Although introduced over 10 years ago, complying with the Money Laundering Regulations remains high on ICAEW’s agenda. This is fuelled by the fact it continues to remain a common area of weakness for many firms. At SWAT UK, we’ve heard all sorts of fascinating and convincing explanations, ranging from “I only have small clients, so the regulations don’t apply to me.... do they?!”, through to “The regulations have only just come in, haven’t they?”

Unfortunately, there’s no getting away from it. As a firm of accountants, the regulations apply to you. The regulations are here to stay and the monitoring teams are getting tougher on non­compliance.

Now, you may be thinking “we’ve done some training and we have some internal procedures, so we’re fine”. That may be true, but what ICAEW and we (at SWAT UK) tend to find time and time again, is not that firms aren’t complying outright. It’s that they’re not doing enough to comply.

So where are firms going wrong?

Here are some of the more common areas of weakness that we find on our compliance visits.

Different clients = different risk profiles

The 2007 Regulations require that firms take a risk­based approach to their anti­money laundering procedures. This therefore requires risk assessments to be made.

It’s amazing the number of files we review that have no indication of any risk assessment having been made and no differentiation in the approach to clients. How can you determine what due diligence evidence is required if there is no risk assessment? How can you assess the frequency and depth of on­going monitoring if there is no risk assessment?

Clearly, a client from your local high street will represent a very different level of risk, from a client based in a high risk jurisdiction such as Iran or Algeria.

There are three levels of risk assessment:

• A generic risk assessment for the firm. (i.e. what we are likely to come across at work).
• An initial risk assessment when taking on a client, which affects the initial level of evidence of identification.
• An ongoing risk assessment which affects the level of ongoing monitoring. The recommendation is that you complete a “Know Your Client” (KYC) form for each client and include this within your client file. This will document the risk assessments you have made, and the reasons for making such assessments based on the risk profile for each client.

Conducting an annual AML compliance review

The Money Laundering Regulations require you to establish and maintain appropriate risk­sensitive AML policies and procedures. Regular money laundering compliance reviews are the only effective way of ensuring that your firm’s AML policies and procedures are being followed.

A part of this process is to review a sample of client files to ensure that there is adequate due diligence information, an up to date risk assessment, appropriate ‘know your client’ information and evidence of on­going monitoring. Typically (in reviews that we perform), firms are always surprised at how many instances of non­compliance are identified. These can sometimes be attributed to one maverick within the firm, but more often than not, they tend to be firm­wide.

No evidence of on­going monitoring

This does not necessarily mean that no thought has been given to this issue (although in some cases that is the case). Instead, it is more that the process is not adequately documented.

Again the regulations require that you review the adequacy of the due diligence information held, the transactions the client is involved with and the risk assessment on an ongoing basis. Do your procedures cover on­going monitoring and are you confident that they are being followed

Summing up

One of the keys to good anti­money laundering procedures is good systems. The better the firm’s systems, the better the levels of compliance tend to be. How organised are you? How committed are the staff to ensuring this is done properly? These are all things you need to consider.

As I said at the beginning, many firms think they are organised and have good systems in place and are then stunned at how lax things have become when someone starts to scratch the surface. Make sure you are not one of these, as the regulators are certainly starting to become more rigorous where firms are not complying with the regulations.

Where to go from here

To make the whole process of complying easier, ICAEW has partnered with SWAT UK to develop the ICAEW Anti-Money Laundering Service to raise firms’ awareness of their AML obligations and help them implement correct procedures. This service gives you online access to AML training, practical guidance, documentation and ready­to­use templates to help ensure your firm remains up to date and compliant with the Money