Estate agents have always largely viewed money laundering compliance as an administrative burden and I have lost count of the number of times I have been asked – “Why do we have to do this, don’t the conveyancers and lenders do it?”
The answer is simple – because it is legal requirement on agents to undertake customer due diligence even if that is often a repeat of the due diligence of others in the process. Of course, agents are often involved in a transaction before others such as conveyancers and lenders and, often have a much more intimate knowledge of the people and circumstances involved in the transaction.
It is no surprise therefore to see a growing trend and desire amongst agents towards trying to simplify (some might say short-circuit) all or some of the process.
The use of digital services for ID checks moves forward apace and we are undoubtedly seeing standards improve with many of the better providers now able to use open banking, NFC chip screening, biometric facial recognition technology etc. and therefore produce much more robust results.
Does this negate the need for paper copies of ID documentation? The providers would argue that it does. I am a little more reticent but accept that in low and, possibly medium, risk cases it is certainly OK. However, how does one determine the level of risk?
All of the digital ID checks include PEPs and sanctions checks, the outcome of which would potentially alter the level of risk associated with that person and the transaction. This might result in the need for a higher level of due diligence and therefore additional documentation. If therefore an agent does not collect paper documentation and seeks to rely entirely on digital ID there may be some circumstances where additional time and resource will need to go into subsequently collecting documentation which could have been obtained at the outset. Of course, the requirements surrounding companies, trusts, probates, power of attorney, overseas etc add additional complexity.
There are now a growing number of industry suppliers (often conveyancers and panel managers) who are offering agents “free AML checks” as a “sprat to catch the conveyancing mackerel”
This is understandable and agents often choose to use these services based on either (1) commercial factors such as savings on time and money but (2) a mistaken belief that they are “outsourcing” their responsibility for AML compliance. Any ID checks undertaken must, of course, meet the requirements laid out in the agent’s company risk assessment and GDPR privacy requirements, if being shared.
However, agents need to understand that AML compliance is about identifying, managing and mitigating risk. Obtaining ID is one mandatory element but so is the undertaking of a risk assessment. Somebody might be who they say they are but could still be up to no good!
Every business should have a company AML risk assessment which identifies the types of cases and associated risks that may exist and, alongside a money laundering policy, sets out the approach to be taken in each circumstance.
All cases – sellers, buyers and, in high value lettings cases, landlords and tenants should be subject to a risk assessment. This is not a tick box exercise but a serious look at the people and circumstances involved in the proposed transaction. It should, as the title of this article suggests – tell the story of the people and the transaction. Remember Rudyard Kipling’s six honest serving men - Who, what, why, when, where and how? These open questions should be asked.
I therefore find myself asking – “Who is best placed to carry out the risk assessment?” It surely cannot be a remote admin department of a conveyancer or panel manager, it has to be the estate agent who has probably met the consumers, visited the property and often knows the history, background and circumstances leading to the transaction.
I recently reviewed the risk assessments of a client firm who were using a document provided by a reputable industry supplier. It applied a scorecard type approach to questions and if the total score was 1-8 it was deemed normal and if 8 or above it was high risk.
The flaw with this approach is that the minimum score achievable was actually five not one and what category does the case fall into if the score is eight? It would sit in both categories!
My client also has a generally very good company risk assessment that refers to low, medium and high-risk cases yet their individual risk assessments in creating normal and high risk “judgements do not recognise these definitions.
Needless to say the position is being rectified.
AML compliance must also be an ongoing process. It needs to be completed by an agent at the outset but needs to be monitored and kept under review throughout the transaction. Things such as the parties involved, the source of funds etc sometimes change during a transaction, rendering the initial risk assessment out of date and a new review should be undertaken.
Most agents are aware of caveat emptor (let the buyer beware) I would however suggest agents start thinking about caveat agente (let the agent beware) as it is, in my opinion, just as appropriate.