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18% of firms graded non-compliant in AML reviews

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Official figures published by HM Treasury showed that 18% of firms were graded as non-compliant in their anti-money laundering reviews. The Any Answers community share their thoughts. 

1st Jul 2024
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The Treasury’s anti-money laundering supervision report for 2022-23, published in May, has underlined the uncomfortably high proportion of accountants that have failed to comply with the money laundering regulations.    

According to the report, 18% of firms were graded to be non-compliant in their AML reviews. This statistic is based on the 2,569 firms reviewed by the 13 professional body supervisors in 2022-23. The report found that 467 of those firms were deemed non-compliant. There 34,309 AML supervised firms, not including those supervised by HMRC. 

The statistics attracted attention from the Any Answers community as they expressed concerns over the effectiveness and challenges of the compliance process. They raised questions about the current regulatory practices and the potential impacts of non-compliance. 

Three-point scale 

David Winch, the director of MLRO Support and AML adviser, shared the Treasury’s findings on Any Answers to see what the community thought. 

Winch examined the figures and explained that individual firms are assessed by professional body supervisors on a three-point scale: compliant, generally compliant and non-compliant. “Personally I would be happy to be graded ‘generally compliant’ as I feel there are always going to be things that a supervisory inspection could suggest could be improved,” he said.

Winch continued, “Very broadly we can say that about one in five reviews concluded with a finding of ‘non-compliant’. The biggest failures were the old favourites of inadequate firm-wide AML risk assessment, insufficiently tailored AML policies, controls and procedures document, and inadequate client due diligence and individual client AML risk assessments recorded.”

He added: “These are things which can be fixed!”

Supervision

The report also shows a variation in compliance or supervision. The Institute of Certified Bookkeepers (ICB) reported 82% of the 138 firms it reviewed as non-compliant, while at the other end of the scale, the Insolvency Practitioners Association (IPA) did not find a single firm out of the 88 it reviewed as non-compliant. 

As for the other professional bodies, ICAEW found 18% of firms reviewed as non-compliant, ACCA reported 7%, AAT had 21%, while CIMA had the second highest with 67%. 

In an article posted on his website, Winch theorised that the wide variation in the results could be because professional body supervisors are encouraged to review most frequently those firms where the risk of non-compliance is considered greatest. "So a high proportion of non-compliant gradings may be a reflection of the PBS’s success at seeking out its non-compliant member firms," he said. 

Winch also explained that a slightly higher percentage of onsite visits ended up in non-compliant grading compared to desk based review, where a vast majority of the professional bodies make their reviews. 

Under the radar 

These figures sparked discussions within the Any Answers community.

One member, Moonbeam raised an important question about the number of firms that were actually reviewed, suggesting a potential gap in oversight. They wrote, “What proportion of firms are reviewed at all? Mine never was, even though I spent hours setting up policies etc. There will never be enough funding to support a full review for all practitioners and I assume small firms will just be under the radar all the time.”

Many members agreed with this and the challenges that AML has for smaller firms. AccountingWEB contributor Dougscott responded, “I found following CCAB [Consultative Committee of Accountancy Bodies] guidance to be apparently straightforward for a small firm like myself. It’s just finding the time to do it and do a regular annual review that is the main issue.”

The issue of time constraints and resource scarcity is common among small practitioners, who find themselves stretched between compliance obligations and their business. 

AML is a contentious topic on AccountingWEB and the frustrations towards AML compliance continued with many members such as FirstTab believing it to be “a waste of valuable time”. This was echoed by another commenter Verified who similarly stated, “Maybe we should join the 18% and refuse to carry out (even more) unpaid work for the state.”

Actual harm caused

Regular commenter Justin Bryant questioned the actual impact of AML failings, suggesting that the actual harm caused might be minimal. He said, “A more interesting and relevant statistic would be what percentage of those (alleged) AML failings resulted in actual harm of one kind or another to anyone (and I don’t mean an overly harsh AML penalty)? I would guess pretty close to zero.”

Bryant emphasised the need for a more detailed approach to compliance – one that focuses on real risks rather than procedural issues.

As well as this, I’msorryIhaven’taclue further queried the current review process by questioning whether it captures the full extent of non-compliance across the profession. 

“18% of firms interviewed being non-compliant seems high enough. However, if you accept the ‘%age non-compliant’ column for each of the bodies as being representative samples and then equalise the ‘%age reviewed’ so that each body reviews an identical percentage of its firms, you end up statistically with a projected 23.2% of firms being non-compliant.”

Replies (14)

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By FactChecker
02nd Jul 2024 00:49

Seem to have omitted possibly the most interesting comments posted on that article - from TD:

"Isn't the important question one of how many accountants fail to identify instances of tax evasion, money laundering and/or financing of terrorists among their client bases?
Does AML form-filling distract from this vital front-line work, or assist with it?
By focusing on form filling, might attention to ongoing 'professional scepticism' be lessened?"

Thanks (13)
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By 2TunTed
02nd Jul 2024 09:13

“A more interesting and relevant statistic would be what percentage of those (alleged) AML failings resulted in actual harm of one kind or another to anyone (and I don’t mean an overly harsh AML penalty)? I would guess pretty close to zero.”

