Lifecycle – in collaboration with tax expert and author Steve O’Neill – has recently hosted a webinar on the revisions to Anti-Money Laundering (AML) Regulations since the implementation of the EU 4th Directive back in June.

The webinar – which is now available online to members of the Lifecycle accountant’s network – examines the impact of new European AML legislation on accountants and the clients they represent. It also looks at the changes we’ve seen and those that are still to come.  Non-members can view the webinar from the Training and Events section of the website after joining.

There were lots of post-event questions posed to our expert – highlighting many of the associated key issues and confusion. You’ll find some of the most frequently asked – with Steve’s recommendations – below.

#1 What address ID should you ask for now that bank statements and utility bills are rarely posted?  

The prevalence of online banking and e-commerce is such that it’s becoming increasingly rare to receive utility bills and bank statements in the post – one of the key factors in the push towards electronic verification, as an increasing amount of data on individuals is held digitally, in various forms, and by various organisations.

However, clients are still required to provide one proof of ID and one proof of address or date of birth. If they’re unable to obtain a mailed proof of the latter, a passport for identity and driving licence for date of birth or address will suffice.

Remember that their identity must be verified by original documents – photocopies and downloads are invalid. And don’t forget to issue a letter of engagement for mitigation of possible ID theft or fraud.

#2 What alternative address ID could be provided if utility bills are in the name of a husband or partner?

You’re obliged to prove a client’s address. If you can’t do so with a utility bill, ask for other eligible named and addressed correspondence from the likes of HMRC or official Government documentation such as Child Benefit.  A jointly held bank account would be addressed to both partners – if in a singular name, the account is more than likely to be a sole named account, therefore not acceptable as proof.

An alternative option for accountants would be to visit the client at home and officially record the address. And again, remember your letter of engagement for mitigation of ID theft or fraud.

#3 How should you determine your firm’s Customer Due Diligence measures?

The extent of your Customer Due Diligence (CDD) measures – and their ongoing monitoring – should be assessed on a risk-sensitive basis and informed by the type of customer, business relationship and product or transaction.

How much identity information or evidence to ask for, the balance between asking for documents and using electronic sources, and what to verify, in order to be reasonably satisfied as to a customer’s identity and to guard against impersonation, are matters for the judgement of the firm, which must be exercised on a risk-based approach.

It’s essential that accountants can demonstrate to their supervisory authority that the CDD measures and monitoring they employ are appropriate in terms of risks associated with money laundering and terrorist financing.

#4 What’s the standard risk assessment for CDD and what measures does it include?

An accountant’s standard level risk assessment will most usually be undertaken under Regulation 28(1) 5.1.5. This means that CDD measures employed include:

– Identifying the customer and verifying his identity;

– Identifying the beneficial owner, where relevant, and verifying his identity; and

– Assessing and, where appropriate, obtaining information on the purpose and intended nature of the business relationship or transaction.

#5 Should I further support our own ID verification processes? Will it make it more robust?

Many of our webinar attendees said they further support their client ID verification – predominantly for UK small owner-managers – with electronic verification such as Smart Search, which also screens against Politically Exposed Persons (PEPs) and sanctions watchlists.

Standard required checks – undertaken under Regulation 28(1) 5.1.5 – mean that the client’s identity must be verified by original documents. But combining paper and electronic verification methods is also always a good idea. This is, in fact, how banks work. They initially request hard copies of original documentation for the initial identification and then undertake additional online checks for verification purposes.

Accountants must be able to demonstrate the robustness of their risk assessment procedures – not just accepting that each client is always low risk.  Again, remember to use your letter of engagement for mitigation of ID theft or fraud.

#6 Where should you submit a Suspicious Activity Report (SAR)?

There seems to be some confusion around the submission of SARs within firms’ CDD procedure guides, with some firms unclear on whether they should report directly to HMRC or to the National Crime Agency (NCA).

To clarify, the NCA is the UK’s designated organisation for receiving SARs with an HMRC team working alongside it in its offices. Upon receiving Reports relating to tax evasion, they’re sanitised by the NCA – removing the accountants’ details – and then forwarded to HMRC special compliance teams for further review.

Information should always be submitted through SARs online and a reference number will be provided.

#7 Think you know your client too well to question any changes and suspicious activity? Think again.

Some of our webinar attendees said they believe their clients are low risk as they’ve been working together for years. They undertake regular face-to-face meetings and their identity is verified. So do they really need to undertake additional checks and ongoing monitoring?

We would never like to think that our clients may be money launderers, but we have to be prepared for that possibility, by utilising the prevention, detection and reporting criteria of the Money Laundering Regulations. The answer therefore is yes, they must. Of course, the extent of Customer Due Diligence measures employed must be governed by the degree of risk posed by the client, your business relationship and their product or transaction. However, circumstances and people may change.

Due Diligence measures should exceed simply carrying out initial identity checks – even those people you already know may become involved in illegal activity. This is often flagged by a change in personal circumstances or finances – so it’s important to be on the look-out for them.

Ensure risk assessments are undertaken on an ongoing basis – for example, upon your new annual instruction for a tax return to be completed, you may have a change in a source of income or a new asset purchase. By having such processes in place, the risk of client criminality – and the impact that it has on their advisors in terms of involvement and damage to reputation – is significantly reduced.

For those members that were unable to join the session, it’s now available here and will qualify for an hour’s CPD. It follows on from Lifecycle’s AML seminars in May.

Lifecycle Director Rik Heap said: “With an improved supervisory approach being introduced at the end of the year, this webinar is a must for accountants. They’re now at risk from clients who launder money or handle illicit funds, so it’s essential that they keep fully up to date and compliant with the changes.

“By viewing this webinar, accountants will be able to identify any potential weaknesses in their existing procedures and get advice on new policies that may be required.”

Click here for the webinar. Read Steve O’Neill’s guide to the five top money laundering warning signs here. You can access Lifecycle’s first AML seminar here.

About the Lifecycle network

Lifecycle is a unique network for accountants – provided by the Leonard Curtis Business Solutions Group (LCBSG).

It provides member accountants with a comprehensive range of specialist services – and the expert support required – to improve their client offering at every stage of a business’ lifecycle. From company formation to cessation and all stages in between.

Lifecycle is free to join and also offers members many additional benefits. These include eligibility for a competitive Professional Indemnity insurance scheme, a regular programme of free training and education and discounts on products and services relevant to their business and clients’ needs.

Services offered by Lifecycle include: Company secretarial and formation; equity finance for SMEs; debt advisory for SMEs; personal debt advice; corporate restructuring, insolvency and cessation; debt finance for SMEs; cashflow maximisation; property solutions and legal services.

For more information on Lifecycle click here.

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