We often hear about the compliance issues related to money laundering. To combat this unlawful activity, the United Kingdom has implemented robust Anti Money Laundering (AML) regulations. For small businesses, understanding these regulations is not just a legal requirement. It’s a crucial step in safeguarding your operations.
In this article, we will delve into the essentials of AML regulations, specifically around how it impacts small businesses.
What are anti money laundering regulations?
Anti money laundering regulations are a set of laws and procedures to stop financial crime. They are designed to stop people disguising the origins of illegally obtained money. Money laundering involves integrating "dirty money" into the financial system, making it appear as if it came from a legitimate source. AML regulations make it more difficult for this to happen.
AML regulations ensure transparency through the ability to trace financial transactions. They help to detect and prevent criminal activities such as terrorist financing and transfer of fraudulent funds.
In order to prevent money laundering, it’s important to identify the source of funds and have information on the payer. It’s also necessary to have the ability to trace the movement of funds through businesses and systems. A good example is challenger banks. They use apps and technology to offer enhanced due diligence and security when signing up to a new bank account.
Why do we need to do them?
The purpose of AML regulations is to protect the financial system and to curb illegal financial activities. Small businesses play a crucial role in the economy, and by adhering to AML regulations, they contribute to maintaining a fair and secure business environment.
AML regulations help identify and mitigate the increased risk associated with money laundering for small businesses. The regulations safeguard the financial sector from becoming unwitting accomplices to criminal enterprises or engaging with the proceeds of crime.
Who regulates anti money laundering checks?
Various regulatory bodies oversee AML regulations. The Financial Conduct Authority (FCA) and His Majesty's Revenue and Customs (HMRC) are at the forefront. They ensure that businesses comply with the established AML guidelines.
Small businesses need to be aware of their responsibilities and stay informed about any updates or changes in AML regulations. This will ensure they avoid penalties and legal consequences.
How anti money laundering regulations have changed
The landscape of AML regulations is dynamic, with constant updates and amendments to adapt to emerging risks and challenges. Over the years, there has been a shift towards a more proactive and risk-based approach. Small businesses now face a greater responsibility to conduct thorough identity checks, assess the purpose of transactions, and implement robust internal policies to align with evolving AML legislation.
Key examples of how small businesses can support anti money laundering regulations include:
- Highlighting suspicious activity
- Properly collecting transfer of funds information
Speak to an expert lawyer about AML
Modern examples of AML
Banks and financial institutions are at the forefront of implementing AML regulations. However, with the rise of digital finance and mobile apps, more and more businesses are subject to stringent AML checks. FinTech firms, in particular, must ensure AML compliance to maintain trust and security in an evolving digital landscape.
The ability to carry out anti money laundering checks digitally has made the process more simple - the ability to upload photos of documents, and use face recognition alongside proof of identity is making it quicker and more efficient to carry out checks.
However, as technology improves, criminals tend to find new ways to get around them. So it is always worth being extra careful when it comes to your AML processes as a company.
What you need to do as a company
For small businesses, compliance with AML regulations involves several key steps.
First and foremost is the implementation of robust identity checks for clients and customers. This includes verifying the identity of individuals involved in financial transactions and understanding the purpose behind these transactions.
Developing and adhering to internal policies, in line with AML legislation, is paramount. Small firms must also ensure proper registration and fulfil any specific AML requirements applicable to their industry, where registration is required.
Be aware of your beneficial owner and how AML might apply to them. Beneficial owners are those with high equity investment (over 25%) or control over the company. Beneficial ownership may mean a higher level of AML compliance, as these are the people behind the business. Having transparency around business ownership makes it easier for law enforcement and other experts to stay on top of any potential wrongdoing.
Get legal assistance from LawBite
Small businesses must be proactive in understanding, implementing and adapting to the AML regulations to avoid risk factors associated with fraud and money laundering. By staying informed and conducting due diligence, small businesses can fulfil their legal obligations and fortify their operations to keep them and their customers safe.
If you need support in reviewing or producing AML regulations in your business, start by booking a free 15 minute consultation with one of our expert lawyers or by calling us on 020 3808 8314.
Additional resources
- GDPR for ecommerce websites
- Do companies need an Anti-bribery and Corruption Policy?
- Understanding Conflict of Interest (COI)
- Directors' Services Agreements – what you need to know
- Directors' conflict of interest explained
