Understanding Global AML Standards and Their Impact on UK Accounting

In the UK, AML compliance is a regulatory requirement – and it’s the same overseas. To reduce and prevent financial crime, financial institutions must abide by certain standards that aim to prevent the transfer of illicit funds – and there are hefty penalties for non-compliance.

The UK has its own regulations, but these have been amended over the years to include elements of global AML standards. With the world more connected than ever before, monitoring international transactions is an important part of reducing money laundering activity.

For UK accountants and other financial institutions, the potential exposure to money laundering activity is high. Abiding by AML standards and helping to reduce economic crime is an industry requirement – and following the rules will protect your practice, too.

The Importance of Global AML Standards

According to the United Nations, it is estimated that the total value of money laundered globally each year is around 2-5% of global GDP, equating to $800bn to $2 trillion dollars. Global AML standards have been designed to reduce this figure by preventing and detecting money laundering activity. In doing so, they can help to keep economies stable and foster a climate of trust in international trade, safeguarding an economy that continues to become ever more globalised.

There are various regulatory bodies, such as the Financial Action Task Force and the Financial Conduct Authority (in the UK) that are responsible for maintaining these global standards. As we will explain later, different jurisdictions have their own standards but there is common ground between them, ensuring a consistent approach to AML across the globe.

Key Global Standards

There are 40 FATF recommendations that UK accountants should be aware of. These recommendations help organisations to identify and disrupt illicit activity, and are divided into seven key areas.

These areas are AML/CFT Policies and coordination, money laundering and confiscation, terrorist financing and financing of proliferation, preventive measures, transparency and beneficial ownership of legal persons and arrangements, powers and responsibilities of competent authorities and other institutional measures, and international cooperation.

In addition to the FATF recommendations, there are other international standards and guidelines that are relevant to UK accountants. These include the EU Anti-Money Laundering Directives (AMLD) and the Basel Committee on Banking Supervision (BCBS)

Comparison with UK Regulations

There are three major pieces of UK legislation designed to combat terrorist financing and money laundering.

The first is The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), which apply to financial institutions and service providers including accountants and law firms. These regulations set out requirements for Customer Due Diligence (CDD), a risk-based approach to AML, and record-keeping of CDD checks and transactions. They also set out requirements for reporting suspicious activity, staff training and awareness, and compliance with UK and EU financial sanctions.

The second is The Financial Services and Markets Act 2000 (FSMA), which protects consumers, maintains market confidence and sets out a framework for regulating the UK financial services sector. As well as covering a comprehensive list of financial products, it also includes sections on insider trading, market abuse and other financial misconduct.

The third is The Proceeds of Crime Act 2002 (POCA). It prevents criminals from benefiting financially from illegal activity by enabling law enforcement agencies to recover the proceeds of illicit activity. It also sets out requirements for both businesses and individuals to report any suspicious activity (with penalties for non-compliance), and includes provisions for the investigation and prosecution of money laundering activity.

Bodies such as the FCA and HMRC have their role to play in preventing money laundering. HMRC has a duty to publish records of every business that fails to comply with MLR 2017, while the FCA supervises tens of thousands of businesses under MLR 2017. It can also penalise financial institutions for non-compliance.

UK AML regulations are predominantly based on FATF recommendations, ensuring that the UK remains compliant with international expectations. However, there are certain territory-specific requirements that differ. What’s more, the MLR 2017 means that the UK has additional rules beyond the FATF recommendations that accountants should be aware of.

Implications for UK Accounting

Adhering to global AML standards is a legal requirement for UK accounting practices. It helps to ensure compliance – both in the UK and with clients who work internationally. It reduces the risk of professional sanctions, and enhances not only the credibility and reliability of their services, but also trust in their work. Non-compliance can result in significant penalties, legal action, and damage to a practice’s reputation. It could also mean lost business opportunities – particularly amongst international clients.

However, compliance with both local and global AML standards is not without its challenges. Resourcing can often be a struggle – in terms of both capacity and capability. Staying up-to-date with global regulatory changes can be hard.

Financial criminals are using ever more advances technologies and techniques, while adapting new technologies – such as AI, blockchain and machine learning – to fight financial crime requires a great deal of learning. Accountants and other financial institutions must be able to adapt to a regularly changing landscape.

Ensuring Compliance

There are many strategies that accountants can use to ensure UK AML compliance. These include staying abreast of changes and updates to both UK and global regulations and standards, as well as conducting regular risk assessments and implementing robust AML policies. At the heart of all this is ongoing education and training to make sure that every member of your team is aware of both their own and your organisation’s roles and responsibilities when it comes to AML compliance.

