How firms can better implement AML compliance

With money laundering costing the UK economy more than £100billion each year according to the National Crime Agency, it is clear that this is an issue that accountants must prioritise.

Tim Pinkney, Director of Professional Standards at the IFA addresses the key questions accountants may ask about anti-money laundering (AML) to assist them in better implementing AML compliance.

What’s the cost of money laundering to the accountancy sector?

Aside from the money lost through economic crime, accountancy malpractice or mistakes can come with a hefty fine. Between 1 April and 30 September 2023, a total of £2.28m in fines was handed out, with accountancy service providers (ASPs) paying out £371,485 of this total. Around a quarter (105) of the supervised businesses from HMRC that were fined for breaching money laundering regulations were accountancy service providers.

Firms need to do more to familiarise themselves with the regulations, and individual practitioners must take accountability to ensure that they understand and are following the rules. This can be done by using the support from a professional body.

Which AML regulations do accountants have to follow?

UK regulations on money laundering are applicable to specific entities that need supervision, such as accountants. All accountants are obliged to show adherence to these regulations to their AML supervisor.

Individuals involved in public practice, offering services such as accounting, assurance services, bookkeeping, payroll and tax compliance are covered by these regulations. Additionally, if you offer services such as company formation and registered office services, these regulations also apply.

Every crime has a victim and Pinkney emphasises the importance of recognising this: “Every accounting business should have specific policies and procedures tailored to their services and clients, should conduct thorough risk assessments, and should maintain detailed customer due diligence records including client and risk assessment details. It is also vitally important to provide annual AML training to staff and establish clear reporting lines for submitting suspicious activity reports (SARs) to the National Crime Agency.”

How does the IFA carry out AML supervision?

The Institute of Financial Accountants (IFA) is authorised by HM Treasury as an AML supervisor and thus is included in the money laundering regulations. The IFA oversees a variety of businesses of varying size, from sole practitioners to incorporated businesses.

They supervise IFA member firms or via an AML supervision contract where IFA members hold less than 51% control of the firm, applying a risk-based approach to monitoring work. This includes reviews, training and enforcement action.

“Our approach involves engaging with firms to review policies and procedures, ensuring compliance with regulations and meeting practitioner requirements. This proactive approach helps safeguard firms from potential exploitation by money launderers or criminals,” Pinkney confirms. “A key responsibility of the IFA is to assist our member firms in showcasing adherence to regulations, enabling everyone to contribute to combatting economic crimes.”

What challenges do practitioners face?

Staying abreast of AML regulations can appear challenging for smaller firms but with the right support from bodies such as the IFA, it can be made much easier.

“When meeting a client for the first time, you naturally assess the risks involved. The key is to document these observations, as law enforcement and supervisors will expect it to be written down.” Pinkney continues.

Firms should always cultivate a ‘culture of compliance’ and we urge them to approach their work with a healthy dose of professional scepticism: “Ask yourself: Why is a client asking you to offer services that you may not have much experience in? When I was in public practice, the company preferred to provide a wide range of services instead of just one, such as payroll. This approach helped the company build its expertise and comprehension of the client, allowing us to offer the client valuable advice and expertise as a trusted business adviser, since we fully understood what the client wanted to accomplish” says Pinkney.

What support is available to accountants to help fulfil their AML responsibilities?

“The IFA has a team of skilled AML reviewers and compliance officers who are available to assist members with their AML duties, questions, and reviews. This support includes approved guidance to the accountancy sector, a risk assessment developed in collaboration with other professional bodies in the field, and updates and alerts from the National Crime Agency.”

By taking a proactive approach, and regularly reviewing policies and procedures, you are in a much better position if, and when, it comes to an AML review.

Use the resources and support available to you from professional bodies and ensure that your firm and staff feel prepared to tackle challenges in the ever-evolving AML landscape.

More information on AML regulations can be found on the IFA website.