intermediaries in the sale or purchase of works of art at or above €10,000, such as insurance brokers, high-end art financing companies, or financial management companies responsible for art collections.
With the exception of registering with HMRC, financial advisers are likely to already be complying with the amendments as part of their regulatory responsibilities, including assessing their exposure to money laundering and terrorist financing, putting in place the necessary policies, controls and procedures to mitigate the identified risk, undertake customer due diligence, and keep records to evidence compliance.
Financial advisers that fall within the definition of AMPs may also be the subject of fines from HMRC and, in serious cases, imprisonment.
Where high-net-worth clients use their art or antiquities collection as a form of collateral, some risk to advisers and their credit departments will inevitably be based on the valuation of the collection – which can be difficult to verify given the market’s lack of price transparency – and who may end up with far less when trying to collect repayment on a delinquent loan if that valuation was wrong.
However, there also may be a lurking money laundering risk as well if, for example, the client had purchased the art or antiquities with the proceeds of crime. By doing almost anything with known or suspected “criminal property” in the UK, financial advisers could commit a money laundering offence and that property could be subject to seizure or forfeiture, with potential jail time for the adviser.
As the US awaits draft regulations, exactly how they will affect the market is unclear. However, it is very likely that advisers operating in the antiquities – and eventually art – market will qualify as financial institutions under the BSA.
This will require them to: establish an anti-money-laundering and counter-terrorism finance compliance programme; identify beneficial owners of customers; and file reports of cash transactions exceeding $10,000.
Many open questions about who and what activities are covered remain:
- What qualifies as “art” or an “antiquity?
- Who precisely are advisers, consultants, dealers, and intermediaries?
- Should monetary thresholds apply?
- What sectors or regions of the market are most vulnerable to illicit activity?
AMLA also included other measures to enhance anti-money-laundering enforcement that will affect covered financial institutions, including by increasing penalties for violations, and, notably for the art market, making clear that the BSA applies to digital currencies.
