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AML compliance relates to how a firm complies with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Estate Agents are at risk of fines and even criminal prosecution by HMRC if they fail to adhere to the regulations.
Twenty percent of the UK’s estate agents are thought to be non-compliant with the anti-money laundering regulations which have been in force since 2017. With a staggering one-third of all violators fined between £15,000 and £25,000, compliance is not optional.
Does AML Apply to all Estate Agencies?
Since the Purplebricks case, at least 50 estate agencies across England have been visited by HMRC over suspected trading without AML registration, as required by law. HMRC hasn’t identified these firms, but it has clarified that but 35 are in London, 5 in Leicester, 4 in Buckinghamshire and Berkshire and 3 are in Greater Manchester.
HMRC says it will now take action against the visited businesses who have failed to comply, and the owners can expect fines, publication of their details, and even criminal proceedings. Clearly, being found in violation is the sort of publicity which can hurt every aspect of a business in which reputation is everything.
Why AML Compliance is a Social Duty
Money laundering hurts society, as an HMRC spokesperson highlighted: ‘Money laundering funds serious and organised crime and costs the UK economy billions of pounds every year. The money-laundering regulations are a vital line of defence against that’.
The director of HMRC’s fraud investigation service, has warned: ‘Estate agents need to understand that criminals prey on weaknesses, so it’s vital they take all steps to protect themselves. The money laundering regulations are key to that, but there’s still a minority of agents who ignore their legal obligations. These inspections are a wake-up call that if you continue to trade illegally, we will come knocking’.
The Penalties for Violation are Severe
With the potential for unlimited fines and imprisonment for up to two years, your ability prove compliance is critical. It’s not only firms which haven’t registered who are at risk, because the breaches which most commonly attract fines include failure to provide staff anti-money laundering training and improper record keeping. Since there’s no appeal process, the onus is on estate agents to prove compliance to HMRC.
It’s worth noting that when filing a Suspicious Activity Report (SAR), it’s imperative that it’s kept confidential, because informing the buyer of your report is a separate criminal offence called ‘tipping off’, for which the penalties are also unlimited fines but with the added threat of up to five years imprisonment.
Record Keeping is Key
Whether you are a sole trader or part of a multi-branch operation, you must establish formal policy documents and a risk-based evaluation model which work together to signal compliance threats.
Given the lack of an appeal process, to defend any action following an investigation will leave you reliant upon your accurate record keeping to prove your firm’s innocence.
Errors and omissions in your records aren’t acceptable, and with the records retention period for AML compliance set at five years there’s plenty which can go wrong if you are less than diligent.
Recreating the entire transaction
To prove compliance, you must be able to produce sufficient supporting records (originals or copies) for the entire transaction to be reconstructed. The documentation required ranges from email and telephone records through to detailed copies of your customer due diligence (CDD) records.
AML policies and training records
In a such a profit-driven industry, it’s imperative that every relevant employee is fully aware of the published policies, and that accurate records of training received by all staff are maintained.
Relevant employees are staff who are “capable of contributing to the identification or mitigation of the risk of money laundering… or the prevention or detection of money laundering” in relation to the business. This should include accounts and reception staff. Agents the firm uses for AML compliance or for the matters identified in regulation 24(2)(b) now also fall within the training requirements.
Ask yourself if you can prove that any staff member received training on a particular date, and show what was included? Remember that investigations can examine transactions which date back several years!
Recording risk assessments and checks
Not only must you conduct a risk assessment related to every transaction, but there are also mandatory customer due diligence (CDD) checks which happen after the initial client onboarding.
CDDs can become quite lengthy and may involve multiple checks for sanctions and PEP screenings as your staff – and your compliance officer, if you have one – becomes aware of more parties within scope for vetting.
As such checks rely upon online portals to conduct screening, be certain that printed copies of all checks are preserved in-house, because if the portal provider was to suffer a data loss, their failure will not absolve you of your legal obligations.
The Role of Electronic Document Management
If you haven’t done so already, it’s time to stop relying on paper records. Invariably, paper-based archives become disorganised, and they are notoriously incomplete. With so many digital documents being exchanged, not least of all because of emails and their attachments, how can you fully recreate the entire transaction if your archives are a hybrid of paper and digital?
Given the highly sensitive nature of the personal data collected, records retention must be a core consideration. As noted by the Law Society, ‘if you do not have the client’s consent and if the other exceptions do not apply, you’ll need to destroy personal data contained in paper and electronic CDD records when the five-year period following the end of your professional relationship has expired’.
With a document management system, your records retention can be fully automated. Additionally, with a digital system, you can guarantee an audit trail to prove the authenticity of each document, track access by users, and thus be better positioned to ease through any HMRC investigation.
New Technology for ‘Know Your Client’ Checks
A risk-based approach to KYC (or know your customer) checks involves the verification of the customer’s identity, using documents like photographic ID, proof of date of birth, and proof of address.
This can be done manually, with physical documentation, but this quickly becomes problematic when engaging with clients overseas, and with the pandemic we have seen an urgency for remote transactions.
Passport validation online
Verifying a signature and the authenticity of a passport has become simplified in such situations by UK-based software firm VirtualSignature. They have created the online option for clients to use when completing and signing any document, including tenancy agreements, deposit forms, sales contracts and the like. With VirtualSignature, fully compliant ID and AML checks can be carried out effortlessly in real-time.
VirtualSignature has spent a number of years developing just the right tools which will allow you to sign and execute documents remotely, check clients’ ID (in real-time) and convert existing Word or PDF forms to an HTML version which can be completed and submitted from any internet enabled device.
For privacy advocates, it is crucial to note that no biometric data is retained by the app or the agency.
Embedded facial recognition
At its heart, VirtualSignature enables anyone with a mobile telephone or tablet to present their passport for their app to confirm the biometric data stored on the embedded chip. This is then compared to the person’s actual face utilising 3D facial recognition technology. With signature authentication too, this is one of the most significant breakthroughs to arrive on the scene since the AML legislation came into force
With three decades of experience in digital transformation, Advanced UK are the perfect partner to support your estate agency. To explore the concepts referenced above, please contact Humperdinck Jackman, Marketing Director, via email at email@example.com.
If you would like to participate in a podcast with Advanced UK in which we discuss the compliance issue and other aspects related to growing your estate agency in a changing economic climate, we’d love to hear from you.
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Call the Advanced UK sales team on 01895 811811 to configure your solution.
Humperdinck Jackman – Marketing Director
Humperdinck has a 30-year career spanning Document Management Systems (DMS), data protection, Artificial Intelligence, Data Protection and Robotic Process Automation. With many articles published in print internationally, he believes the advances in office technology are such that we’re entering the 4th Industrial Revolution. Now Director of Marketing and Consulting Services at Advanced UK, he’s as active with clients as he is in endeavouring to write original blog articles.