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Over the past year, it’s been busy with anti-money laundering (AML) and Companies House changes. Luckily, AccountingWEB has had AML expert David Winch sharing his knowledge on Any Answers more often than ever – and we were even luckier to have him join the discussion at the Finance, Accounting & Bookkeeping Show (FAB).

Winch was joined by Benjamin Cunliffe, lead product manager at Wolters Kluwer, Stephen Leonard, partner at Winders, and Aaron Patrick, head of accounts at Boffix, for a session on AML, identity verification (IDV) and risk management. 

The panel sympathised with just how difficult it now is for firms to keep up with the requirements, definitions and deadlines without creating an overload of work and slowing the business down. 

Getting your head around the definitions

Cunliffe and Winch were asked what firms are struggling with, and their answer was unclear and inconsistent definitions.

"The first one that is confusing is 'ongoing monitoring'. We're not getting guidance from MLR 17. Your governing bodies might try to put a definition of it. Then you might be looking at software that will try to help you, and they will also have different definitions," Cunliffe said.

He explained, "You need to know what ongoing monitoring means for your firm. Is it a risk assessment every six months? Is it daily politically exposed person (PEP) sanctions and adverse media monitoring? Is it checking Companies House? Where are you getting your data from?"

Cunliffe then mentioned AML checks as another unclear definition. "You also need to know what an AML check means for your firm. That can make up anything from two to eight different checks in a process," he said.

"When you're looking at different software, they'll say they do AML checks, but are you aligned on what that definition means? What do they check? Where are their data sources? Are they free from influence? You need to get into these details, and it's these broad definitions that are causing issues."

Winch highlighted why this is more important than ever: "We are going to get a change in supervision over the next couple of years and I think this will mean an increase in questionnaires and forms. One of the questionnaires will probably be 'Do you do AML checks?'.

"However, there might be a difference of understanding between you and the supervisory body as to what that means and what that looks like in practice."

He advised firms to get a good understanding of what these terms mean for their firm and their relationship with clients. "Every firm is different, and that's what makes it hard. You might have an annual relationship with some of your clients, and you might have monthly or weekly with others. Your AML has got to respond to that, and so your checks will differ depending on your client relationship and your firm," Winch said.

The panel was split on whether simplified due diligence (SDD) should be used or not.

For Cunliffe, SDD is a way for firms to manage their workloads with clients who are low risk. "If you think your client is low risk, and you can justify why, you can put them under SDD. Consult your policies and procedures handbook, and ultimately this will be less work than a regular or high-risk client," he said.

Cunliffe continued, "I see a lot of firms not making use of it because they're scared, so they put low-risk clients in the regular due diligence, but it just creates a rod for your own back."

However, Winch disagreed, "Some supervisory bodies will come along and question the SDD and argue that they're not a local authority, they're not a quoted company and so not eligible. I generally steer people away from SDD.

"You're probably doing the same due diligence on your low-risk client as your normal-risk client, so you might as well put them in that bracket and supervisory bodies won't think you're complacent."

Leonard, who works in practice, agreed with both sides. "I think as a small firm we treat it differently compared to larger firms. It's like audit. We overthink it because we're small. Bigger firms definitely manage risk in a different way. Even if a client is SDD, we would still end up doing more than we needed because there's a comfort that we've done everything properly," he said.

Dealing with Companies House changes 

Companies House has introduced some of its biggest changes under the Economic Crime and Corporate Transparency Act (ECCTA), and accountants are no strangers to the new rules or the teething problems that have appeared.

The panel spoke about how hard it has been this year for accountants, with Cunliffe saying, "Companies House changes came relatively out of nowhere. There was a small window in which Companies House said, 'By the way, this is happening.' They changed the guidance so much and then said, 'It's now mandatory from April.' Reading that guidance was like a riddle."

Winch agreed, "It's inconvenient. It's throwing up a lot of incorrect data at Companies House where you might have had a change in shareholdings, and it's on the confirmation statements but not on the PSC register.

"What I'm seeing a lot as well, even among accountants, is them getting their ID code and filing it with the confirmation statement as directors and job done, but the PSC side is still there. If accountants are failing to do their own PSC register, then what are the chances that they're getting their clients' PSC registers sorted?"

Leonard added that this has been poorly implemented by Companies House and has made it very difficult. "This is a prime example of a good idea messed up. The idea of getting correct data at Companies House and matching it up and knowing who those people are – it's a perfectly fair idea. But it's been messed up by Companies House, the government and everyone else involved.

"The fact you can't just file the PSC at the same time as the director and a confirmation statement makes no sense. Then when you get people who are just a PSC for a company, you've got to do it on their birthday?" he said, baffled by the whole process.

However, Leonard hoped that the end of this year should be easier: "Once we get to 18 November, everybody should have sorted their IDV out, and then you'll only have new ones to do."

Despite the challenges, the panel agreed that firms should get involved and use it as an opportunity rather than ignore the changes.

Leonard said their firm became an authorised corporate service provider (ACSP) straight away: "We wanted to do the IDV checks for two reasons. One, it's the knowledge, I want to know it and two, it's to do with our clients so it's to do with us.

"I also spoke to other accountants who said they weren't going to touch it because they were told not to, the risk was too high, or they said it's nothing to do with them. But I disagree, because it is to do with us."

He also mentioned that they have begun charging for AML checks, saying, "This is something we've not done before, but solicitors have always done it. At the end of the day, it's taking up more time, and it's using software, so for us this is chargeable."

Cunliffe agreed that this is the right thing to be doing: "I have spoken with some firms who have said they're not touching it, but others have seen it as another revenue stream. The profession has always struggled to charge for AML, so adding on IDV makes it a lot easier to justify the charge to the clients. It provides an opportunity for those of you who are willing to take it."

He added, "One piece of advice I've given to ACSPs is that if you're doing due diligence anyway, if you're doing AML for your clients, you're going to have to get their ID and make sure their names and addresses are correct. There are only a few changes in behaviour to act as the ACSP and do IDV for them, so why not?"