Firms must adopt a risk based approach to customer due diligence new guidance shows

73% of financial crime professionals in UK financial services believe that the 4^th EU Anti-Money Laundering (AML) Directive will make it easier for firms to prevent money laundering a survey of nearly 200 professionals has revealed. The Future Financial Crime Risk 2017 report, produced by LexisNexis Risk Solutions, global information solutions provider and part of RELX group, highlights that asset managers were especially positive about the advantages, with over 80% agreeing it would aid the fight against financial crime.

This marks a shift in attitude from when financial crime professionals were surveyed on the potential impact of the 4^th EU AML Directive in 2015 as part of the inaugural Future Financial Crime Risks Report commissioned by LexisNexis Risk Solutions. Previously, only 17% of those surveyed believed that the regulation would significantly reduce money laundering whilst nearly a third (32%) thought it would make no difference or increase levels of money laundering.

On 26^th June 2017 the Money Laundering Regulations 2017 (which is also known as Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017) come into force which transpose the 4^th EU AML Directive into UK law. To support this, the Joint Money Laundering Steering Group (JMLSG) has released revised guidance within which they advise firms to adopt a risk based approach to customer due diligence.

Regulated organisations have been advised to risk assess relationships in order to determine the appropriate level of customer due diligence to be performed. In particular, additional checks are required in relation to identifying and screening beneficial owners when dealing with corporate entities. Therefore, as the demands of AML compliance continue to rise, institutions are required to know more about their customer than ever before.

Mike Harris, at LexisNexis Risk Solutions, comments:

“In reality, Britain has always been at the forefront of fighting financial crime – but our research shows the compliance professionals in the financial services sector view the new regulations as further supporting the fight. That said, it’s important not to underestimate the sheer scale of the logistical challenge for organisations resulting from this regulatory change, especially for smaller to medium sized firms. 

Many regulated entities may be less au fait with the risk based approach to due diligence than their financial counterparts and the changes that the 4^th EU AML Directive brings. Therefore, it is critical that they review the JMLSG’s new guidance and revise their processes, controls and risk appetite for on-boarding customers to ensure they maintain compliance.”