What is a Risk-Based Approach to Money Laundering?

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations came into force in June 2017. Also known as the MLR 2017, the regulations were introduced to establish a “risk-based” approach to combat dirty money in the UK. But what exactly does risk-based mean? And how does MLR 2017 affect estate agents?

Put simply, all businesses regulated by MLR 2017 – including estate and letting agents – must assess the risk that criminals could use their firms to launder money or finance terrorist activities. Then, rather than ticking off a standard set of AML requirements, it is up to the applicable business to determine which areas of their operations are at risk and adopt measures to mitigate the threat.

Measures could include enhanced customer due diligence checks, training to ensure everyone knows how to spot red flags, and established processes for reporting any suspicions of money laundering. And it's an obligation that estate agents must take seriously. Not least because a failure to do so is a criminal offence.

How to adopt a risk-based approach

If you want to drill down into MLR 2017, we have created a handy guide to help you do this. You can access this guide here. But in a nutshell, according to HMRC, adopting a risk-based approach to prevent money laundering involves:

Identifying the money laundering risks relevant to your business
Carrying out a detailed risk assessment of your business, focusing on customer behaviour, delivery channels, etc
Carrying out a risk assessment of your customers
Designing and putting in place controls to manage and reduce the impact of the identified risks
Monitoring these controls to improve their efficiency
Keeping records of what you did and why you did it.

Of course, in reality, while these steps might seem simple, knowing how to implement them is infinitely more complicated - especially as this is not a one-off exercise.

Investing in ongoing compliance is essential for any estate agency committed to operating within the regulatory framework. And - as well as regular audits, monitoring and improvements - this involves keeping up with the latest information about risk and emerging trends from trusted sources such as the National Risk Assessment and HMRC, and responding accordingly.

The benefits of a risk-based approach

Understandably, some estate agents might be frustrated with the requirements of MLR 2017. But once they get up and running, most see real advantages of adopting a risk-based approach. For example:

By focusing on those areas where the risks are the highest, estate agents can channel their resources accordingly. So, a risk-based approach is very cost-effective.
By examining business operations and identifying the various risk factors, estate agencies develop an enhanced understanding of what risk is, and the consequences of actions in relation to risk. This knowledge is hugely beneficial when it comes to compliance.
Greater insight into risk empowers estate agents to look at ways to mitigate AML threats in the future.
A risk-based approach also supports greater levels of compliance, with regular audits, monitoring, and recording keeping it at the forefront of everyone's minds.
With dozens of estate agents already fined more than £500,000, for not complying with the rules - and the level of fines issued to estate agencies growing- a risk-based approach to AML will help estate agents to avoid penalties and reputational damage.
A risk-based approach dramatically reduces the likelihood of criminals using estate agents for money laundering and terrorist financing. This is good for individual firms and the broader property sector.

If you are struggling to keep up with the requirements, an outsourced audit and review will help you understand what you have to do, and when and how to do it.

Speak to our specialist compliance advisers today

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