How to explain Anti-Money Laundering (AML) checks to your clients
Money-Laundering is still a real and present threat in the UK. HM Revenue & Customs recently hit hundreds of UK businesses with money-laundering fines, with the penalties for breaching these Anti-Money Laundering rules coming to a staggering total of £3.2 million. To help combat this activity, it’s increasingly important for your firm to have robust AML procedures in place.
But how do you convey the importance of these AML checks and procedures to your client base? Will they understand the need to comply with these checks, and how should you communicate the value of protecting the financial integrity of their company and your firm?
In this post, we’ll outline:
- The value of explaining AML checks to your client base
- How an engaged client base helps your Money Laundering Reporting Officer (MLRO)
- Your template for outlining AML checks to your clients
The value of explaining AML checks to your client base
Including an explanation of Anti-Money Laundering (AML) checks when onboarding new clients to your accounting firm is a must. With the regulatory environment being strengthened, it’s important that your clients are aware of the need for these AML checks, and that they know what’s required of them when you request data, documentation and financial information.
We know chasing clients to complete checks is one of the biggest time sinks during onboarding, so explaining the requirement for these AML procedures is vital.
- It helps to build trust with clients – when clients understand the reasons for AML checks, they are more likely to trust that the firm is taking their security seriously. This can help to build a strong relationship between your firm and your clients.
- It helps to prevent compliance issues – if clients are not aware of your firm's AML requirements, they may be more likely to make mistakes that could lead to compliance issues. By explaining the AML checks to clients, you can help to ensure that clients are aware of the rules and that they’re complying with them.
- It helps to improve efficiency – when clients understand AML checks, they can be more proactive in providing the necessary information. This can help to speed up the onboarding process and free up your MLRO to focus on other tasks.
How an engaged client base helps your Money Laundering Reporting Officer (MLRO)
There’s an obligation for your firm to have a dedicated Money Laundering Reporting Officer (MLRO) to manage your AML processes. For your firm's nominated officer or any member of the team for that matter, explaining AML checks to your clients helps to keep them educated and engaged by the process. This can have a number of advantages for you and your firm.
These benefits can include:
- Reduced workload – with written explanations about AML procedures during onboarding, you can help reduce the amount of time you need to spend explaining the rules to clients. This can free up time to focus on other tasks.
- Improved communication – a clear explanation of the AML process and associated checks can improve communication between the person in your firm managing the process and the clients (or potential clients) you’re dealing with. This enhanced insight into the AML process helps ensure there are no misunderstandings about the rules and that clients are aware of their AML tasks and key responsibilities.
- Increased compliance – detailed explanation of AML regulations can help ensure that clients are complying with the rules, and also being proactive about it. This can help to protect the firm from legal liability and financial penalties and reduce the risk of penalties for clients. If you’re doing this and it’s also included in your AML policy, it’s only going to look favourable in the eyes of your supervisor during a practice review if you’re demonstrating this sort of proactive education.
Your template for explaining AML whilst onboarding clients
Overall, explaining AML checks to clients is a valuable way to build trust, improve efficiency, and reduce compliance risks. As such, building an education component about AML into your client onboarding should be a key part of your firm’s AML compliance programme.
To make things easier, we’ve drafted an AML template for you, that explains in simple terms why AML checks are needed, and what the client’s responsibilities will be.
Here’s your template to use, revise and customise for your clients:
Dear [Client Name],
As part of our commitment to maintaining high standards of integrity and compliance, we want to explain the key reasons behind the Anti-Money Laundering (AML) checks we carry out.
These AML checks are part of our onboarding process and an ongoing regulatory requirement we have as accountants to help combat financial crime. These checks help to protect our firm but also make sure that we’re working with the business, and people who are who they say they are, and so we might know any risks that could be present.
To help you understand the why, and the value of these AML checks, we’ve summarised some of the key points below.
Key reasons we carry out AML checks:
Regulatory Compliance: Conducting AML checks ensures that we comply with the UK's legal obligations, and helps us as accountants to protect the legitimacy of the financial system in the UK.
Risk Mitigation: AML checks help us to identify potential money-laundering risks associated with clients and transactions, allowing us to implement appropriate measures to mitigate these risks and compliance issues.
Enhanced Security: By identifying and preventing money laundering activities, we protect your business from potential financial losses, reputational damage and possible legal consequences – as your accountant, it also gives us a picture of what we’re dealing with.
Better Decision-Making: AML checks provide us with a comprehensive understanding of your business activities, so we can make informed decisions and provide tailored services that meet your specific needs.
Comprehensive Due Diligence: By conducting AML checks, we gather essential information about your business. This means we get a clear picture of who you are, but it’s also a great opportunity for us to get to know each other better.
Regulatory Reporting: As your trusted advisers, we’re obligated to report any suspicious activities to the relevant authorities promptly, so we need to carry out these checks to understand if there might be any ‘red flags’ or associated risks.
We’re committed to meeting all of our AML compliance obligations, and we also want to make the onboarding process and any information requests as seamless as possible.
You’ll receive another email shortly including details about the next steps in our onboarding process relating to AML, including the procedures for sharing financial data and documentation.
If you have any AML-related questions, please don’t hesitate to get in touch.
Kind regards, [Accounting Firm Name]
Tip 🤖
Our template is written in fairly formal language – if you’re leveraging AI to help your firm, it’s easy to copy the above template, drop it into ChatGPT (or your AI writing tool of choice) and ask it to “make it more colloquial”, “tailor it to your firm's tone of voice”.
