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AML Supervisory Activity Report | 6 April 2020 - 5 April 2021
The following Regulation 46A report sets out AIA's monitoring and supervisory activities between 6 April 2020 and 5 April 2021.
In its latest threat assessment, the National Crime Agency (NCA) estimates that at least 70,000 people are engaged in serious organised crime in the UK, with upwards of £12bn in criminal cash generated annually.
Understandably therefore we take our role as an anti-money laundering PBS for accountants extremely seriously.
Our role as a PBS includes both enforcing compliance where breaches are detected in the course of monitoring and supervision and educating members on their AML obligations.
AIA's Regulatory Oversight Committee forms part of an effective governance framework, overseeing and scrutinising the work AIA undertakes as a professional body supervisor (PBS) to ensure we continue to meet the requirements and comply with the regulations.
The accountancy sector plays a key role in preventing economic crime and reporting suspicious activity. AIA's commitment to working in the public interest to tackle money laundering and economic crime remains undimmed and we will continue to work with our members to prevent criminals taking advantage of the professional services offered by accountants.
Looking to the future AIA intends to continue to invest resources in its monitoring and supervision regime, undertake a thematic review of supervised Trust or Company Service Providers and increase the number of onsite monitoring visits and desktop monitoring reviews undertaken.
George Josephakis, Chair, AIA Regulatory Oversight Committee
What is money laundering?
The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act; criminals employ a range of techniques to clean their 'dirty money'.
Money laundering is the processing of these criminal proceeds to disguise their illegal origin and to make them appear legitimate, allowing criminals to enjoy these profits without jeopardising their source of income. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.
Illegal arms sales, smuggling, and the activities of organised crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds.
Money laundering is not only a crime itself, but also a key enabler of other serious crimes such as modern slavery, drugs trafficking, fraud, corruption, and even terrorism.
Professionals working in the accountancy, legal and property sectors are targeted because of their expert skills and services (National Risk Assessment 2020), which can give a cloak of legitimacy to illicit cash. This gives professionals a crucial role to play in protecting the UK’s economy, and wider society by reporting suspicious activity.
While money laundering isn’t always obvious, the consequences are severe. Even accidental involvement in money laundering could mean accountants losing their licence, receiving a fine, or facing criminal prosecution.
Our role in tackling money laundering and terrorist financing
Laundering money through the accountancy sector
Accountancy services are attractive to criminals due to the ability to use them to help their funds gain legitimacy and respectability, as implied by accountants' professionally qualified status. Those providing accountancy services remain at risk of being exploited or abused by criminals, especially if accountants become complacent in their regulatory obligations under the MLRs or willingly facilitate money laundering.
The accountancy services considered most at risk of exploitation include:
company formation and termination
Most accountants work hard to prevent and spot money laundering and take necessary action, however some do unknowingly become involved. The key factors behind unwitting involvement continue to be failing to carry out proper due diligence and adequately train staff so they recognise and report potential money laundering concerns.
A very small number of accountants may knowingly cooperate with criminals to launder money.
We monitor our supervised population and take measures where necessary to ensure compliance, including:
ensuring that our supervised population comply with the regulations and obtain necessary approval of their beneficial owners, officers and managers via Criminal Records Checks and intelligence sharing with other professional bodies and law enforcement agencies
adopting a risk-based approach and consequently basing the frequency and intensity of our supervision on our comprehensive risk assessment of our supervised population
encouraging our supervised population to report actual or potential breaches of the regulations through our whistleblowing process
We take appropriate measures to ensure we review:
firm-wide risk assessments carried out by firms
client due diligence both at onboarding and as part of an ongoing relationship
suspicious activity reporting processes and training
the adequacy of our supervised population's policies, controls and procedures and that they have been correctly implemented
We enforce the money laundering regulations and carry out our work as an AML supervisor through:
sharing and receiving information to prevent money laundering with other supervisors and law enforcement agencies
publishing updated guidance on the regulations
undertaking proactive risk-based supervision
investigating potential breaches of the regulations and disciplining our supervised population where appropriate
reporting suspicious activity where encountered in the course of our monitoring and supervision activity
The following tools are used to ascertain members' compliance:
Onsite Monitoring Visits
Desktop Monitoring Reviews
AML Compliance Reviews
Where members are found to be non-compliant with the MLRs, depending on the impact and severity of non-compliance, an Action Plan is agreed to achieve compliance.
Where members exhibit serious non-compliance, act contrary to the AIA Constitution or fail to make adequate progress to achieve compliance following the creation of an Action Plan, AIA's Practice Compliance Committee and Disciplinary Committees may sanction an individual or firm in line with the AIA Constitution and Sanctions Handbook:
conditions placed upon a practising certificate
revocation of practising certificate
exclusion from membership
Firms and individuals in scope of the regulations
AIA's supervised population is made up of a subset of its overall Members in Practice population. Some Members in Practice are supervised by other professional body supervisors (PBS) where joint membership is held and this has been agreed with another PBS.
