During our fourth edition of Newcomers to Experts (a regular monthly AML question and answer session), David and I discussed viewers' submitted AML questions. A hot topic we discussed was the general election including potential changes to money laundering regulations that could be introduced if we were to have a new government post-election.
The political landscape and AML policies
Most parties have included reforms to money laundering regulations in their manifestos. Understanding how that could impact accounting businesses in the following years is critical, and something you want to get to grips with sooner rather than later. There's a strong push across parties for increased transparency on sources of funds, especially around political donations and offshore financial structures.
Every part has something to say:
- The current government (Conservatives) are concerned about unclear political donations with their source often hidden through unincorporated associations.
- Labour is advocating for tougher AML measures, they recognise that they could have had the chance to influence them even in opposition but have openly criticised that the existing policies are ‘weak’ and more needs to be done.
- Liberal Democrats are pushing for enhanced Electoral Commission powers to better oversee and regulate political donations.
- The Green Party also supports rigorous due diligence in political donations.
- The Scottish National Party aims to align with EU AML standards to strengthen cross-border efforts against money laundering.
What’s clear is that no political party is calling for reduced AML measures, which is why we at Firmcheck do everything we can to make sure you understand the what, and the why behind AML compliance. It’s clear that there is a growing interest in doing more to prevent money laundering, which is why it’s important to get your head around the legislation and what it means for you.
Alongside the ‘topic of the day’, we also tackled several other questions from the audience.
Document retention and data protection
Q: Do I need to keep copies of client ID documents after checks are completed? I don’t want to risk keeping personal documentation in fear of a data breach.
A: Yes, you need to securely retain them for at least five years while they are a client and after the client relationship ends.
Balancing AML requirements with data protection principles is pretty important. David emphasised using secure systems with features like two-factor authentication to protect sensitive client information.
Compliance costs and penalties
Q: What are the potential fines for AML non-compliance?
A: Fines can range from a few thousand to over £50,000. But the reputational damage and stress of an investigation can be even more impactful.
David shared a story about a firm that managed to negotiate a £52,000 penalty down to £26,000, illustrating the severe consequences of non-compliance. Emphasising that the cost of strong AML compliance is far less than potential fines and the associated reputational damage. Whilst this is just one story, and isn’t an everyday affair it almost certainly does paint AML compliance in a different picture. Sometimes the cost of inaction at the time might feel easier, but perhaps in a world where compliance isn’t optional a bit of proactivity with your AML compliance could really help your firm better manage all aspects of risk.
Engagement letters and legislative references
Q: What key AML legislation should be referenced in engagement letters?
A: While there’s no definitive list, consider including:
- References to your professional indemnity insurance (without disclosing coverage amounts).
- Mentions of electronic ID verification services.
- Company details (registered name, number, address) on all communications.
Director ID checks and PEPs
Part of our discussion focused on verifying company directors and identifying Politically Exposed Persons (PEPs):
Q: For a company with multiple directors, how many need ID verification?
A: Guidance varies. At a minimum, verify all directors' full names. Some bodies recommend full ID checks on key individuals like the CEO and finance director.
Q: How do we effectively check for PEPs?
A: Electronic verification services are useful, but asking clients directly and documenting their responses is also important.
Upcoming educational opportunities
I mentioned earlier that making sure you’re in the know (and providing solutions to help with that) is a key part of our philosophy here at Firmcheck. And so that’s why I’m excited to announce our "Summer School" series of AML webinars.
This five-week online series will feature guest experts from various accounting bodies, as well as other accountants and bookkeepers and cover a wide range of AML topics. Plus, (as a little bonus) Firmcheck will release 20 new free AML educational courses for students to further dive into AML topics they’re interested in, building on our current stream of free AML training.
Concluding thoughts
This might sound like a cop-out, but both David and I do like to emphasise the importance of referring to your specific accounting body or supervisory authority for guidance, as requirements can (and do) vary.
While AML compliance can be complex and sometimes frustrating, it’s essential. By staying informed and implementing best practices, navigating AML compliance requirements is actually fairly straightforward and as a win it protects you and your business.
For those who missed the live session, you can watch the full webinar recording on our YouTube channel (or below you can browse the entire series to date).