And well if you’re not using AI, perhaps this is an easy place to start – we’ve done the hard part for you 😉
You might also be able to incorporate this into your existing onboarding content, or communications flow – however you choose to use it, we think going deeper and explaining more about ‘the why’ behind AML checks can help.
Your one-stop shop for running and recording AML checks
Leveraging technology to help with AML checks, risk assessments and client onboarding is nothing new – keeping it housed in one intuitive workflow can make it easier to manage your workflow.
A solution like Firmcheck helps your firm:
- Meet your compliance requirements and carry out in-depth ID and address verification using our mobile-friendly web-based biometric integration
- Have a robust risk-based AML process
- Capture your whole AML workflow in one place, through a centralised system, including approvals and determinations
Firmcheck is the central hub for all your AML activity as an accountant. Our solution helps you seamlessly gather the data you might need from clients, and keeps it secure in one, easy-to-use system.
Join our waitlist, and we’ll let you know when we launch this September.
(NB: This article doesn't constitute legal advice and is intended for general informational purposes only. Always consult with a legal expert or compliance consultant for guidance specific to your firm.)
By Nathan Barker, Firmcheck
Firmcheck will be exhibiting at Accountex Summit Manchester on the 19th September 2023 on stand F21.
You can register for a free ticket here.
How to create an AML checklist for your firm
Engaging a new business client is good news for your accounting firm’s growth and the stability of your firm’s revenues. But taking on the wrong client can be a costly error, especially if this new entity turns out to be involved in money-laundering activity. This is why carrying out robust Anti-Money Laundering (AML) checks on all new clients is such a vital compliance step.
AML checks exist to give you the best possible overview of your new client’s business, their finances, transactions and the nature of their business activities. By putting these areas under the microscope, you can look for any potential red flags and areas of concern, and it’s in additive to getting to know your client.
So, what are the key steps to include in your firm’s AML checklist?
We’ve highlighted the important areas to consider, and why they should be central to your due diligence process.
8 key components to include in your AML checklist
An AML checklist is a vital part of your Know Your Customer (KYC) (or sometimes known as Know Your Client) process. To meet your Customer Due Diligence (CDD) responsibilities, it’s important to include the following key actions to ensure compliance with the rules for your region and to mitigate the risk of money laundering.
1. Client Identification
- Obtain and verify the client's legal name, business name and relevant identification documents relating to the company.
- If engaging a limited company, partnership or director, identify the company’s records and filings with Companies House.
- Verify the client's residential or business address.
- Collect and validate the client's contact information, including phone numbers and email addresses.
2. Beneficial Ownership
- Identify and verify the beneficial owners of the client's business, including individuals who hold a significant ownership interest or have control over the entity.
- Collect the necessary documentation to establish beneficial ownership, such as shareholder registers or partnership agreements.
3. Risk Assessment
- Assess the client's risk profile based on factors such as the nature of their business, transaction volume, geographic location and known industry risks.
- Where necessary, conduct Enhanced Due Diligence (EDD) for high-risk clients, including politically exposed persons (PEPs) and clients in high-risk jurisdictions.
4. Source of Funds
- Determine the source of funds for significant transactions or account openings, making sure that they’re legitimate and derived from legal activities.
- Request documentation or evidence to support the source of funds, such as bank statements, tax returns or business financial records.
5. Suspicious Transaction Monitoring
- Establish robust systems and processes to monitor your client’s transactions for any unusual or suspicious activities.
- Train your employees to recognise red flags, such as frequent large cash deposits, complex transaction structures or unusual patterns of funds movement.
6. Record Keeping
- Maintain accurate and up-to-date records of customer information, identification documents and transaction details.
- Retain records for the required regulatory period, typically at least five years, and ensure these records are easily accessible for auditing purposes.
7. Compliance Program
- Develop and implement an AML compliance program, including written policies and procedures, training programs for staff and regular internal audits.
- Appoint a designated AML compliance officer responsible for overseeing the firm's AML efforts and ensuring ongoing compliance.
8. Reporting Suspicious Transactions
- Establish a clear process for reporting suspicious transactions to the appropriate regulatory authorities, such as the UK Financial Intelligence Unit.
- Educate your staff on how to recognise and report suspicious activities promptly, in accordance with legal and regulatory obligations in your territory.
Firmcheck: taking away the headache of AML checks and ongoing management
Completing AML checks is a complex but necessary part of your engagement process. It's also worth noting that the specific requirements for AML and KYC checks may vary depending on the jurisdiction and regulatory framework that’s applicable to your firm. The checklist needs to be tailored to align with relevant laws, regulations and industry best practices.
The simplest and most effective way to complete these AML checks is by using tailored AML software tools, like Firmcheck.
Firmcheck is your one-stop shop for all your firm’s AML needs, allowing you to manage AML across the entire client lifecycle, including ID verification, PEPs, Sanctions checks, and ongoing due diligence.
Firmcheck helps you:
- Manage company, and individual AML checks all in one place
- Keep a track record of all decisions and risks, with a simple intuitive AML workflow
- Stay on top of ongoing due diligence with prompts and reminders for things like expired IDs
- Meet your record-keeping and AML obligations
Join the Firmcheck waitlist to stay up to date and be notified when we launch in September 2023.
(NB: This article doesn't constitute legal advice and is intended for general informational purposes only. Always consult with a legal expert or compliance consultant for guidance specific to your firm.)
By Nathan Barker, Head of Marketing, Firmcheck
Firmcheck will be exhibiting at Accountex Summit Manchester on the 19th September 2023 on stand F21.
You can register for a free ticket here.