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The risks of overlooking AML in your accounting practice

AML compliance is perhaps the least exciting thing that accountants need to contend with, and as a result, is often overlooked – despite being one of the key regulatory obligations you have as an accountancy service provider.

As an accountant, the to-do list is always growing – clients have queries, documentation needs chasing and deadlines loom. Among the urgent queries popping up, Anti-Money Laundering (AML) compliance is often the main ‘I’ll get to it later’ task. The issues that AML covers can feel abstract,  theoretical and to be frank, a complete waste of time – after all, none of your clients would do anything out of line, would they?

But regulators and accounting bodies are increasing their scrutiny on this key area and if you’re caught out, the impact can go well beyond a fine. The worst that can happen for breaching your obligations to the Money Laundering Regulations 2017 (MLR) could be up to 2 years imprisonment. That doesn’t account for the ‘softer’ ramifications such as your anxiety and lost trust it might have with your clients, and the potential impacts on your practice and the job security of your employees. Ignoring this silent threat opens up a world of risk – but luckily, staying on top of AML compliance is beginning to get easier with the emergence of comprehensive digital tools. Before we get into said tools, let’s look at what you need to watch out for.

What are some of the reasons accountants overlook AML regulations? 

Pressure on AML regulation has been rising in recent years – and in particular for accountants there has been much more focus from the supervisory bodies over recent years which are becoming more active in clamping down on AML non-compliance, but there is still a sense of apathy surrounding AML compliance within the accounting profession.

  • Perceived as a time sink: Some view AML compliance as a drain on resources and time that could be allocated to other areas of their practice, with minimal direct benefit to the firm or its clients​​.
  • Expensive to manage: The costs associated with AML compliance, including the resources spent reviewing documentation, are seen as an additional burden. This is especially challenging for smaller practices that still use manual processes, instead of AML software.
  • Complexity and bureaucracy: The complexity of AML regulations and the perceived bureaucracy involved in compliance can be daunting for some accountants, particularly those in smaller firms who might lack dedicated compliance teams​​.

In the face of these challenges, some firms might be tempted to settle for the bare minimum or the ‘verifying IDs is enough’ approach, but there is no denying that this opens up accountants to a realm of potential issues.

What are the risks of overlooking AML compliance?

1. Regulatory penalties

No ethical accountant would agree to include knowingly false information on a client's tax return. It goes against the ethos of the industry – not to mention opening up the adviser to some hefty consequences. Falling behind on AML compliance can have similar consequences. And just because it’s a passive oversight, rather than an active lie, doesn’t mean you can skate by.

The regulatory framework surrounding AML is stringent and designed to combat serious forms of financial crime, so the penalties are serious. Specific charges vary with the nature of the non-compliance, with even administration charges ranging from £350 - £1500 depending on the nature of the issue. 

And when it comes to the penalties, it doesn’t take a lot of mistakes to add up to a hefty fine. HMRC imposed a £16,891 penalty on a UK accounting firm for just three breaches of the 2007 money laundering regulations and four breaches of 2017 regulations in 2022.

2. Reputational damage

Trust is the currency of the accounting profession. Clients entrust you with their most sensitive financial information, as well as compliance with legal and ethical standards. As the expert on all things financial, they expect you to ensure you’ve taken care of the complex, arcane world of legislation that they don’t have time to learn.

If you find yourself in the camp of thinking that AML onboarding and ongoing AML management is too time-consuming, it’s perhaps time to rethink that, because the biggest risk at the end of the day lies with you, the firm. No client is going to outright tell you they are money laundering, and they are going to do everything in their power to ‘hide in plain sight’. 

By not taking AML seriously (and we mean beyond verifying IDs) you’re increasing the chances of your firm being exposed to any money laundering issues, and that’s without the flipside which is that your process is perhaps not up to scratch.

3. Legal and business consequences

The legal implications of ignoring AML regulations extend beyond fines. They can include lawsuits, criminal charges, and even personal liability for you, personally, 

Legal processes are costly, time-consuming and stressful. 

While firms may shrug at the idea of paying a few thousand in fines, that’s not all. Think of the time and professional costs of the legal process or disciplinary proceedings from your accrediting body, as well as potentially losing the ability to practise at all. And that’s without mentioning the emotional impact being in such a position can have on both your mental health, but also the job security and certainly of your employees (if you have them). 

AML non-compliance isn’t just a slap on the wrists, it's a long process that can be immensely disruptive to normal business operations, potentially hanging over your practice for months, and taking attention away from other areas of your business. There is no ‘good’ time to be dealing with a breach of AML regulations, but could you imagine dealing with the burden of an MLR breach whilst in the middle of an already busy tax filing period?

4. Customer disconnect

Parts of the work that are involved in being AML-compliant a lot of accountants are already doing, but it’s not uncommon to hear stories of client cooperation being a challenge when it comes to sharing the necessary documents or information.

Whether it’s collecting new information during onboarding, verifying IDs, or asking lots of questions about your client's businesses, throughout the year or during a regular annual review.

These snippets of data are a key part of KYC, which is a critical cog in your AML compliance procedures.

Most KYC and AML compliance is typically thought of mostly in the realm of onboarding of new clients, but it is an ongoing task, and the repeat or ongoing requirements of AML are typically where you get the most value. Scheduling regular reviews, or re-assessing your clients periodically from a risk perspective can help you identify potential new risks or it could be the opportunity to build stronger client relationships.

Correctly implemented, AML compliance doesn’t have to be something you dread doing, it can provide the foundation to help grow the services you offer clients, build better relationships with them, and help you stay on top of any potential business risk your clients might present.

Safeguarding your practice

The irony of all this is that while the consequences for AML breaches can be serious and far-reaching, staying compliant is becoming easier. With the right tools on your side, you can significantly reduce the time and expense of keeping your firm compliant, while expanding the services you offer. Here’s how Firmcheck can help:

  • ‍Integrated KYC: Easily access a range of reliable data sources to know who you’re working with, and conduct comprehensive ID, biometric, and address verification checks efficiently.
  • Reliable record-keeping and auditing: Simplify your record-keeping, with all necessary documentation for AML compliance organised and easily accessible in one place – including a complete audit trail of the decisions you’ve made on clients, and who made them. 
  • Ongoing AML Management: Easily review, re-assess and set future review dates for clients easily within Firmcheck to stay up-to-date with your ongoing compliance management.

With so much going on in the AML space, it can be a challenge to keep up. That’s why we’ve put together a 3-day, CPD-verified online summit to help you take control of your AML compliance and ensure that your policies, procedures and controls are adding value for your firm, or at the very least you’ve got all the basics of AML compliance in place.

To find out more about our free virtual summit head on over to the home of the Firmcheck AML Summit.

(NB: This article doesn't constitute legal advice and is only intended for general informational purposes. Always consult with a legal expert or compliance consultant for guidance specific to your firm.)

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