Anti-money laundering regulations: what the latest updates mean for business

Few reg­u­la­tions are more vital to the finan­cial ser­vices sec­tor than those which tack­le anti-mon­ey laun­der­ing (AML). A sig­nif­i­cant chal­lenge for busi­ness­es, how­ev­er, is that the laws are ever-chang­ing.

“The reg­u­la­tions are fre­quent­ly updat­ed to address devel­op­ments in the finan­cial ser­vices indus­try, the new meth­ods crim­i­nals employ and the rec­om­men­da­tions of inter­na­tion­al bod­ies. Although the fun­da­men­tal aim of the reg­u­la­tions remains con­sis­tent, the AML regime is becom­ing more com­plex and we can expect the reg­u­la­tions to con­tin­ue to evolve,” says Shaul Brazil, a part­ner at BCL Solic­i­tors. 

Recent amend­ments to the reg­u­la­tions include the addi­tion of fur­ther kinds of activ­i­ty, such as cryp­toas­set busi­ness­es, the inser­tion of new high-risk fac­tors to be tak­en into account when assess­ing the need for enhanced due dili­gence and the intro­duc­tion of a require­ment for firms to report dis­crep­an­cies in ben­e­fi­cial own­er­ship infor­ma­tion.

The reach of AML reg­u­la­tions extends from glob­al finan­cial organ­i­sa­tions to small star­tups. All of them, though, must sat­is­fy a wide range of require­ments. These include con­duct­ing risk assess­ments and imple­ment­ing AML pro­ce­dures such as due dili­gence on new cus­tomers, record-keep­ing, train­ing, appoint­ing com­pli­ance offi­cers and mak­ing reports. 

Con­stant vig­i­lance is required to sat­is­fy some in par­tic­u­lar, such as eval­u­a­tion of cus­tomers (espe­cial­ly those who are high risk), mon­i­tor­ing trans­ac­tions (includ­ing bank deposits), and detect­ing sus­pi­cious activ­i­ties that might need to be report­ed to the rel­e­vant author­i­ties. 

Exact­ly how effec­tive an organisation’s AML con­trols are will depend on its risk pro­file, says Brazil. “There’s no one-size-fits-all and the poli­cies and pro­ce­dures that firms adopt must be appro­pri­ate to the nature, size and risk pro­file of their busi­ness.”

How companies can stay compliant

What­ev­er their size, firms should take a holis­tic view of the pur­pose of the AML regime to avoid com­pli­ance prob­lems, he says. “The FCA has demon­strat­ed in its recent enforce­ment actions that it is less con­cerned with the fin­er details of the AML pro­ce­dures and more with their fun­da­men­tal pur­pose. 

“Firms should avoid a tick-box approach. They can fall foul of the reg­u­la­tions, not because they haven’t imple­ment­ed them on paper, but because they haven’t focused on their pur­pose and whether their pro­ce­dures are oper­a­tional­ly effec­tive.” 

Clear doc­u­men­ta­tion and process­es that all staff can access and under­stand can cer­tain­ly help, says James Alleyne, who is legal coun­sel at Kings­ley Nap­ley and for­mer­ly of the FCA. As a mat­ter of good prac­tice, he advis­es, firms should be proac­tive and not reac­tive. “Firms should con­stant­ly review and update their AML sys­tems, so they’re tai­lored to the chang­ing reg­u­la­to­ry stan­dards and polit­i­cal and mar­ket devel­op­ments.” 

The risks for firms falling foul of AML reg­u­la­tions are, he warns, daunt­ing. Inves­ti­ga­tions by the FCA, which super­vis­es AML law com­pli­ance in the finan­cial ser­vices sec­tor, can be cost­ly, time-con­sum­ing and may cause busi­ness dis­rup­tion. While the FCA can pro­vide feed­back to firms with inad­e­quate crime sys­tems and con­trols, it can also impose penal­ties for past breach­es. In the past few months alone, it has imposed some £15.7m in fines on sev­er­al firms found guilty of reg­u­la­to­ry fail­ings.

