Money Laundering Regulations (AML)  Compliance

Customer due diligence (CDD) is the process of verifying that a potential customer or client is who they say they are. Some basic checks include checking their name, address, Photo ID and date of birth to ensure they’re not on prohibited lists. CDD checks are normally undertaken when starting a new business relationship.

An effective Anti-Money Laundering training programme should do the following:

• Make employees/staff aware of the laws relating to money laundering.
• Cover the AML responsibilities of staff.
• Identify a chief point of contact for compliance issues within the organisation.
• Identify what could be considered suspicious activity.
• Explain the procedure for reporting any potential transactions that might be linked to money laundering.
• Be comprehensive.
• Be continual.

Only businesses that come under the Money Laundering Regulations must implement and maintain an adequate Anti-Money Laundering programme.

The regulations apply to businesses and individuals in the UK operating in the financial sector – for example, solicitors, accountants, and estate agents.

Every business covered by the regulations must be monitored by a supervisory authority (such as the Financial Conduct Authority (FCA) or the Institute of Chartered Accountants).

Other businesses that fall within the regulated sectors but don’t have a set supervisory authority must register with HMRC.

Money laundering is a serious crime. It undermines the financial system, but by working together and implementing effective Anti-Money Laundering policies, businesses can help trace and prevent money from ill-gotten sources. This helps reduce criminal activity.

Foremost, a compliance officer is responsible for ensuring the organisation they work for adheres to the relevant Anti-Money Laundering regulatory obligations.

Main responsibilities include:

• Cooperating with regulators and meeting reporting requirements by submitting Suspicious Activity Reports.
• Undertaking AML risk assessments.
• Developing and implementing an efficient AML programme.
• Undertaking adequate AML training for staff.
• Being aware and knowledgeable of compliance requirements.
• Auditing company processes and practices to identify weaknesses.

Regardless of a business’s size, AML regulations still apply if it falls under the Money Laundering Regulations. Find out more here.

Different businesses monitor transactions in multiple ways. This will usually depend on the sector they are working in and how predisposed to risk they are. An effective system will identify warning signs and alert companies to potential suspicious transactions early on.

‘Suspicious activities’ here means behaviour which is in some capacity inconsistent with a customer’s usual behaviour. For this, numerous types of Anti-Money Laundering software exist for businesses to take advantage of. This type of software can help identify suspicious customers and transactions.

If a business suspects or becomes aware of activity that might be linked to money laundering, it must complete a Suspicious Activity Report (SAR). SARs alert law enforcement to potential incidences of money laundering or terrorist financing and act as a critical intelligence source.

Companies submit SARs to the National Crime Agency (NCA) through an online portal.

This is when a company conducts additional checks on a client or customer that has been identified as high-risk.

All businesses that come under the Money Laundering Regulations are obliged to ensure that they have the correct processes and procedures in place. These will help your business identify and report any potential instances of money laundering.

Anti-Money Laundering requirements for businesses include undertaking customer due diligence, reporting suspicious activity and effective record keeping.

Money laundering facilitates different types of terrorist financing by enabling organised crime groups to conceal their assets.

The penalties for non-compliance can be severe. Businesses not complying with Anti-Money Laundering regulations face reputational damage, large financial penalties, and even staff imprisonment.

Regulators also have the authority to wind up or restrict the operations of firms found guilty of breaching regulatory responsibilities.

The most common Anti-Money Laundering breaches include:

• Poor resources allocated to AML compliance
• Poorly documented policies and procedures
• Failure to carry out adequate customer due diligence
• Information sharing requirement violations
• Inadequate risk assessments
• Lack of regular review of money-laundering regulations
• Inadequate training of staff

The overall cost will vary from business to business. It will mostly depend on the following factors:

• The nature of its business
• Its risk level
• How stringent the AML policy is
• The organisation’s size.
• The amount of compliance officers required
• Registration fees (or fees required by a supervisory authority)
• AML software prices (if the business has any)

The annual cost of AML compliance for financial institutions in the UK stands at £34.2 billion in 2023 (according to a LexisNexis report). Regardless, the cost of ensuring you are compliant with regulations will be far less than the price for failures.