This hits the nail right on the head. One of the biggest frustrations with AML is the demand that we comply -and tolerate the clipboard mentality that has come with it, and the absence of any feed back as to how effective or otherwise the procedure is.

Thanks (15)
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By wyoming
02nd Jul 2024 09:49

I get why we have to do it (well most of it anyway) but one of the big frustrations is the "box ticking" nature of it all. A firm will get credit for compliance if they find an up to date KYC for a client, but they don't really have the time/resources to check whether the info on the form (probably prepared by junior staff) is actually correct or relevant - whereas someone who really does know the client but is maybe slightly behind on renewing the KYC will be flagged up. But we all know in which instance the greater risk will lie!

Thanks (4)
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By Self-Employed and Happy
02nd Jul 2024 10:10

CIMA doesn't surprise me one bit, ICAEW does surprise me its so high.

We as ACCA just use their own Risk Assessment Toolkit and KYC form and do the obvious LoEs and IDs, I don't see any excuse whatsoever to have those boxes ticked.

Thanks (1)
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By johnthegood
02nd Jul 2024 10:21

What I really do not understand here - we have just been informed that we will have a visit, we have arranged that for the end of September, we are fully compliant, but if we were not we would do whatever we needed to over the next 3 months to make sure that when they visited we were!

I don't get why so many are not compliant, you know you have to do it so just make sure your house is in order. The only reason I can think of is they cant be bothered, it cannot be that they are ignorant of the requirements because you have to tick all the boxes when you renew your licence.

Thanks (1)
By Duggimon
02nd Jul 2024 10:22

Having been through an ICAS review of it as our firm's MLRO I can tell you that, if your procedures are lacking, the review remains open while you are given time to reassess and fix any issues. Only then is the final verdict passed.

To still fail after being told where you are falling short and given ample time to fix it requires an extreme lack of regard that would give me concern about where else a firm is falling short, because compliance is not that difficult.

I agree with the points made by others, that so much of it is a box ticking exercise that does little practically to catch the issues driving the legislation, but it's not that hard to tick the boxes.

I do find as well that the new regulations, while cumbersome and annoying for the vast majority of our client base, provide excellent guidance when you do come across an instance of suspicious activity, it's very clear exactly how to act as a professional firm, so that side of things at least I am grateful for.

Thanks (1)
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By BryanS1958
02nd Jul 2024 12:13

The more relevant statistic is what is the end result of the endless box ticking? Exactly how has UK plc benefited? What research has there been re cost v benefits in relation to endless box ticking?

Thanks (4)
Replying to BryanS1958:
Rob Swan
By Rob Swan
02nd Jul 2024 14:05

De-skill HMRC: Saves money - at least according to some idiot somewhere in an ivory tower.

What skills are left?
"Well, we could tick some boxes." said Jim.
"Excellent Jim!" said the Minister.

In the next episode, Jim gets a 'gong'.

Thanks (1)
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By Rgab1947
02nd Jul 2024 12:19

What I find frustrating is that many of our clients are small, well known to us, almost zero money laundering risk but we have to go through this tedious box ticking exercise living in fear we do not satisfy our governing body. Yet banks with their extensive AML compliance departments crook the system in £ Billions. Yes they get fined (£ Billions) but they happily carry on recovering the fines through fee increases.

On Sky another story how large British firms happily help Russia evade sanctions. Will anything happen to them? Doubt it.

Thanks (4)
Rob Swan
By Rob Swan
02nd Jul 2024 14:10

".... not including those supervised by HMRC. "

Thanks (0)
Replying to Rob Swan:
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By FactChecker
02nd Jul 2024 14:34

HMRC supervision has its uses ... albeit not for the purposes initially intended and certainly not to the benefit of the unrepresented UK taxpayer.

See https://www.accountingweb.co.uk/any-answers/rebate-gateway ... and marvel at the chutzpah of an organisation that 'supports' its claim to be endorsed by HMRC via the use of a footer on its website which says:
"Rebate Gateway Limited is supervised by HM Revenue & Customs for Anti-Money Laundering under registration number XGML00000181564"

The correlation 'tween AML registration and 'raising standards' is obvious innit?

Thanks (2)
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By Marlinman
03rd Jul 2024 09:51

Does anyone know how many big time crooks and money launderers have been caught as a result of AML compliance? My guess is none.

Thanks (1)
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By Marlinman
03rd Jul 2024 09:51

Does anyone know how many big time crooks and money launderers have been caught as a result of AML compliance? My guess is none.

Thanks (2)
Replying to Marlinman:
Rob Swan
By Rob Swan
03rd Jul 2024 11:08

Fewer than have been kneecapped by their regulating authority for non-compliance I shouldn't wonder.

If 'Big Time' crooks aren't smart enough to evade AML they're not very 'Big Time' and they jolly well deserve to get caught. All they have to do is slip a paltry few of their ill gotten gains to a greedy senior banker and the job's a good'n! Safe as houses.

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