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Anti-Money Laundering: Regulation 18

Author: Nicki Slater, IPA Inspector

Introduction 

Since the introduction of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), firms have been under more scrutiny than ever to ensure statutory compliance. 

MLR 2017 applies to people who carry on business in the ‘regulated sector’. This includes acting as an Insolvency Practitioner (IP) as per S388 of the Insolvency Act 1986 and Article 3 of the Insolvency (Northern Ireland) Order 1989. Under MLR 2017, the IPA is listed as a Supervisory Authority (SA) to monitor compliance.  

Any IP regulated by the IPA will automatically have the IPA as their Professional Body Supervisor (PBS). Around 50% of our IPs are also subject to existing firm regulation by another PBS. To minimise any overlap of regulation, the IPA works by formal agreement or co-operation with other PBS organisations such as the ICAEW, ACCA, ICAS, SRA and FCA to formalise supervision of individuals under Regulation 7 of MLR 2017. To fit in with the approach of other PBSs, the IPA takes a firm-based approach to supervision. As part of the licence renewal process, members are asked to confirm who regulates their firm and will also be asked to provide a copy of the firm’s AML risk assessment under Regulation 18. Given the increased risks faced across all sectors, the risk assessment is a key document in demonstrating that you have an understanding of the potential risks posed by the work you undertake as an IP.    

Regulation 18 

As part of the annual renewal process in 2019, those IPs where the IPA acts as the PBS were asked to provide a copy of their firm’s AML Risk Assessment under Regulation 18, MLR 2017. Under Regulation 18, a relevant person must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which the business is subject to. 

The IPA has seen several instances where firms have not provided the information or appear not to have understood what content is required within a risk assessment. At the beginning of July, there were still over 50 outstanding.  

An exercise was undertaken by the IPA to obtain copies of those outstanding risk assessments. We have seen instances where some IPs have provided case lists, ethical checklists, and IPA MLR Questionnaires in the belief these would be adequate.   

Failing to provide an AML Risk Assessment 

Under MLR 2017, failure to provide this information may constitute a breach of Regulation 18 (6), whereby a relevant person is required to provide a copy to the supervisory authority upon request.  

Disciplinary action is now being considered for those IPs who have failed to provide an AML Risk Assessment or have provided information which is not considered sufficient under Regulation 18. 

With this in mind, and with renewal for 2020 coming up, further guidance is detailed below of what is required within an AML Risk Assessment. 

What is required within an AML Risk Assessment? 

An AML Risk Assessment requires a relevant person to take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its business is subject to. 

When completing your risk assessment, you should consider the following issues: 

  • Your clients and client base  
  • Geographical areas in which you operate  
  • What products/services you are offering and to whom  
  • How you conduct transactions  
  • The size and nature of your business 
  • List the steps your firm has taken to reduce the money laundering risk it faces 

Your Money Laundering Reporting Officer (MLRO) or Money Laundering Compliance Officer (MLCO) should assist with you considering what types of appointment you seek (corporate or personal), whether you also act in turnaround and restructuring or general debt advice.  

An understanding will also be required of whom you act for (banks, directors, debtors, creditors, asset finance companies). If a client or potential client is based overseas, this may indicate a higher risk.  

The UK’s National Risk Assessment considers that insolvency is high risk, and this should be considered when setting up or reviewing the risk assessment. 

A risk assessment should be reviewed and updated at least annually and should allow for any new legislation, new risks or changes to your business. You will also need to provide this to the IPA upon your licence renewal for 2020/2021 and annually thereafter, unless specifically requested. 

A risk assessment of your firm should assist with developing policies and procedures of the work you undertake and to ensure that training is provided which explains and deals with areas of risk identified.

Further guidance 

If you require any further guidance or support, the following links may be useful to you. You can also email the IPA directly about any further queries you may have. 

Email: [email protected] 

Insolvency Practitioners Handbook 2020 

Guidance for IPA Members 

Regulation 18 link