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5 challenges of complying with Anti-Money Laundering in non-financial services industries

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’) have changed the way businesses in many industries perform their customer due diligence (‘CDD’). Three years on, industries within the scope of the MLR are still struggling to comply with their CDD responsibility. Today we explore the main challenges that industries outside of the Financial Services are facing and how GDFM can help support your business with its vital compliance function.


1. Delay to the business

The MLR has imposed requirements that can cause delays to the business. Private individual checks are usually easily performed, but a corporate client consisting of trusts, SPVs and offshore entities can pose a greater challenge. These clients require specialised knowledge to perform an in-depth analysis to understand each layer of their corporate structure whilst identifying any red flags and to clearly assess the risk that they may bring to your business.

The MLR may put a firm under additional pressure by requiring a short burst of highly intensive checks to be performed within a short space of time. For example, a business conducting an auction must complete client checks on all the vendors prior to the commencement of the auction. Further, counterparty checks must be completed on the successful bidder within a tight timeframe as the sale is binding at the fall of the hammer. This brings immense pressure on the business to ensure swift completion for all the parties by accurately performing CDD for each seller and buyer in a timely manner.


2. Risk appetite management

The CDD responsibility requires your business to understand the risks attached to each customer. Businesses are expected to carry out annual assessments of their customer pool and establish a risk appetite as well as ongoing risk management to ensure the CDD process captures any higher risk clients and red flags. This places constant pressure on all compliance staff to ensure CDD is carried out in line with the risk appetite whilst recognising additional risks which pose a threat of money laundering.



3. Finding the right resources, process and data providers

The CDD function requires a special skillset that is in short supply. Over the years, the Financial Services industry has highlighted the imperative role of their compliance staff by offering good pay packages and professional development in AML. Industries outside of the Financial Services frequently struggle to keep up with this as although they have an equal responsibility under the MLR, they may lack the resources to invest heavily in training or commit to the professional development of their staff. Many non-Financial Services businesses have had the painful experience of investing heavily on specialised staff only to see them leave for the Financial Services industry.

Further, the CDD function is by nature iterative as when information about customers is unveiled, more documentary evidence is required. A key component to this process is the four-eye quality control check ensuring that CDD is performed to the expected standard and that risks of money laundering attached to the customer have been adequately captured and correctly documented. However, while manual processes expose businesses to operational risk (human error) the automation of quality control is seen as either too expensive or too unreliable for the purpose of risk management.

Finally, data providers are an essential part of CDD. Their price points can approach £1,000 per customer when all the checks required for a risk assessment of both new and existing customers are taken into account. They can dramatically improve or hinder your team’s performance. Although some firms have opted for managed services, this is an often-unaffordable luxury for smaller businesses.


4. Remaining competitive: Avoiding a race to the bottom and doing the right thing

Customer experience remains a large concern for many industries and KYC must be able to move in ‘real time’ as we transition to a more digital world. This demand has been exacerbated by the public health crisis that has democratised the use of technology in many areas. Any firm not investing in the right technology now runs the risk of losing business to those that have.

Anti-money laundering can feel like a thankless task and a cost centre. If the customer experience is hindered by the CDD process, customers may elect to go to a competitor whose process may not be as robust as yours. The risk is that firms could be faced with a choice between losing business or weakening their CDD process in an unhealthy race to the bottom across the industry where participants only adhere to the letter of the regulations while not effectively fighting financial crime.


5. Protecting your business’s reputation and protecting yourself

No one wants to be caught up at the centre of a scandal. Protecting your firm’s reputation is paramount. Having a robust CDD function in place helps you to achieve this through clear processes, an appropriate control framework, timely reviews and secure record retention for each customer. These are all key to your firm’s reputation and protect you from becoming personally liable for failing to report a suspicious customer to the regulator due to a flawed CDD function.

At GDFM, our Financial Crime Compliance Practice specialises in helping our clients with their CDD function so that they can focus on what they do best. From full managed services using highly trained staff certified in AML by our GDFM Academy, to targeted reviews of your CDD processes, design of AML frameworks or assistance with your risk assessments of different customer types, we can provide tailored solutions that are both pragmatic and affordable. Please contact Clarisse Mallem today for a discussion on how we can help you.