Externally-sourced tools and resources can help to make compliance easier. Dedicated AML software can automate a range of AML requirements, from customer due diligence activities to real-time transaction monitoring. Such software can save time and resources, and also reduce the risk of human error.

Professional associations and advisory services also have a role to play in terms of offering resources, guidance, industry updates and training to assist with AML compliance for accountants.

Future Developments

It is likely that global AML standards will continue to be adapted and amended to increase international cooperation and information sharing. We also expect future trends in AML compliance to include increased use of novel technologies – such as AI, machine learning and blockchain – as well as a greater focus on big data analytics. It’s likely that there will also be a greater emphasis placed on beneficial ownership transparency in the future.

For UK accountants, these developments have significant implications. They will almost certainly require practices to make changes to their existing AML policies and procedures to account for changes in international and UK standards. They may require the adoption of and training in new software or other tools to either improve the sophistication of their approach, or to combat new financial crime tactics.

Whatever future developments may emerge, one thing is certain: they will be easier to navigate with professional support every step of the way.

Why Choose ICPA for AML Compliance

In a world where financial crime is becoming ever more sophisticated, navigating the world of AML compliance can feel like a challenge. That’s where the ICPA comes in.

Created by accountants, for accountants, the ICPA offers its members decades of accountancy-related expertise in a wide range of fields. Our members have access to a variety of guides and resources, as well as invitations to industry events to keep them abreast of the latest global AML developments. Find out more about ICPA member benefits here.

Global AML standards are a vital tool in combating financial crime. UK accountancy practices must have a strong understanding of the regulations and standards that apply to them: failing to comply can result in penalties, legal action and a loss of reputation.

FAQs

Who sets global AML standards?

The primary body responsible for setting global AML standards is the Financial Action Task Force (FATF). This body issues recommendations that FATF member countries are expected to implement.

What are the FATF recommendations?

This is a set of 40 guidelines, providing a comprehensive framework for AML and counter-terrorist financing measures. These guidelines cover areas including customer due diligence, risk assessment and international cooperation.

How do global AML standards impact UK accounting practices?

UK accountants must align both with local regulations and international AML standards. This ensures that accounting practices can operate globally and meet the expectations of both international partners and regulators.

What are the key differences between global AML standards and UK AML regulations?

UK AML standards are predominantly based on FATF recommendations. However, there may be specific enforcement practices and requirements that differ. The UK also has its own rules under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, The Financial Services and Markets Act 2000 and The Proceeds of Crime Act 2002.

How do UK regulations align with global AML standards?

Many of the FATF recommendations are implemented through the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, The Financial Services and Markets Act 2000 and The Proceeds of Crime Act 2002, ensuring that the UK complies with international expectations.

Why is it important for UK accountants to understand global AML standards?

An understanding of global AML standards helps UK accountants to comply with both domestic and international requirements. It also reduces the risk of sanctions, and improves the reliability and credibility of their businesses.

What are the implications of non-compliance with global AML standards for UK accounting firms?

A failure to comply with global AML standards can result in legal action and penalties. It can also damage a firm’s reputation, as well as losing them international business opportunities.

How can UK accounting firms ensure compliance with global AML standards?

Accountancy practices should stay up-to-date with any changes to both global and UK standards and regulations. They should conduct regular risk assessments, implement solid AML policies, and provide staff with ongoing training and support.

What role does customer due diligence (CDD) play in global AML compliance?

CDD requires that accountancy firms verify their clients’ identities, gain a full understanding of their business activities, and assess their level of risk. This is a key part of AML compliance in detecting and preventing money laundering activity.

How do international AML standards affect the reporting requirements of UK accountants?

Any suspicious activity must be reported in a specific and timely manner, dictated by both local and global AML standards. This includes contacting the relevant authorities to file suspicious activity reports (SARs).

What strategies can UK accountants use to stay compliant with evolving global AML standards?

To stay compliant, accountants can take part in regular education and training. They can invest in advanced compliance software, conduct internal audits and reviews of AML processes, and seek guidance from external AML compliance experts.

How does the FATF evaluate the effectiveness of a country’s AML regime?

In the FATF’s mutual evaluations, they assess member countries on their implementation of AML recommendations, as well as the effectiveness of their AML measures. The results of these assessments are published in detailed reports.

What are the future trends in global AML standards that UK accountants should be aware of?

Future trends include the use of new technologies and data analytics, as well as a greater emphasis on beneficial ownership transparency. It is likely that we will also see greater international cooperation and information sharing in the future.

For these reasons, accountants must prioritise AML compliance. While it may not seem a simple task, the ICPA is here to help. Contact us to find out more about our AML compliance support services.