UK AML Compliance Audit Requirements: FCA, HMRC, and Other Regulatory Authorities
This post outlines the key Anti-Money Laundering (AML) compliance audit requirements for firms operating in the UK, regulated by authorities like the Financial Conduct Authority (FCA), HM Revenue and Customs (HMRC), and sector-specific bodies. It covers essential audit components, including risk assessments, customer due diligence (CDD), suspicious activity reporting (SARs), internal controls, and independent audits. Links to official guidance from the FCA, HMRC, NCA, and other relevant authorities are provided for easy reference, helping firms ensure full AML compliance and avoid penalties.
In the UK, compliance audits related to Anti-Money Laundering (AML) regulations are governed by various authorities, including the Financial Conduct Authority (FCA), HM Revenue and Customs (HMRC), and other sector-specific regulatory bodies. Each authority has its own set of guidelines that firms must follow to ensure compliance with AML regulations.
Here’s a breakdown of the AML compliance audit requirements under key UK authorities:
1. Financial Conduct Authority (FCA)
The FCA regulates firms in the financial sector, including banks, investment firms, and insurance companies. Its AML compliance framework is based on the Money Laundering Regulations 2017, which align with the EU's 4th and 5th AML Directives.
Key AML Compliance Audit Requirements:
Risk-Based Approach: Firms must conduct risk assessments to identify and mitigate money laundering risks.
Customer Due Diligence (CDD): Firms are required to carry out CDD measures when establishing business relationships, conducting occasional transactions, or where suspicious activity is detected.
Ongoing Monitoring: Firms should have mechanisms to continually monitor transactions and customer behavior.
Record-Keeping: Firms must maintain records of CDD measures, transaction details, and other relevant documentation for at least 5 years.
Internal Controls: Firms should establish internal controls, including independent audits, to test the effectiveness of AML systems.
Training: Regular training programs must be conducted to ensure that employees are aware of AML obligations.
FCA AML Audit Focus:
Adequacy of AML systems and controls.
Effectiveness of customer identification and verification processes.
Proper maintenance of transaction records and due diligence files.
Internal reporting systems for suspicious activity reports (SARs).
2. HM Revenue and Customs (HMRC)
HMRC oversees AML compliance for businesses such as money service providers, high-value dealers, estate agents, and accountants that are not directly regulated by the FCA.
Key AML Compliance Audit Requirements:
Risk Assessments: Businesses must perform and document regular risk assessments.
Customer Due Diligence: Similar to FCA-regulated firms, HMRC-regulated firms must identify and verify customers, especially for high-risk transactions.
Suspicious Activity Reporting (SARs): Firms must have internal procedures for detecting and reporting suspicious activities to the National Crime Agency (NCA).
Compliance Officer and Nominated Officer: Appointing a compliance officer is mandatory, and a nominated officer must report SARs to the NCA.
Independent Audit: Businesses should have independent checks on the adequacy of their AML processes.
Record-Keeping: Firms must retain transaction and identity records for at least five years.
Registration: Firms must register with HMRC as a money service business or trust and company service provider, where applicable.
HMRC AML Audit Focus:
Compliance with registration requirements.
Implementation of AML policies, controls, and procedures.
Record-keeping and CDD adherence.
Training and awareness programs for staff.
3. Other Authorities (e.g., Gambling Commission, Solicitors Regulation Authority (SRA), Estate Agents, etc.)
For businesses regulated by other sector-specific bodies (e.g., legal and real estate firms), compliance audits are subject to the guidance of those regulators. The compliance audit requirements typically align with the general AML framework, but there can be specific sectoral nuances.
General AML Audit Requirements for Other Authorities:
Risk Assessment: Firms must evaluate the money laundering risks within their operations.
Customer Due Diligence: Enhanced due diligence is required for higher-risk customers or transactions.
Ongoing Monitoring: Continuous monitoring of transactions and relationships is required to identify unusual or suspicious activity.
Record Keeping: Document retention policies are mandatory.
Reporting Mechanisms: Internal and external reporting mechanisms must be in place, especially for suspicious transactions.
Independent Audits: Regular, independent audits should review the effectiveness of AML procedures.
Additional Considerations
Penalties for Non-Compliance: Non-compliance with AML regulations can lead to significant penalties, including fines, imprisonment, and reputational damage.
Fifth AML Directive (5AMLD): The FCA, HMRC, and other regulators are aligned with the 5th EU AML Directive, which strengthens due diligence measures, particularly regarding virtual assets and prepaid instruments.
AML Compliance Audit Checklist
Risk Assessments – Regularly documented assessments of your firm’s exposure to money laundering.
Policies & Procedures – Written and accessible AML policies.
Customer Due Diligence (CDD) – Verification procedures for new and existing clients.
Suspicious Activity Reporting (SARs) – Procedures for identifying and reporting suspicious activities.
Training & Awareness – Staff training programs on AML obligations.
Record-Keeping – Compliance with the required 5-year document retention.
Independent Audit Function – Conduct regular independent audits to test AML frameworks.
By meeting these requirements, firms ensure they comply with UK AML regulations and avoid regulatory sanctions.
Here are the relevant links to the key UK authorities and their guidance on AML compliance audits:
1. Financial Conduct Authority (FCA)
FCA AML Guidance: https://www.fca.org.uk/firms/financial-crime/aml
FCA Handbook on AML (SYSC 3.2.6A - 6.3): https://www.handbook.fca.org.uk/handbook/SYSC/
2. HM Revenue and Customs (HMRC)
HMRC Anti-Money Laundering Supervision: https://www.gov.uk/guidance/money-laundering-regulations-registration
HMRC AML Guidance for Businesses: https://www.gov.uk/government/publications/anti-money-laundering-guidance-for-the-accountancy-sector
3. National Crime Agency (NCA)
NCA Suspicious Activity Reporting (SARs): https://www.nationalcrimeagency.gov.uk/what-we-do/crime-threats/money-laundering-and-illicit-finance/suspicious-activity-reports
4. Gambling Commission (for gambling sector)
Gambling Commission AML Guidance: https://www.gamblingcommission.gov.uk/licensees-and-businesses/guide/page/preventing-money-laundering-and-terrorist-financing
5. Solicitors Regulation Authority (SRA)
SRA AML Guidance for Solicitors: https://www.sra.org.uk/solicitors/resources/anti-money-laundering/
6. Estate Agents (via HMRC)
AML Guidance for Estate Agents (HMRC): https://www.gov.uk/guidance/money-laundering-regulations-estate-agency-businesses
These links provide official guidance and further details on the specific AML obligations, compliance requirements, and audit processes for firms under different regulatory bodies.