Estate agents are being urged to consider whether their anti-money laundering (AML) processes adequately evidence the decisions being made amid a shift in HMRC strategy.
Consultancy Smart Compliance has warned that HMRC’s latest Anti-Money Laundering Guidance for Supervised Businesses places renewed emphasis on the risk-based approach and, importantly, the need for businesses to clearly document the rationale behind their AML decisions.
While estate agents have long been required to assess money laundering risk, the updated guidance provides greater clarity around how individual risk indicators should be considered as part of the wider customer or transaction profile.
The presence of a risk factor does not necessarily mean a relationship must automatically be classified as high risk. Instead, businesses are expected to consider the overall circumstances, reach a proportionate risk decision and be able to justify how that conclusion was reached.
RISK BASED APPROACH
AML compliance has sometimes become overly focused on whether a particular check has been completed. But the risk-based approach has never simply been about completing a list of checks. It is about understanding the information in front of you, identifying potential risk and deciding what action is appropriate.
Rob Sendall, chief executive of Smart Compliance, says: “For me, the most significant message within this guidance is the emphasis on evidencing the decision-making process. The important question is whether, months or even years later, someone reviewing the file can understand why a decision was made.”
“The guidance makes clear that where a risk factor has been identified but a business concludes the overall relationship is not high risk, the rationale for that decision should be justifiable, clearly recorded and available to HMRC if requested.”
According to Sendall, this is likely to place greater focus on the quality of AML records maintained by estate agency businesses.
He adds: “A risk assessment should tell the story of the decision.
“If something unusual has been identified, what was it? What further information was considered? Were additional enquiries made? And ultimately, why was the business satisfied with the outcome?”
HMRC’s guidance also provides further detail around enhanced due diligence and ongoing monitoring.
RISK INDICATORS
Within property transactions, the guidance highlights risk indicators including cash purchases, gifted deposits, changes to mortgage providers and situations where funds may not appear proportionate to a customer’s known income or circumstances.
However, the underlying principle remains the same: the level of due diligence carried out should reflect the risk identified.
Sendall adds: “This is where experienced judgement becomes incredibly important.
“Technology has transformed AML processes and has an essential role in identifying information and potential risk indicators. But identifying a risk indicator and assessing what that risk means in the context of a particular transaction are two different things.”
The guidance also reiterates the requirement for supervised businesses to maintain an up-to-date business-wide risk assessment covering money laundering, terrorist financing and proliferation financing risks.
Businesses are expected to ensure their policies, controls and procedures reflect the risks identified and to review their risk framework when introducing new products, services or significant changes to their operating model.
THE IMPORTANCE OF EVIDENCE
Sendall believes the guidance should encourage estate agency leaders and MLROs to review the effectiveness of their current AML processes.
He says: “The question is no longer simply: ‘Have we done an AML check?’ It is: ‘Can we evidence the risk we identified, the information we considered and why we made the decision we did?’ That may sound like a subtle difference, but in practice it is a significant one.
“The strongest AML processes are those that create a clear, consistent and defensible record of decision-making. This guidance is another reminder that good compliance is not about ticking more boxes. It is about making informed decisions and being able to evidence them.”
