Anti-money laundering (AML) compliance is more critical than ever for accountancy practices. Regulatory expectations are rising, and with the stakes high, non-compliance can lead to severe penalties, reputational damage, and even legal action.
Accountants are pivotal in identifying and preventing financial crime, but many firms find meeting AML obligations challenging. Here’s how you can ensure your practice remains compliant and in the know.
What is AML and why it matters for accountants
AML regulations are designed to disrupt illicit financial activities, including money laundering, tax evasion, and terrorist financing. As trusted advisers, accountants are on the front line in detecting unusual activity that could signal financial crime. Failure to meet AML obligations can result in fines or regulatory investigations, but the impact goes beyond finances – your firm’s reputation and client trust could also be at risk.
Recent updates, such as tightening verification requirements under the UK’s Money Laundering Regulations 2017, mean accountants must stay on top of AML demands and regulations. The Financial Conduct Authority (FCA) reported in 2023 that AML failures led to penalties totalling over £150 million. The message is clear: AML compliance isn’t optional.
What auditors look for during AML checks
Understanding what auditors scrutinise during AML checks can help you prepare and maintain compliance. Key areas include:
- Documentation: Complete and accurate client verification records, including proof of identity and source of funds, are essential. Missing or incomplete documents are a common audit issue.
- Risk assessment: Auditors examine how you categorise clients by risk level and whether appropriate due diligence is applied.
- Transaction monitoring: They check if ongoing monitoring systems are in place to flag unusual activity.
- Reporting suspicious activity: You must demonstrate a clear process for reporting suspicious transactions to the relevant authorities.
Auditors might spot red flags such as frequent large cash transactions, inconsistent income patterns, or clients refusing to provide identification.
Essential AML controls for your practice
To protect your firm and meet AML requirements, put these controls in place:
Client verification
Verify every client’s identity using reliable documents, such as passports, driving licences, or utility bills. For high-risk clients, consider enhanced due diligence (EDD), which may include verifying the source of funds or obtaining additional documentation.
Risk assessment
Categorise each client by risk level and adjust your due diligence processes accordingly. High-risk clients, such as politically exposed persons (PEPs), require stricter monitoring and additional scrutiny.
Transaction monitoring
Establish systems to review client transactions regularly and look for anomalies. Automated tools can flag unusual patterns, saving time and improving accuracy.
Record keeping
As required by law, maintain detailed records of client verification, transactions, and risk assessments for at least five years. This ensures you’re audit-ready and demonstrates a proactive approach to compliance.
Employee training
Train your staff regularly on AML policies and red flags. Well-informed employees are better equipped to identify and escalate suspicious activity.
AML compliance checklist: Scenarios to consider
Tailor your approach based on specific scenarios to ensure comprehensive compliance:
- New clients: Collect and verify identification documents, assess their risk level, and onboard them using a structured process.
- High-risk clients or transactions: Apply EDD and closely monitor these relationships to detect potential issues early.
- Unusual activity: Act quickly to investigate and report suspicious activity through proper channels, such as filing a Suspicious Activity Report (SAR).
- Ongoing monitoring: Make sure that you are aware of any changes in your client’s business and that, where necessary, you ensure that any changes to directors or persons of significant control have the necessary AML checks carried out. Also, ensure that you regularly check the information you hold is still up-to-date and accurate.
Best practices for staying AML compliant
Consistency and adaptability are key to maintaining compliance in a changing regulatory environment. Regularly update your AML policies to reflect legislative changes and best practices. Conduct internal audits to identify and resolve gaps before an external review uncovers them. Using AML software can also simplify tasks like client verification and transaction monitoring.
Final thoughts: Creating a culture of AML compliance in your practice
AML compliance requires firm-wide commitment. It is crucial to build a culture where everyone understands and values their role in preventing financial crime. Proactive training, systemisation, and using technology to streamline processes are investments that protect your practice and clients alike.
As Sarah Bedford, a GoProposal user, shares, “AML and Letters of Engagement have been pivotal for us. The KYC documents are so much easier to complete than the ones we had before.”
With tools and resources tailored for accountants, GoProposal can help simplify AML compliance while ensuring your firm stays protected.