AML policies and practices will vary. However, effective anti-money laundering practices will commonly include:

• Effective AML training
• Suspicious activity monitoring & reporting
• Customer due diligence
• Sanctions compliance.

Know Your Customer (KYC) is a compulsory process regulated businesses must perform as part of their Anti-Money Laundering due diligence obligations.

Businesses are required to undertake multiple checks that ensure customers don’t pose a risk to the business and confirm their identity.

KYC checks include verification of a customer’s:

• Proof of identity.
• Proof of address.

This information will need to be verified periodically.

There are multiple educational providers who offer businesses the opportunity to increase their knowledge of Anti-Money Laundering by way of courses that explore the prevention, detection, and reporting of money laundering and financial crime in general.

These additional qualifications result in certification and evidence of the knowledge of staff members. Overall, they help career progression for compliance officers and other nominated people responsible for a business’s Anti-Money Laundering programme.

Anti-Money Laundering: This refers to the collection of laws, processes, procedures and regulations that help identify and prevent money entering the financial system from criminal sources.

Customer Due Diligence (CDD): the series of checks businesses must perform to confirm a customer’s identity. This includes confirming a customer’s name, Photo ID, address, and date of birth. CDD generally takes place when establishing a relationship.

Know Your Customer (KYC): This is a continuous process that happens throughout the customer or client’s relationship with the business. It is a series of ongoing checks that continually verify a customer’s identity.

Anti-Money Laundering legislation is dictated by the Proceeds of Crime Act 2002 (POCA), the Money Laundering, Terrorist Financing and Transfer of Funds 2017 and the Terrorism Act 2000 .

Businesses under Anti-Money Laundering regulations must register with the appropriate supervisory authority for their industry sector.

The Financial Conduct Authority (FCA), for example, is the UK’s main financial services regulator. It exercises authority over banks, credit unions, building societies and other firms engaging in financial activities. For an exhaustive list of AML-regulated businesses and their supervisory authorities, consult the UK Government website here.

Supervisory authorities require regulated businesses to meet certain day-to-day responsibilities. They also require the businesses they oversee to implement particular internal controls and monitoring systems. These include carrying out customer due diligence measures to check that customers are who they say they are, and undertaking the necessary risk assessments.

Generally, the size and complexity of your business, including the number of customers you have and the number and type of products and services you provide, will dictate what you need to do to comply.

By combating Money Laundering, we help prevent criminals, such as human traffickers and drug-related gangs, from growing from their operations.

Examples of money-laundering offences include

• Theft
• Fraud
• Bribery
• Tax evasion
• Corruption
• Smuggling
• Modern slavery
• Human trafficking
• Drug trafficking, and
• Illegal arms sales.

Anti-Money Laundering Directive (AMLD) is a set of regulatory requirements issued by the European Union (EU). It contains rules to combat money laundering and terrorist financing by EU member states.

Each AMLD:

• Contains new additions to cover emerging criminal trends and methodologies,
• Integrates Financial Action Task Force (FATF)recommendations, and
• Addresses deficiencies in previous directives.

Before 31 January 2020, it updated the UK’s AML regime to incorporate international standards set by FATF. It also transposed the EU’s 5th Money Laundering Directive into UK law. This is known as The Money Laundering and Terrorist Financing (Amendment) Regulations 2019.

Financial institutions have vital roles in the fight against money laundering. Banks are one of the largest institutions in the field of finance, handling millions of high-value transactions each day.

Banks and other financial institutions are, therefore, at significant risk of falling victim to financial crime. This means that putting in place an effective Anti-Money Laundering policy is vital.

