AML Risk And The Risk-Based Approach

By law, any business that is at risk from money laundering must take steps to ensure that any such activity can easily be spotted and reported. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 provide extensive details of what organisations must do to make this happen, including taking a risk-based approach to anti-money laundering (AML) risk.

Read on for our guide to what the AML risk-based approach involves, the importance of AML compliance for accountants, and how you can implement solid AML strategies in your own accounting practice.

Introduction to AML Risk and the Risk-Based Approach

AML risk is essentially the likelihood of your accountancy practice falling victim to money laundering activity. These risks can be present across multiple areas of your business and must be eliminated to reduce criminal activity by terrorists and other criminals.

Section 18 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 describes how all firms that are within the scope of the Regulations – which includes accountancy practices – must ensure that they conduct a practice-wide AML risk assessment.

This risk assessment should include the identification and assessment of potential risks, processes and solutions for mitigating these risks, and full documentation of this risk assessment.

The Importance of AML Compliance for Accountants

By their very nature, accountancy firms are at high risk of being exposed to money laundering activity. Every accountancy firm must be registered with either HMRC or an accountancy body for AML supervision, and must comply with the 2017 regulations.

A failure to comply and the discovery of money laundering activity that your organisation could have prevented could result in severe penalties for your firm.

In addition to the legal obligations you must adhere to as a practice, there are also ethical considerations to bear in mind. Money laundering is used to finance terrorists and other criminals across the globe: by complying, you can play your part in stamping this activity out.

Key Components of a Risk-Based Approach to AML

The first step in implementing a risk-based approach to AML is to identify the potential risks that your accountancy practice faces. Depending on how your practice operates, these could include:

• Transaction risks – risks that signal that a transaction could be fraudulent
• Individual risks – individuals who may be known terrorists, money launderers, other fraudsters or Politically Exposed Persons (PEPs)
• Channel risks – which could involve digital transactions or third-party services
• Geographic risks – market-specific risks in certain geographic jurisdictions.

Once you have identified potential business risks, the next step is to assess how likely it is that these risks will occur, and the impact of this happening. Each risk can be classed as “low”, “medium” or “high” – or even “unknown” to start with, until you understand more about the risk in question.

A risk-based approach to AML then requires organisations to implement both policies and solutions to prevent these risks from happening. In this way, you will tailor your AML measures to specific risks, making it more likely that money laundering activity can be prevented across the board.

Implementing AML Strategies in Accounting Practices

Every accountancy firm should have a dedicated AML compliance officer whose responsibility it is to detect, assess and report any financial crime. Underpinning this should be a formal, written AML policy for your organisation, as well as training to ensure that everyone in your practice understands their responsibilities.

While the AML compliance officer has the ultimate responsibility for ensuring compliance, everybody has their own part to play. To make this easier, there are plenty of tools and resources that accountancy practices can utilise to manage AML risk:

• AML Compliance Software: Dedicated AML software solutions can help you to streamline compliance processes, including customer identity verification, ongoing customer due diligence, risk assessment and more.
• Risk Assessment Templates: These can help you to assess the risk level of individual clients, transactions and more, more effectively.
• Training Programs: The ICPA partners with AMLCC, who offer comprehensive training programmes that enable you to stay up-to-date with the latest AML news and regulations, as well as accountancy sector-specific best practices.
• Checklists and Guidelines: By implementing checklists and guidelines within your practice, you’ll provide clarity on the subject to your entire team, and ensure that all aspects of compliance are covered.
• Support Forums and Advisory Services: Some AML issues can be incredibly complex. That’s why the ICPA provides its members with forums and other advisory services, offering personalised guidance on the subject.

Why Join ICPA: Benefits for Accountants and Bookkeepers

AML compliance isn’t simple – but it’s a legal and ethical requirement for all accountancy firms. With ICPA membership, you can access a wealth of resources, training, support and professional development relating to AML risk, all in one place.

Members benefit from access to helplines to ask any questions they may have about AML and the risk-based approach, as well as a strong support network of peers who have the same AML responsibilities. We offer a variety of resources to educate and inform about money laundering and a range of other topics, as well as training opportunities via AMLCC that can improve your practice’s understanding of and approach to the topic. They also enjoy discounted access to AMLCC anti-money laundering software to help keep them compliant.

For more on the benefits included in ICPA membership, click here.

FAQs on AML Risk and Compliance Strategies

What is the difference between AML and KYC?

AML is a broad set of processes and regulations, designed to identify and prevent money laundering activity. KYC (Know Your Customer) is specifically focused on verifying a customer’s identity, and is a component of AML activity.

Can you recommend any AML compliance software for accountants? 

The AML software you choose will depend on the specific needs of your practice. However, any good AML software will offer transaction monitoring, comprehensive due diligence and reporting capabilities as standard.

How often should I conduct AML training for my staff? 

AML training should be conducted at least annually. More frequent training may be required if AML regulations change, or if there are any significant changes to your business operations.

What are the red flags for money laundering in accounting?

Things to look out for include inconsistencies in client information, clients who are reluctant to supply information you ask for, unusual transactions, and transactions that make no economic sense.

What should I do if I suspect money laundering?

Any money laundering suspicions should be documented and reported to the National Crime Agency, without informing the individual concerned that you are doing so.

Are there penalties for non-compliance with AML regulations?

Yes. These can range from fines to imprisonment, depending on how severe the non-compliance is.

How can I ensure my practice remains compliant with AML regulations? 

To remain compliant, you should stay up-to-date on any changes in AML legislation and regulation. You should also regularly review your practice’s AML policies and procedures, and ensure that you conduct risk assessments where needed.