Here is a thought leadership article from Veya
Estate agents must do AML checks on their clients to reduce the chance of money laundering. An estate agency business must have a policy statement that outlines how their staff are to perform AML checks and the processes to be compliant with HMRC.
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What goes into your AML policy statement?
A policy statement is a document that outlines your policies, controls and procedures so that there is a clear framework to help prevent money laundering and terrorist financing within your business. The document should be in writing and communicated to all team members so that they understand how to identify and deal with typical, low-risk situations as well as higher-risk situations.
Is a policy statement necessary?
The document is important as it lays out a clear procedure for all team members on AML compliancy specifically for your business. If HMRC ever came knocking, they would want to see your company’s policy statement regarding AML. Simply doing ID&V checks is not enough. It can seem daunting, but the policy statement is expected to be “proportionate to the size and nature of the business,” so if you are a small business, you can keep it concise.
Let’s take a look at what needs to go into your policy statement.
Risk assessment
You will need to conduct a risk assessment reviewing the scenarios where your business could be susceptible to exploitation through money laundering.
You need to include in your policy a risk assessment that details the types of buyers, sellers and transactions that you consider a low risk and a high risk. To do this, you will need to evaluate the full range of circumstances associated with a client or buyer.
Once you have identified what you consider to be low-risk or high-risk situations, you then need to set out appropriate measures within your policy that align with the level of risk.
Due Diligence
Due diligence is the act of performing background checks and other screening on the customer to ensure that they are properly risk-assessed before being onboarded. You must carry out customer due diligence on all customers, even if you knew them beforehand.
The due diligence checks staff will need to take will differ based on the individual’s risk level.
You will need to make clear in the policy statement all of the potential risk factors and outline how staff can identify if a client is a low or high risk.
Once Identified, your staff will need to document it in their assessment with an explanation of why they came to that decision.
When to do customer due diligence
Ensure to make it clear for your team within the document when staff should perform due diligence:
- When establishing a business relationship with a seller and buyer.
- When carrying out an occasional transaction with a customer.
- When you have a suspicion of money laundering or terrorist financing.
- When you suspect that due diligence checks previously obtained are not adequate.
- At regular intervals for ongoing business relationships. (The frequency and level to align with Individual’s risk.)
Levels of Diligence
Simplified due diligence
Simplified due diligence is appropriate where there is little opportunity or risk of your services or customer becoming involved in money laundering or terrorist financing. The only requirement for simplified due diligence is to identify your customer.
Standard due diligence
Standard due diligence is the level that will be used in most cases. These are typically situations where there is a potential risk, but it is unlikely these risks will be realised. Standard due diligence requires you to identify your customer and verify their identity. You also need to gather information to understand the nature of the business relationship.
Enhanced due diligence
High-risk customers will require enhanced due diligence (EDD). This will require further checks to verify their identity and background checks to rule out fraud such as inspecting their recent transaction history and checking media coverage for past accusations of financial crime.
High-risk client examples:
You can read the full list of what the UK government deems as high risk here. The list is not exhaustive, and it will be up to you to ultimately decide on your business’s risk factors within your own assessment.
Identity checks
The Money Laundering Regulations require that estate agents check identity documents to ensure that they understand who their customer is.
At the very least, HMRC advises using at least one authoritative identity document to verify identity that:
- Includes their name, and either their address or date of birth.
- Contains security features that prevent tampering and forgery.
- Was issued by a recognised body that has secure identity proofing measures, for example, a passport.
- Make sure to include details of how your staff are to perform identity checks within your policy document.
Source of funds
Source of funds provides evidence of how your client came to have the money in their possession. Therefore, estate agents must do source of funds checks on everyone buying a property to make sure the money is coming from a legitimate source.
The due diligence requirements for source of funds will vary depending on the risk assessment of the client. You will need to explain in your policy document how you would like staff to do source of funds checks in line with the level of risk.
Checking source of funds
The checks that you will need to undertake will differ depending on how your client obtained the money:
Savings - You will need to see bank statements going back over a period evidencing how the money gradually built up.
Gift – You will need to obtain a letter from the person gifting the buyer the money plus evidence of how it came into their possession.
Inheritance - You will need to seek proof from the executors of the estate.
Sale of property – You will need to see a copy of the completion statement from the buyer’s solicitor.
Pension – You will need to see a copy of the buyer’s pension statement and bank statement to evidence money coming in from the pension firm.
Gambling or lottery winnings - You will need to see the receipt proving the winnings.
Compensation - You will need to see the letter the buyer received from their solicitor confirming the compensation settlement.
Your Team
Reporting suspicious activity
Staff must report suspicious activity to their nominated offer. Make sure to detail in your policy document how your team members should report suspicious activity internally, and how the nominated officer should make a report to the National Crime Agency.
Record keeping
Record keeping is critical as HMRC requires information on transactions to be kept for five years after, as well as evidence obtained to satisfy due diligence. Within your policy statement ensure to include how to keep records, and where and for how long they should be kept.
Staff training
The policy document will need to outline staff training protocols including how and when staff are trained and how the training is recorded. Training staff needs to be provided regularly regarding identifying suspicious activity in your business. Records of that training must be kept, detailing who has received it and when.
Appointing a nominated officer
You will need to appoint a nominated officer and state their name and role in the policy document.
Responsibilities of the nominated officer:
- Staff training on money laundering and terrorist financing risks to ensure they understand what actions they need to take to manage these.
- Reporting suspicious activity to the National Crime Agency in the form of a Suspicious Activity Report (SAR). You can read full details on how to submit a SAR here.
- Regular monitoring and updating of the policy statement to make sure they are working effectively and are being followed correctly by staff.
Automated AML
Manual AML checks are time-consuming, inconsistent and resource heavy. A trusted, secure digital AML provider reduces the effort and saves time and reduces the chances of approving fraudulent IDs through anti-fraud technology.
Automated electronic AML offers many benefits, but you must remember to check that your provider meets certain levels of criteria to satisfy HMRC and that the package chosen addresses the risks you have identified in your risk assessment.
Irrelevant of what AML provider an agency uses, it is the agency’s risk policy that dictates whether a client is or isn’t within the risk appetite of the agency and transaction and if yes, then what level of due diligence is then required.
Digital AML that you can trust with Veya
Veya is proud to offer a mobile app-based solution from our partner Thirdfort that lets estate agents verify client ID and complete all required AML and source of funds checks in minutes. Veya provides a turn-key AML solution combining ID verification technology to confirm vendors and buyers are who they claim to be, with cutting-edge Open Banking technology to prove money is from a legitimate source. Working alongside government agencies, the solution has been developed in line with their requirements.
If you’re considering options for upgrading your firm’s AML processes to stay in front of an increasingly risky regulatory landscape, and supercharging the productivity of your sales team at the same time, then let’s chat.
If you’ve found this information useful, you can download it as a PDF file here.