Regulated businesses are responsible for ensuring they have effective Anti-Money Laundering processes in place that comply with their supervisory authority’s requirements.

RACO’s services focus on a business’s Anti-Money Laundering and other regulatory requirements by implementing efficient policies, procedures, consultancy, and training.

At Regulation & Compliance Office, we provide essential training to compliance officers and staff at all levels. Our training focusses on:

• AML Regulations
• Defining Money Laundering
• Identifying Potential AML Issues
• The Correct Action to Take When AML Becomes a Concern
• A Business’s requirements
• The Policies & Procedures Needed to Comply with AML Regulations
• The Regulations & How they Affect your Business
• How the Regulations Affect Individual Staff
• The Criminal Tactics Used to Launder Money
• Overview of the Business Policies:
  ~what they mean
  ~the action that must be taken, and
  ~how they protect the business and staff.

• The Recording & Reporting of AML issues.
• When & How to Report to the National Crime Agency (NCA)
• Direct Contact with Someone Suspected to be Laundering Money: What To Do.

Key components of an effective Anti-Money Laundering programme include:

• Appointing a Money Laundering Reporting Officer to oversee a firm’s compliance programme
• Complying with reporting obligations (including submitting suspicious activity reports when potential money laundering activity is detected).
• Adequate AML training for staff
• Continual monitoring of customers, clients, and processes.

Foremost, Anti-Money Laundering due diligence processes need to answer two questions:

• Is the person who they say they are?
• Are any concerns highlighted on their risk profile?

The due diligence that financial institutions carry out depends on the answers to the above questions. The following steps will include:

• Customer Due Diligence (CDD):

This involves performing background checks and conducting a risk assessment of potential and existing customers. Minimum CDD checks will include full name, residential address, date of birth, and Photo ID.

• Know Your Customer (KYC). A compulsory process for banks and other financial institutions to identify a customer or client’s identity when opening an account. This information must also be verified periodically.
• Enhanced Due Diligence (EDD). If a customer comes under the high-risk category, further checks will need to be conducted. This includes:
  ~obtaining additional verification
  ~analysing previous transactions
  ~visits to their business
  ~creating a strategy for monitoring the client.

Please note that new rules have been in place since 10 January 2020 that incorporate international standards set by the Financial Action Task Force (FATF) and transpose the EU’s 5th Money Laundering Directive.

The new rules impose a series of additional due diligence requirements on banks, including:

• The requirement for firms to include additional high-risk factors when assessing the need for EDD.
• The requirement for firms to update their records relating to the beneficial ownership of corporate clients.
• Changes to E-money thresholds for CDD.

To read the full list of changes to the Money Laundering Requirements on the Financial Conduct Authority’s (FCA) website, click here.

Ongoing screening of customers and transactions is vital in money laundering prevention. Continuing to check a customer’s activity for suspicious activity is a crucial step in any firm’s Anti-Money Laundering programme.

If a business becomes aware of any activity that might be linked to money laundering, it will need to complete a Suspicious Activity Report (SAR). SARs alert law enforcement to potential instances of money laundering or terrorist financing. Companies will need to submit SARs to the National Crime Agency (NCA) through an online portal.

The overall point of Anti-Money Laundering is to protect the integrity and stability of a financial system by eliminating illegal activity.

Anti-Money Laundering is the series of systems, controls, processes and procedures that governments and businesses have to identify and prevent criminals from laundering money.

Money laundering is a crime that involves taking proceeds sourced from criminal activity and hiding its origins for the purpose of making it appear to have been accumulated legitimately.

Money laundering allows criminals, such as human traffickers, to benefit from their illegal activity. Examples of money-laundering offences include:

• Bribery
• Smuggling
• Modern slavery
• Human trafficking
• Drug trafficking
• Illegal arms sales
• Tax Evasion
• Theft
• Fraud

The overall objective of AML policies is to highlight all suspicious activity that might be connected to money laundering, and stop the funding criminal activity.