According to the National Crime Agency, between £36 billion and £90 billion is moved annually in the UK.
Accountants and bookkeepers play a big part in this to protect their customers and because it’s the right thing to do. Maintaining AML rules and protecting your professional image requires thorough and regular tracking. However, many companies still don’t put as much emphasis on AML regulations as they should.
It makes sense — keeping and changing AML records isn’t something you can just do once and forget about; they can get complicated and cover a lot of ground based on the people you work with. People usually don’t care about the regular part.
Still, one of the most important parts of staying in line with AML rules is keeping AML records, including risk assessments, up to date and being constantly inspected.
However, a new breed of AML compliance tools focusing on technology makes the processes easier and faster so that every company can do thorough reviews, assessments, and checks.
This piece discusses why AML is essential to accounting firm’s work in 2024 and how to use it to your advantage.
What is AML?
AML, which stands for “anti-money laundering,” is a set of rules, policies, and processes that are meant to stop people from using financial systems to hide money. A process called “money laundering” turns the money from illegal activities into real money. It’s not only used by criminals, but business owners find many ways to benefit from the allocation of resources around.
Because of these rules, financial institutions like accounting firms have to monitor their clients’ money movements and report any strange behaviour to the right authorities. Anyone who has started a business bank account has probably been through this process before: They check your ID, look at who owns the business, and see where your money comes from.
AML laws and rules aim to help detect and stop money laundering, funding for terrorism, and other financial crimes. If your company breaks these rules, it could damage its image and face heavy fines and penalties, which have become harsher and more “popular” over the past few years as officials crack down.
Who manages AML?
There are 25 AML supervisors in the UK, of which three are statutory providers. There are also supervisors for other fields, with thirteen professional body supervisors working in accounting. Because of this, it’s hard (maybe even confusing) for accountants to know exactly what they need to do to be compliant.
Common misconceptions about AML
When talking to accounting firms of all shapes and sizes, we find that, despite the growing focus on AML, most accountants just need help understanding what they need to do.
One of the most common misconceptions about AML is that it’s an ongoing process. For example, people often think checking IDs is the same as being AML compliant. Accountants are used to doing all the necessary checks and reviews on new clients when they first hire them, but they don’t always remember to check on their AML status regularly. This is just another job that accounting companies have to do, and it’s not always the kind of work that brings in the money.
The Penalties and Fines for AML Failures
Not following AML rules can lead to harsh punishments, like fines or even jail time, which is happening more and more often.
Even though these problems mostly happen in more important cases, mistakes with low stakes can still be a pain. For example, mistakes can lead to fees and challenges that take time.
HMRC just announced that hundreds of businesses will be fined a total of £3.2 million in the second half of 2022. Notably, “only” £600K was given to accounting service providers. However, those numbers are still pretty big, especially if you run a small business where even a few thousand pounds could have big effects.
As a result, discussions are taking place about changing the sector, as HMRC plans to pay more attention to this important area.
Some key components of AML to have in place
AML compliance includes a set of steps meant to give you a full picture of your client’s business and everyone involved, whether you’re dealing with people, companies, or groups.
Client Identification, Verification, and Know Your Customer (KYC)
Make sure your clients are who they say they are by using trustworthy, third-party sources. Usually, this means checking their government-issued IDs and energy bills and seeing if they are on any Sanctions lists or are politically exposed (PEP). You should have gathered a lot of other information as well. You may have even gotten down to the details of your engagement by learning more about their situations, businesses, motives, etc. This thorough process, often referred to as Know Your Business (KYB), ensures you have a clear and complete understanding of the entities you’re working with
Client Risk Assessment
It’s one thing to check out and understand the people you’re dealing with; it’s another to use that knowledge to make a risk profile. Assigning a risk number based on where the person lives, what they do for a living, how often they do business, the risk of services, and known connections from the beginning. This lets you know if regular due diligence is enough or if you need enhanced due diligence (EDD), which includes more research and a higher level of study.
Continuous Review and Monitoring
This is two things in one. The first part includes constantly checking the client’s transactions and other information to see if anything doesn’t match their usual financial habits, PEP status, or if they are on lists of people who should not do business with the company. The second part is reviewing their risk profile regularly.
This could be because they want to add a new service or their transaction behaviour has changed. No matter the reason, keeping risk levels up to date and writing them down is an important part of staying in line with AML. If nothing changes, you should review the last risk assessment you made at least once a year and make any necessary changes.
Role of Technology in enhancing AML compliance
AML compliance is known for being very data-heavy. Accountants have to gather a lot of different papers and look over many other lists, sources, and authorities to get a full picture of their client’s activities. This is on top of managing the policies, procedures, and risk assessments. But, the growing number of AML tools makes keeping your business legal much easier and cheaper.
Integrated ID and Address Verification Checks
KYC Hub’s platform connects to many trustworthy data sources so that full ID, fingerprint, and address checks can be done quickly and easily. This saves time and stops the need to email or otherwise share papers.
Keeping accurate records and auditing
Our centralised system makes keeping records easier by ensuring all the paperwork needed for AML compliance is in one place and easy to find for tracking across your entire workflow. This includes tracking who made what decisions and what changes, if any, were made during reviews or alterations.
Ongoing AML Management
Our platform is designed to allow for ongoing AML management. You can quickly review, re-evaluate, and set future review times for clients within KYC Hub, ensuring that your AML records are always up to date.
Conclusion
A seamless onboarding experience also increases the possibility of referrals, as customers are more inclined to send efficient and easy-to-work-with specialists to others since favourable word-of-mouth recommendations are crucial. Practices can simplify, speed up, and make their AML and KYC client hiring process safer. Those who learn to use these new technologies well will likely look for ways to use them in other important practice areas.
Author: Farnoush Mirmoeini
Farnoush is one of the co-founders of KYC Hub, where she leads product management, AI/data science, and growth strategy. She has over ten years of experience in AI, quantitative finance, and risk modeling and has published several papers on AI applications.
