This is the third post on the Money Laundering Regulations, specifically on Risk Assessments.
To ensure that agents do not fall foul of the Regulation and actively attempt to protect their businesses from money laundering (ML) and/or terrorist financing (TF) a risk assessment of the business must be carried out. This risk assessment is the first step and in some respects, the most important, towards complying with the Regulation. We say most important because, senior managers are personally liable for any failure to comply.
It is therefore the responsibility of senior managers to carry out this risk assessment. A senior manager is any person within the business who has the authority to make decisions that affect the business’s exposure to ML and/or TF. A typical senior manager could therefore include a director, manager, company secretary, partner etc.
At the very minimum senior managers must:
- identify, assess and manage effectively, the risks that their business may be exposed to launder money or finance terrorists
- take a risk-based approach to managing these risks which will focus more effort on higher risks
- appoint a nominated officer to report suspicious activity to the National Crime Agency
- devote enough resources to deal with money laundering and terrorist financing
The risk assessment should result in policies, controls and procedures being put in place to reduce the risk of ML and TF. These policies, controls and procedures will then need trained people equipped to implement them throughout an organisation and updated whenever the need arises.
Any risk assessment must identify all the risks the business could be exposed to and implement a system to tackle the risks. Any risk-based approach should include an assessment of the risks that your business may be used for ML and TF, the routes that money launderers might take to enter your business, and how and to what extent ML or TF might occur through your business. You should then put in place appropriate measures to manage and lessen those risks. The approach should balance the costs to the business and customers with a realistic assessment of the risk. This will allow agents to focus their efforts on the most important areas and reduce unnecessary burdens.
This kind of things that might form part of an assessment might include:
- consideration of your market segment;
- the value of the properties that you deal with;
- the possibility that someone might enter your business through an unregulated area- money launderers renting a property and then buying for example;
- the controls that are in place to detect ML and TF activity;
- the number of offices and the training levels of staff; or
- overseas offices, especially offices in higher-risk jurisdictions.
This procedure is quite burdensome and lengthy however, it is a legal requirement which agents must undertake. While the above is only a summary of the requirements agents are advised to read the government guidance in full to satisfy themselves that they are implementing the correct policies, controls and procedures.