The risk based approach (RBA) is an essential part of the UK’s money laundering regulations and has been embedded in legislation and via 5MLD for me than a decade. Despite this the UK’s regulators barely mention it, or offer guidance on its implementation. Estate Agency Businesses (EAB’s) ignore this important business tool at their peril.
The RBA is a sensible approach to AML. It requires an EAB to consider all of the risks posed by every transaction, assess and mitigate every risk point they com across and look at the overall picture. It takes AML practices beyond identification. The RBA ensures you assess not just who your client is but:
- Where they are located
- Political exposure
- Known associates
- Ownership of companies and trusts, where they operate and what they do
- The jurisdictions the client’s money is located in
- Are they the buyer or seller
The list could go on and a proper risk assessment of the transaction will consider these and more. Just following a simple set of rules will not uncover real risk any more than seeing a passport and utility bill will tell you anything about how a client came by their wealth.
Applying a RBA also makes good business sense. Regulated industries as a whole spend nearly £29 billion a year in the UK on AML activity. With current common practices mucho if this vast sum is going to waste. The application of the RBA focusses attention on the transactions that have money laundering and terrorist financing (ML/TF) risks, ensuring that an adequate amount of time and resources are allocated to mitigating these risks whilst freeing resources from those transactions that are low risk of ML/TF.
Much of the weakness inherent in the AML practices of EABs visited by LondonCDD stem from weak foundations. That is the firm’s own AML risk assessment. A cut and paste approach has often been taken, which results in poor AML controls being adopted. In the majority of cases when assessing a firm’s AML controls LondonCDD is presented with a document bought online, that claims to satisfy regulators. What is does not do is mitigate the individual risks the firm faces which in turn leads to poor transaction risk assessments leaving the firm open to regulatory action and fines.
The first step in implementing a truly RBA is to rigorously assess the potential ML/TF threats you face through a thorough AML risk assessment of your firm and then implement bespoke AML procedures that address the actual threats you have identified. Good procedures will provide guidance to you and your staff on how to risk assess each transaction, identify the AML risks posed and explain what must be done to mitigate the risks you find. In developing your procedures you will be forced to examine your AML process and re-engineer your processes moving resources to areas that have the biggest impact on AML saving money and making your process far more efficient not to mention compliant.
Implementing the RBA may seem like a painful task though efficiency and cost savings alone make it a good idea. LondonCDD has particular expertise in assessing the unique AML risks faced by firms in the prime property market and implementing a compliance regime that mitigates that risk. The LondonCDD Knowledge Base also provides guidance in conducting your risk assessment and due diligence Do contact LondonCDD to discuss how we can help design and implement a truly risk based compliance process.
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