What should brokers be doing to comply with money laundering regulations?
John Dobson (pictured), chief executive, SmartSearch
in March estate agency chain Countrywide was fined £215,000 for failing to have proper anti-money laundering procedures in place. It is worth nothing that it was the Countrywide estate agency business that was fined and so what is required for brokers may be different.
All regulated work in the UK is bound by the MLR20017. Mortgages have not traditionally been viewed as a high-risk service, but as the level of money laundering UK-wide increases, so does the number of industries targeted and as a result, the risks posed to the mortgage industry are also increasing.
And as money launderers start to take advantage of what has, up until now, been a fairly underutilised route for cleaning dirty cash, AML regulations are warning that “mortgaged property as a money laundering vehicle may become more popular”.
It may sound like an odd route to take, but here are a number of ways in mortgages can be used to launder money, including to overpay loans, either via regular payments or a one-off overpayment and through the rental income on a buy-to-let.
Any lenders that are unable to identify the source of their borrowers’ deposit, could face regulatory action, and brokers and networks may find that if they do not have proper money laundering processes in place, lenders will not work with them.
In order to ensure they are compliant with money laundering regulations, brokers need to have risk policies and procedures in place to assess the risk they are exposed to. This is the risk in terms of the types of customers they work with, the types of products and services they offer as well as the areas in which they work. Key to this risk assessment is Know Your Customer (KYC) processes.
As part of KYC checks, brokers will ask customers for identification documents such as passports and driving licenses to pass the checks needed to take out a mortgage. Unfortunately, those customers determined to launder money via a mortgage will likely have access to some of the most sophisticated forged identity documents which are virtually impossible to spot as fakes through manual checks.
In fact, all mortgage fraud has been perpetrated on the back of forged documents, but there has never been a fraudulent case linked to electronic verification.
This is because electronic identification offers the most efficient and reliable way to ensure compliance with the latest AML regulations.
The fifth money laundering directive stipulates that electronic checks should be used wherever possible, and therefore, the increase in demand for electronic AML solutions is at an all-time high.
Good electronic solutions will offer a one-stop-shop where all checks – individual and corporate, UK and worldwide, enhanced due diligence, PEP and sanction screening and ongoing monitoring – can be done in one place.
For brokers looking for a failsafe AML solution, a fully automated system driven by top quality data is the smart choice, because, not only will it save time and money, but it will also keep you fully protected at all times.