Discover the significance of AML regulations in the modern financial landscape and gain valuable insights into their KYC implications.
AML regs and KYC regimes will be stricter in 2024
To help curb fraud and illegal financing, regulators have been gradually bringing pressure to bear on organisations to ensure that they are purposefully focusing efforts on Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance. Other technological advances including crypto currencies, non-fungible token (NFTs) and AI, alongside geopolitical developments such as sanctions against nation states, add to the compliance imperative for businesses and regulators alike.
Anti money laundering non-compliance penalties at an all-time high
Banks and financial institutions routinely make headlines for failing to comply with KYC and AML regulations. Notable AML fines issued in 2023 include Deutsche Bank ($186m), Crown Resorts ($450m), Guaranty Trust Bank UK Ltd (£7.6m), and the list goes on.
However, KYC and AML compliance is mandatory for the professional services legal sectors too. In the legal sector, the Solicitors Regulation Authority (SRA) is ramping up pressure as it finds that law firms aren’t satisfactorily fulfilling their KYC and AML obligations. In the last few months alone, the SRA has fined national firm, Ashfords, £100,000; Angel Wilkins £79,000 and Oakmount Law Solicitors £3,120. Noteworthy here is that these firms have been fined despite any indication of financial crimes having taken place. These organisations simply didn’t have the adequate processes in place to convincingly demonstrate that they were taking the necessary measures to fulfill their AML compliance obligations.
Likewise, accountancy service providers are also under the spotlight. Last year, the HMRC fined 83 accountancy firms nearly £600,000 last year for breaching AML regulations in the period 01 July to 31 December 2022. The Institute of Chartered Accountants in England and Wales (ICAEW) similarly fined firms a total of £267,002.
AML regulation will increase KYC compliance scrutiny in 2024
Regulators are further upping the ante this year, as they bolster their powers to intensify scrutiny. For instance, the Economic Crime and Corporate Transparency Act 2023 (ECCTA), comes into force in March 2024. With this, Companies House can query and reject information submitted to it for filing, and in certain situations even remove information previously filed. Already implemented, since 26 December 2023, as part of this Act is the identification doctrine reform, whereby a relevant body can be criminally liable where a person associated with it – i.e., employee, agent, or other persons that perform services on their behalf – commits a fraud to benefit the organisation and the organisation did not have reasonable procedures in place to prevent the fraud. Whilst presently this applies to large organisations, the legislation has the power to scrutinise small and medium-sized businesses too.
Whilst all these regulations are also applicable to law firms, the SRA within its own remit is bearing down on firms, coercing them to move away from a ‘tick-box’ approach to KYC and AML compliance, towards a more proactive and considered one. This year, law firms can expect the SRA to conduct more spot checks and desk-based reviews. The Authority is also likely to take a tough stance on enforcement should it find non-compliance, which could be in the form of a financial penalty or in extreme cases, even shutting down firms.
Visit our Know Your Customer workflow solution page for all the benefits KYC automation can deliver.
AML checks performed manually are prone to failure
Regulatory compliance requires a systematic, painstaking and scrupulous approach to due diligence, risk assessment and mitigation, fully supported with an audit trail as proof.
Complying with regulations – and there are a myriad of them – isn’t an easy task, especially when undertaken manually. Legal work is complex and data heavy, making accurately and transparently capturing the right information to demonstrably comply with regulations rather difficult.
By adopting a manual approach to compliance, firms could be setting themselves up for failure, in turn leading to financial penalties, not to mention the loss of reputation that often has far reaching and untold consequences. Take KYC and client verification. Verifying clients’ identity and sources of funding is a complex and time-consuming process. It requires interrogation of numerous resources – and this investigation cannot be a one-off exercise. The sources of funding need to be continually monitored to ensure compliance with KYC and AML at any point in time, clearly supported with an audit trail so that in the event of a regulatory investigation, the firm can demonstrate that every effort was made to adequately address areas such as conflict checking, due diligence, Politically Exposed Person (PEP) screening, and so forth. Furthermore, all this must be conducted against a backdrop of continually changing rules and legislations.
Manual AML compliance is costly
A manual approach to regulatory AML compliance is costly. Lawyers and accountants are evaluated on performance in areas such as quality of service, successful case outcomes, and revenue generation. A time-intensive approach eats into their client servicing activity and billable hours.
AML workflow automation minimises risk of regulatory KYC non-compliance
Technologies such as Sysero help to easily streamline KYC and AML processes through workflow automation. Firms can automate their compliance processes based on their unique business needs and ways of working making compliance seamless, operationally routine and as risk free as possible. Best of all, Sysero technology is highly affordable, can be deployed within a matter of weeks, and requires practically no product training for users to adopt. It is that easy and intuitive to use.
If you are looking to address compliance-related challenges in your firm, or even exploring ways to enhance your compliance posture, please get in touch via the below form. We are Sysero’s sole technology implementation partner in the UK. For iManage customers, it’s worth noting that Sysero seamlessly integrates with the iManage Work knowledge work platform.
It's without doubt the AML landscape is shifting and subsequently businesses will have to adapt. So, the question is; Know Your Customer, do you?
Visit our Know Your Customer workflow solution page for all the benefits automation can deliver.
What is the AML legislation?
Money laundering is the action taken by individuals or organisations to conceal financial movements pertaining to crimes such as tax evasion, drug trafficking, public corruption, funding illegal activities and so on. The AML legislation is designed to enforce processes and procedures to help combat such financial movements.
What is the difference between AML and KYC?
KYC is a component of AML. KYC is a process that organisations need to undertake to verify the identity of customers by authenticating their personal information. This process helps organisation to ensure that their services are not misused and that they are not doing business with individuals who are on the PEP list or with companies under sanctions.
What are the common methods of money laundering?
The three most common methods of money laundering are cash business money laundering, real estate money laundering and gambling money laundering.
What are the three stages of money laundering?
- Placement: This initial phase involves placing dirty money into a financial system.
- Layering: This uses a series of financial transactions, using techniques such as offshoring to shift the money into a legal financial system.
- Integration: The money is absorbed into the legal financial system due to the layering process, and the money is returned to the criminal through a legitimate source.
What are the KYC regulations?
Know Your Customer (KYC) regulations refer to guidelines and requirements set by financial institutions and businesses to verify the identity, financial background, and other relevant details of their clients or customers. KYC regulations aim to prevent money laundering, terrorist financing, fraud, and other criminal activities by ensuring that entities have a clear understanding of who they are dealing with and ensuring compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) laws. These regulations typically include obtaining identification documents, conducting customer due diligence, monitoring transactions, and maintaining records of customer activities.