For many organ­i­sa­tions, tech­nol­o­gy is eas­ing the com­pli­ance chal­lenge. Cus­tomer due-dili­gence soft­ware is well used by new­ly estab­lished fin­tech con­sumer lender Tem­bo, recent­ly named UK’s best mort­gage bro­ker and best new­com­er at the British Bank­ing Awards. 

“We’re a young, dig­i­tal-only plat­form which oper­ates in a rel­a­tive­ly high-risk area and with mul­ti­ple cus­tomers. We were warned at the out­set that we could be a tar­get for crim­i­nal activ­i­ty,” say co-founder and CEO Richard Dana and com­pli­ance lead Ellie Rior­dan. “A key ele­ment of aid­ing com­pli­ance for us has been using tech­nol­o­gy to auto­mat­i­cal­ly cross-check cus­tomer data and ver­i­fy cus­tomer iden­ti­ty and recog­nise poten­tial­ly fraud­u­lent behav­iours.”

Staying up to date with anti-money laundering regulation

Cru­cial­ly, com­mit­ment from senior man­age­ment is not only expect­ed by the FCA but is essen­tial to cre­ate aware­ness of finan­cial crime through­out an organ­i­sa­tion. “It’s impor­tant to have a strong team cul­ture and that starts with strong lead­er­ship, which sets the tone for com­pli­ance,” say Dana and Rior­dan. 

“You must ensure that your dif­fer­ent teams work togeth­er effec­tive­ly and that com­pli­ance is includ­ed right at the begin­ning of any change to oper­a­tions or prod­uct. We have hon­est, open dis­cus­sions about com­pli­ance and peo­ple are free to dis­close mis­takes or issues they’ve seen.”

Train­ing is a required part of com­pli­ance and its con­tent and deliv­ery are both impor­tant, says Alleyne. “It’s good to have a prac­ti­cal dimen­sion for train­ing to be effec­tive, like case stud­ies, so that it isn’t over­ly aca­d­e­m­ic.” He rec­om­mends organ­i­sa­tions ensure that staff have prop­er­ly under­stood their train­ing by using tools like com­put­erised tests and that they main­tain train­ing logs.

While the FCA Hand­book includes a guide on finan­cial crime, many organ­i­sa­tions seek exter­nal sup­port to help them han­dle the com­pli­ance bur­den. Some pro­fes­sion­al firms and com­pli­ance con­sul­tan­cies can advise on effec­tive AML reg­u­la­tion com­pli­ance and help with inves­ti­ga­tions and pros­e­cu­tions. They may also offer sup­port like com­pli­ance tech­nol­o­gy and reg­u­la­to­ry updates.

Heather O’Gorman is head of pay­ment ser­vices and finan­cial crime at com­pli­ance spe­cial­ist This­tle Ini­tia­tives. She says: “Many of our clients are star­tups. They can strug­gle to find the right lev­el of oper­a­tional staff. We help them estab­lish their AML frame­works and con­trols, includ­ing due dili­gence pro­ce­dures and train­ing pro­grammes.”

Tem­bo used FSCom­pli­ance to help it draft poli­cies that com­plied with FCA guid­ance on AML reg­u­la­tions and to advise on how to estab­lish and imple­ment its com­pli­ance sys­tems. “They’ve helped us com­pare our set­up with those of their oth­er clients, so that we can be best in class,” say Dana and Rior­dan. It now uses FSCom­pli­ance on a retain­er basis, which pro­vides the organ­i­sa­tion with a check-the-check­er ser­vice. “It has been invalu­able to have an advis­er who has a detailed under­stand­ing of the appli­ca­tion process and the ongo­ing reg­u­la­to­ry sys­tem,” they report.

For their organ­i­sa­tion and oth­ers, such alert­ness and ener­gy are what is required to meet the ongo­ing com­pli­ance chal­lenge.