Firms and individuals we regulate that fall in scope of the regulations
As a professional body supervisor, we make sure that the relevant firms and individuals we supervise comply with the regulations and have appropriate controls in place to prevent money laundering.
Relevant supervised population (those supervised for AML purposes only)
Supervised Sole Practitioners
Total Supervised Population
Relevant supervised population acting as Trust or Company Service Providers
A proportion of AIA supervised members undertake Trust or Company Service work. A Trust or Company Service Provider (TCSP) is any firm or sole practitioner whose business is to:
form companies or other legal persons
provide a registered office, business address, correspondence address, administrative address for a company, partnership, other legal person or arrangement
act or arrange for another person to act as a:
director or secretary of a company
partner (or in a similar position) for other legal persons
trustee of an express trust or similar legal arrangement
nominee shareholder for another person, unless the other person is a company listed on a regulated market which is subject to acceptable disclosure requirements
A person is still considered to be a TCSP provider even if these services are provided incidentally to other accountancy services, or they are provided infrequently or on a one-off basis.
Supervised TCSP Firms
Supervised TCSP Sole Practitioners
Total Supervised TCSP Population
Firms by risk
The money laundering regulations require that professional body supervisors create risk profiles for all regulated firms and individuals - High, Medium and Low. We use these profiles to identify money laundering risk and prioritise our monitoring and supervision.
Our risk-based approach methodology is controlled by a policy independently scrutinised by the Regulatory Oversight Committee and looks at a range of factors to determine risk, including regulatory history, size, clients and services provided. It also considers mitigation such as AML controls and compliance history.
We take monitoring and supervision action and review firms of all risk levels, prioritising higher-risk firms, as part of our risk-based approach.
Low AML risk does not mean no AML risk.
Number of beneficial owners, officers and managers
The MLRs require all beneficial owners, officers and managers (BOOMs) acting in an AIA supervised firm to be approved by us. They must get a Disclosure and Barring Service check and submit it to us when they first become a BOOM or take on a new role. This ensures that at the time of application the individual has no convictions for a 'relevant offence' as defined in Schedule 3 of the MLRs.
In the reporting period AIA authorised a total of 444 BOOMs.
Monitoring and Supervision
Impact of Covid-19 on monitoring and supervision
Throughout the reporting period the Covid-19 pandemic imposed restrictions on how AIA undertook its AML monitoring and supervision work. For example, whilst no Onsite Monitoring Visits were held during the period we refreshed our Desktop Monitoring Review regime to improve robustness and depth of scrutiny, implementing a new secure platform for reviewing client files and other confidential information and undertaking 15 Desktop Monitoring or AML Compliance Reviews.
Firm visits 2020-21
During a Desktop Monitoring or AML Compliance Review we:
issue a Pre-Monitoring Information Request
interview AIA members using a standardised framework
assess evidence of compliance with the MLRs by reviewing client files and firm policies
issue a Findings Report, noting any deficiencies, giving recommendations and requesting evidence of compliance by an agreed deadline
sanction members via the Practice Compliance Committee where appropriate
Improvements to our monitoring and supervision
AIA operates a continuous improvement strategy in order to continue to deliver effective supervision. Improvements during the reporting period included:
introduced a Pre-Monitoring Information Request for members to complete in advance of any monitoring activity (including requesting policies, procedures and other administrative information) in order to focus on in depth questioning and testing of controls and processes during the review)
implemented a secure platform for reviewing client files and other confidential information
undertook training for reviewers to underpin changes to the monitoring and supervision process
introduced revised guidance for members on what to expect during a monitoring review
Findings from visits and follow-up steps taken
Our visits found the following levels of compliance with the MLRs among the supervised firms we reviewed as part of our monitoring and supervision activity:
The most common forms of non-compliance with AML/CTF obligations identified throughout AIA’s supervisory activities include:
incomplete or inaccurate risk assessment of clients
incomplete or inaccurate firm-wide risk assessment
members undertaking inadequate training in AML requirements
Following the monitoring and supervision action in the reporting period AIA undertook 12 informal actions (implementing an Action Plan for compliance for members and enforcing compliance) and 3 formal actions (including revoking practising certificates and excluding members). 14 fines were levied in the reporting period totalling £2,900.
After analysis of review outcomes AIA has amended its procedures in the relevant period to request firm-wide risk assessments from new practising certificate holders within 30 days of a successful application to be submitted alongside a DBS certificate. This has resulted in an increase in compliance regarding the production of a Regulation 18 risk assessment.
