We get lots of questions at Insight Training about anti money laundering – and lots about client due diligence procedures. With more and more firms moving towards electronic tools or platforms to help with due diligence, here are some of the more common questions about their use:

  1. We’ve recently invested in an electronic platform for client due diligence. Does that take care of everything for us?

Although electronic platforms can be a big help, they don’t take care of absolutely everything. An AML risk assessment will be required initially and on an ongoing basis and verification evidence will need to be gathered in the light of that. If for example, you have any doubts or questions about the source of funding for a new client this might need to be validated. A validation check of this type can’t be performed by such a platform.

  1. If our electronic systems monitors clients and constantly reports on changes, do we still need to perform ongoing checks every year?

A very useful feature of some electronic tools is that they do perform real time checks on individuals, so any criminality or change in status (e.g. politically exposed person (PEP) status) will automatically be flagged up. However, again, more work will be needed. You’ll need to reassess risk and think about whether other changes to an entity or individual’s status requires follow up work. If for, example, a corporate client takes on a new beneficial owner this will not be highlighted by an electronic platform.

  1. Is an electronic AML search which produces a pass sufficient evidence – or does it depend on the level of perceived risk as to whether you obtain paper based evidence as well?

As we have already mentioned there’s more to due diligence than just identity checks. Where an electronic platform has been used though, we don’t often find firms taking a ‘belt and braces’ approach and getting copies of (e.g.) a passport or driving licence as well. However in a higher risk situation this would be appropriate and some firms do, as a standard rule, use paper based and electronic means to get comfort that clients are who they say they are. 

  1. Do you need prior client approval to do electronic checks?

No – but as a common courtesy firms are encouraged to let prospective clients know that they will be used. Some prospective clients worry that the ‘footprint’ left by an electronic AML check will affect their credit rating but this is not the case.

  1. Do the electronic systems have to meet some kind of certification?

No – but the guidance issued for accountants by the Consultative Committee of Accountancy Bodies (CCAB) makes clear that systems should be reliable, comprehensive and accurate.

Firms should therefore perform due diligence on providers and ask open questions about how this is achieved. Firms might also take soundings from other practitioners about systems that they use.

  1. We’re a very simple practice with very straightforward clients that we know really well. Surely investing in an electronic system is a bit of an overkill, isn’t it?

There is no formal requirement to invest in an electronic platform but firms need to be able to demonstrate to their regulator that they perform more in depth checks for higher risk than for normal risk clients. Electronic platforms can be useful for this.

ICAEW members may wish to consider using the Institute’s ‘screening system’ which, though not a full blown electronic platform, cross references against (e.g.) sanctions lists and PEP registers. This can be a useful resource to use where practitioners have more uncertainty or concerns about new clients that they are taking on. Three name checks can be performed for an individual firm or member each week. This resource would typically be used in conjunction with traditional paper-based checks.

Peter Herbert, June 2021