AML Essential Kit - Client Risk Assessments

AML compliance for UK accounting firms involves adhering to the Money Laundering Regulations 2017 and Proceeds of Crime Act 2002 to prevent and report money laundering.

Non-compliance can result in severe penalties, including fines, imprisonment, and loss of licenses. Key elements include customer due diligence, risk assessment, firm-wide controls, staff training, transaction monitoring, and record-keeping, all managed through a risk-based approach tailored to the client or service's risk level. The AML Essentials Kit from Firmcheck is designed to give you a simple and clear understanding of your compliance requirements, how to manage the operations of AML, and specific challenges that may arise.

This month, in the AML essential kit, we look at Client Risk Assessments. 

Client Risk Assessments

A firm’s AML compliance must be seen to be responsive to the risk of money laundering and terrorist financing faced by the business. The same is true of AML supervision by HMRC or one of the professional body supervisors. So it is worth reminding ourselves what we mean by risk in this context, before we turn our focus to client risk assessments.

What do we mean by AML risk?

The UK’s 2020 National Risk Assessment of money laundering and terrorist financing (NRA) states:

“Overall, the risk of money laundering through [accountancy firms] remains high. The risk is highest when [firms] do not fully understand the money laundering risks and do not implement appropriate risk-based controls …”

The Financial Action Task Force (FATF) noted, in 2018, that smaller firms are generally of higher risk, due largely to a lack of resources. That lack of resources includes inadequate training and, to some extent, a lack of understanding.

A risk-based approach requires us to understand money laundering risks, terrorist financing risks and proliferation financing risks. A risk that is easy to understand is the risk that an individual or a firm may, unwittingly, play a part in a transaction that moves the proceeds of crime. In an accountancy practice, this is unlikely unless the firm operates a client bank account, in which case you must be able to understand the legitimate reason for a client wanting or needing to use that account.

But there is also a risk that a firm may unwittingly breach POCA section 327 (concealing or disguising criminal property) or section 328 (arrangements that facilitate money laundering). So a firm must be alert to the risks of being exploited in these ways.

We are expected to know our clients well – so that we can serve them well. So we are also expected to notice things that are unusual and that might even arouse our suspicion. So in addition to the risk that a firm may be exploited in facilitating or concealing money laundering, there is also a risk that it may fail to identify possible money laundering, which would include failure to identify the proceeds of crime.

To look at AML risk a slightly different way, there are risks that the proceeds of crime may go unnoticed – a risk to the public – and there are risks to the firm. The latter come in the form of reputational risk in respect of the firm’s noncompliance, and the risk that action by the firm’s supervisory authority will lead to robust sanctions against the firm and significant costs of remediation. If the firm manages the risk to the public appropriately, it will also be managing the risks to the firm itself.

Learn more

The AML Essential Kit will guide you through everything you need to know, it covers:

• The legislation

• Risk factors, clients, transactions, services and delivery channels, geographical, transactions

• Ongoing monitoring

• Regulatory Guidance and Resources

View all the details and the full AML Essential Kit here - https://www.firmcheck.com/aml-essential-kit