Desk based and thematic reviews
During the reporting period we undertook two targeted thematic reviews:
Regulation 18 firm-wide risk assessment - we took a sample of our members firm-wide risk assessments and reviewed them against the National Risk Assessment, AIA's AML Sector Risk Assessment and MLR 18 which details key high-risk areas. Following the review we identified deficiencies in scope, detail and application of firm-wide risk assessments of a proportion of members and issued new firm-wide risk assessment guidance, including online training and updated templates. We plan to assess application of these requirements in the coming supervisory year. AIA has amended its application procedures to include a request for a firm-wide risk assessment on application for practising certificate.
Ultimate Beneficial Ownership - we undertook a random sample, then full review, of high-risk firms to ascertain whether UBO information AIA held on supervised firms was consistent with that held in public registers. Where discrepancies were found these were investigated and corrected. We found that all discrepancies discovered were as a result of members failing to update the Register in a timely manner or not understanding their obligations in this area. We produced new guidance relating to members' reporting discrepancies to the Register.
Reporting suspicious activity
We have a dedicated money laundering reporting officer and deputy to meet our obligations to identify and report suspicions of money laundering.
AIA submits suspicious activity reports (SARs) to the National Crime Agency (NCA) if we identify a suspicion of money laundering through our monitoring and supervision.
To support this vital work we regularly train and update all relevant staff and reviewers to recognise the red flags of money laundering and how to report them.
Where we see trends in criminal activity or suspicious activity in the course of our monitoring and supervision we work with other professional bodies through the Intelligence Sharing Expert Working Group (ISEWG) to issue alerts to the profession and set out appropriate indicators.
Emerging risks, areas of focus and the year ahead
Threats and emerging risks relating to money laundering and terrorist financing activity are changing constantly. Updated information is provided to AIA Members in Practice through a variety of channels to mitigate these risks.
AIA assesses emerging risks through a range of sources, including:
through our monitoring and supervision work
reports from law enforcement agencies or other authorities
Where we receive information on emerging risks (such as Chinese Underground Banking and Daigou, fraudulent claims of Coronavirus Job Retention Scheme payments or Payroll Company fraud) we provide structured alerts to AIA members to inform their training. AIA members are strongly recommended to read these alerts and take appropriate reporting action if they come across situations that involve the circumstances described.
We consider that current areas of emerging risk may include:
Trust or Company Service work
government financial schemes
money laundering and fraud related to emerging green finance and sustainability
In the coming year AIA will continue to support supervised firms and members to help them put strong controls in place to prevent them from being used by criminals. This includes providing updated member guidance, CPD events, intelligence alerts and updating information on emerging risks.
We will also continue to take robust action where our firms and members are found to be failing to protect themselves and the wider public in their responsibilities under MLR.
Over the next year we aim to return to conducting onsite monitoring visits whilst continuing to leverage the flexibility of Desktop Monitoring Reviews.
In the coming year we intend to focus on:
making further improvements to our risk-based approach
continuing to invest resources in its monitoring and supervision regime and increasing the number of onsite monitoring visits and desktop monitoring reviews undertaken
undertaking a thematic review into supervised Trust and Company Service Providers and publishing new guidance and advice to share good practice and raise awareness of risks relevant to members undertaking this activity
reviewing the quality of SARs submitted by our supervised population
continuing to bring enforcement action against firms that are not meeting their responsibilities under the regulations
continuing to provide targeted and timely guidance for firms through a schedule of webinars and online guidance
continuing to monitor emerging risks and implementing systems and controls as required
Further information and useful links
Published by AIA:
AIA maintains extensive AML guidance for members, including sensitive AML alerts and emerging risks, templates and checklists, and events, within the members' area of the website.
Examples of guidance we provide include:
AML Guidance for the Accountancy Sector approved by HM Treasury
MLR Requirements Guidance
MLR2017/2019 Compliance Checklist
Customer Due Diligence
Reporting Discrepancies in the Register
Reporting Suspicious Activity
Firm-Wide Risk Assessment
PEPs and Sanctions
Role of the MLRO (including Sample MLRO Report)
Sample Firm AML Policy and Procedures
Guidance on Court and Production Orders
Crime Indicators for Accountants
Acting as a Trust or Company Service Provider
RED FLAGS: spotting and reporting suspicious activity
The case studies outlined in this document, developed in collaboration with experienced financial investigators, give a stark warning of the possible consequences of involvement in money laundering.
Regular AML updates are provided online to AIA Members who may watch recorded versions here. Updates delivered in the past year include:
UK National Risk Assessment - UK government's national assessment of AML risk, setting out issues in several areas of work including legal and trust and company service work.
ROI National Risk Assessment - Ireland’s money laundering and terrorist financing (ML/TF) national risk assessment (NRA) aim to identify, understand and assess the money laundering and terrorist financing risks faced by the Republic of Ireland.
Note: AIA’s responsibilities as a professional body supervisor under Schedule 1 of the Money Laundering Regulations 2017 involve the handling of sensitive intelligence and information which is used to combat the risk of money laundering and terrorist financing. This Annual Report does not include all aspects of AIA’s monitoring and supervision strategy and some information may not be disclosed to protect the public interest.