You don’t often hear about the enjoyment of compliance from accountants, it’s typically referred to as one of the least glamorous ways accountants add value for clients, and it’s no surprise when you consider some of the other ways that accountants add value. However, as the movement of money, payments and currencies evolves with technology, regulators are paying more attention to compliance than ever. This is particularly true for Anti-Money Laundering (AML) – with increasing scrutiny coming from regulators at all levels.
The National Crime Agency had previously estimated that between £36 billion and £90 billion is laundered annually in the UK, in which accountants have a major role to play, not only when it comes to protecting clients, but also their ethical obligations more broadly. Thorough and regular AML monitoring is critical to maintaining your compliance and protecting your professional reputation, but for many firms the issue of AML compliance is still not as a high priority as it should be.
The reasons are understandable – maintaining and updating AML records isn’t a set and forget thing, they can sometimes be complex, and wide-ranging depending on the nature of clients you work with. It is often the regular part which creates apathy – when in fact the ongoing monitoring and updating of AML records, including risk assessments, is one of the more important components of maintaining AML compliance. However, a new generation of tech-first AML compliance platforms is simplifying and streamlining the processes involved, putting detailed reviews, assessments and checks within the reach of every firm. In the remainder of this article we explore why AML is so important for accountants in 2024 and how you can make it work for you.
What is AML?
AML or ‘anti-money laundering’ refers to a set of policies, procedures, and regulations designed to prevent the use of financial systems for money laundering. The term "money laundering" refers to the process of disguising the proceeds of illegal activity as legitimate funds.
These regulations require financial institutions, including accounting firms, to monitor clients' financial transactions and report suspicious activities to the relevant authorities. The process will be broadly familiar to anyone who has opened a business bank account – checking your identity, reviewing who owns the business and determining the source of your income.
AML laws and regulations aim to help in the detection and prevention of money laundering, terrorist financing, and other financial crimes. Falling foul of these regulations can lead to reputational damage for your firm – not to mention steep fines and penalties, which have become increasingly harsh and ‘popular’ in recent years as regulators clamp down.
There are 25 supervisors for AML in the UK, of which three are statutory providers, and some for other professions, with the accountancy sector having a total of thirteen professional body supervisors. No wonder, it has become challenging (and perhaps even confusing) for accountants to understand exactly what they need to do to be compliant – and in our conversations with all types and sizes of accounting firms at Firmcheck, we’ve found that despite the increasing focus on AML, the level of understanding generally across the market of what is actually required is low.
Amongst other things, such as assuming checking IDs = AML compliance, one of the most commonly misunderstood aspects of AML is that it’s an ongoing process. While accountants are well accustomed to performing the necessary checks and searches on a client during onboarding, reviewing the AML status of clients periodically is often put to the back of the mind. The reality is this is another task for accounting firms to contend with and isn’t necessarily the sort of work that pays the bills.
Some key components of AML to have in place
Whether you’re working with individuals, businesses, or charities – no matter the client type, AML compliance entails a series of steps designed to create a full picture of your client’s business and whoever is involved.
Client Identification, Verification & KYC: Confirming your client’s identity using reliable, independent sources – this typically consists of verifying government-issued IDs and/or utility bills, as well as checking whether they might be a politically exposed person (PEP) or on any Sanctions lists. At this point, you will have also collected lots of other information, and no doubt got into some of the nitty gritty about your engagement by understanding more about their situations, their businesses, their motivations etc.
Client Risk Assessment: Verifying and understanding who you are working with is one thing, but actually using that information to create a risk profile is equally as essential. Assigning a risk level based on factors like country of residence, business activities, transaction patterns, services risk and known associations from the first step. This then determines whether standard due diligence will suffice or if enhanced due diligence (EDD) is needed – EDD entails additional searches and a deeper level of investigation.
Ongoing Monitoring & Reviews: These are two things in one. The first part involves continuously monitoring things like the client’s transactions for any activity that deviates from their normal financial behaviour, their PEP status, or if they appear on any sanctions lists. The second part is regularly reviewing their risk profile – this might be prompted by them wanting to add a new service with you, or it could be the result of a change in transaction behaviour. Whatver the trigger updating and documenting changes to risk is a critical component of maintaining good AML compliance. And if nothing changes, it’s expected that at least once per year you review the previous risk assessment made, and adjust it accordingly.
Having all of the above is a step in the right direction, but there are other things too such as firm-wide risk assessments that you also need to make sure you have in place – we recently wrote about the biggest gaps ICAEW observed in their latest AML supervision report, of which firm-wide risk assessments was one.
What are the penalties for AML Failures?
The consequences of non-compliance with AML regulations are severe - and becoming more common – from fines to prison terms.
While these mainly apply to more serious cases, even low-stakes mistakes can still cause headaches, including administration fees for errors and time-consuming appeals.
HMRC recently revealed fines levied across hundreds of businesses, totalling £3.2 million in the second half of 2022. It’s worth noting that ‘only’ £600K was to accountancy service provides, but still those number are not insignificant, especially if you’re a smaller practice, even just a few thousand pounds might be enought to have serious consequences.
Meanwhile, there are consultations underway over how to reform the sector as HMRC looks to further increase scrutiny on this key area.
How can technology support AML compliance?
AML compliance is a famously data-heavy process, requiring accountants to collect various documents, review various lists, sources and authorities to create a complete picture of clients’ activity and not to mention the firm administration around policies, procedures and risk assessments. However, the growing range of AML platforms (such as Firmcheck 😉) dramatically reduces the time and expense of keeping your firm compliant.
Integrated ID & Address Verification Checks: Firmcheck’s platform integrates with a range of reliable data sources to conduct comprehensive ID, biometric, and address verification checks efficiently, saving time and reducing the need to share documents over email, or other means.
Reliable Record-Keeping and Auditing: Our centralised system simplifies the record-keeping process, ensuring that all necessary documentation for AML compliance is organised and easily accessible for auditing purposes across your workflow, including who made what decisions, and what changes (if any) were made during reviews or changes.
Ongoing AML Management: Our platform is built for ongoing AML management, you can periodically review, re-assess and set future review dates for clients easily from within Firmcheck – ensuring your AML records are kept up to date.
How can I stay on top of AML changes?
With AML regulations and enforcement changing fast - as well as new trends such as online commerce, cryptocurrencies and international business models adding complexity – it’s never been more important to stay informed.
And so considering the changing landscape of AML for accountants in the UK, we’ve put together a 3-day, CPD-verfiied online summit that is focused on helping you moving your AML compliance in the right direction, and help keep you focused on what matters the most.
To find out more about our free summit and 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.)