News

Ray Cross, ICB director of compliance

Following feedback from members during the successful completion of the first programme of audit visits, The ICB is amending some of the MLR forms contained in the MLR Practice Guidance Manual. Forms MLR 1, 2, 3 and 8 have been amended in order to make them slightly more user-friendly and to provide for a more meaningful outcome.

These forms are now downloadable from the MLR section of the website so please use these forms from now on. The old versions are no longer available via the website.

MLR8 Annual Practice Declaration

Since it is now mandatory that all practices submit an MLR8 form when renewing their Practice Licence, I thought it might be an idea to give some tips on how to complete the form satisfactorily.

I have recently reviewed about two hundred of these forms and have noticed that there seems to have been a bit of a problem completing the column ‘your brief reasons for this assessment’. Some people wrote in ‘because of the MLR’. We are not looking for the reason behind why you completed the assessment, we already know this, but it is essential that we understand the reasoning behind your assessment of each client as either Low, Medium or High Risk.

 

Some Returns have been either rather short on detail or comments such as the following have been used and are just not detailed enough or don’t really answer the question of risk fully.

MLR8 Inadequate 'reasons for assessment'

• Introduced by Accountant
• Well known
• Initial assessment
• No problems
• No issues
• Known for a long time
• Introduced by a friend
• Low risk nature of the business
• Relation
• Small family run business

Others have assessed a risk as Low, when the practice had only been working for the client for less than one year. I cannot understand how a client can be assessed as Low Risk when members have only worked for the business for a short period of time and do not really know the client properly, how they work, typical transactions etc. I would expect any client relationship of less than one year to be assessed as either Medium or High.

Some examples of the better responses have been as follows;

MLR8 Adequate 'reasons for assessment'

• Client very well organised, does not take business risks, has good systems and paperwork is in good order with no odd transactions therefore assessed as low risk
• Full access to books but since the retail part of the business has significant cash going through tills, I have assessed risk as high although I have no concerns at all
• First year as a client, consequently assessed as high risk until I become more familiar with the business
• Profitable, well-run business but as cash involved have assessed as medium / high
• Business running at a small loss in current economic climate and as cash features as a dominant part of the business, I have assessed as high
• I have worked for this client for 10 years and known the family owners for 25 years. I have no risk concerns and the business is well run and profitable hence my assessment as low risk

These responses show that the individual has thought about specific issues and provide a lot more detail on which the assessor can base an opinion.

I appreciate that the space provided on the form is quite small to fit in such lengthy comments but I do suggest you make room by overlapping into the section below; this might mean printing off extra pages 2 and 3.

Finally, you should review annually your risk assessments. Obviously a good time to carry this out would be when you come to renew your Practice Licence and therefore have to complete the MLR8. This should not be too onerous at all because unless something fundamental has changed with the client, e.g. new director added/ one resigned/ change of company structure or perhaps a diversification of product base or even perhaps your working relationship with the client has significantly changed, then there will be no need to change the assessment from the previous MLR8.

MLR1 Client Risk Assessment Form

Initially, we had hoped to use the numeric scoring system shown on the MLR1 form but what seemed as a good idea at the time has proved unworkable and has been removed from the new version of the form. In future you will be required to make a judgment against each section that your client is either Low, Medium or High Risk.

I would like to draw your attention to pages two and three of this amended form and explain the new procedures for completing this:

Firstly, please note that there are now 30 questions all of which are numbered.

You will notice that the new form states on the front page that if a YES response is given to any one of questions 5, 10, 12, 14, 17, 18 and 26, then a Low Risk assessment is NOT possible.

If a YES response is given to more than one of these questions, then the risk assessment MUST be HIGH.

You should also be aware of the note at the bottom of page two, which cross-references with question 11 and should be considered when completing the form.

Question 30 is new and you will observe that this particular question is replicated on the MLR8.

MLR2 and MLR3 Client Due Diligence Forms

 

The important change to these forms is that the MLR2 must now be used for all partners of partnerships and not the MLR3, as is currently the case.

• MLR2 is for individuals and partners
• MLR3 is for limited companies, Charities and Trusts.

 

Important reminders

Finally, I should like to remind all member practices of the following:

All practices must carry out an annual review of their anti-money laundering systems and procedures. In most cases this will be carried out by the MLRO. Where this is not possible it must be carried out by somebody within the practice who has the necessary authority and experience to conduct it.

As long as the review is carried out annually, it does not necessarily matter at what time during the year you do it. Practices will need to decide when to carry it out, but obviously workloads will be a determinant factor. I would recommend that the review is carried out at the same time as the completion of the Annual Client Declaration when applying for renewal of the Practice Licence.

It is important that written evidence is retained in respect of the work carried out during the review. There is a pre-printed review checklist in Section 3 of the ICB Compliance Manual and this should be completed, dated and signed off. This form has been slightly amended so please download the new form from the website and insert this into Section 3 of the ICB Compliance Manual to replace the current one. Any documentation relating to the review should be retained, kept securely and only made available to duly authorised personnel within the practice or to an ICB authorised inspector.

During a review, you will probably come across weak points in your current procedures and any such weaknesses should be recorded, together with any actions required to put these right.

The person responsible for the overall review should record his or her conclusions to the results of the review.

If an inspector from the ICB’s compliance audit team visits your practice, he or she will want to establish that your firm has satisfactory anti-money laundering systems and procedures and that these procedures are being adhered to.

The inspector will also ask you whether you carry out an annual review of your systems and procedures. Undoubtedly the easiest and best way of satisfying the inspector is to show them a copy of your annual review compliance checklist, duly initialed, together with any supporting documentation.

Also please ensure that any weaknesses found during your review have been corrected.

As mentioned above, there is a recommended checklist of questions which you should be asking yourself when you perform your annual review of anti-money laundering systems and procedures and this can be found in Section 3 of the ICB Compliance Manual.

The MLR stipulate that 'A relevant person must conduct ongoing monitoring of a business relationship' this also applies to the duty to conduct ongoing monitoring as it applies to customer due diligence measures. Just what does this regulation mean and how do we ensure that we comply with it in practice?

In essence, it means that you should keep all documents, etc., up to date so that, probably on an annual basis, perhaps to coincide with completion of the MLR8, you should take a re-look at the client due diligence that you carried out in the past and ask yourself the question “ Has anything that we relied on in the past relating to our client due diligence changed and, if so, do we need to update this information and carry out additional due diligence work?

For example, if the client has moved house his new address should be entered into his client due diligence records. However, in the absence of any suspicion, there would be no requirement to obtain evidence that the new address was correct as long as you update your files. The bottom line here is always make a file note as to what data changed and when, together with any additional investigation work that was carried out.

To remind everybody, money-laundering regulations relevant to our work include Part 7 POCA 2002 and MLR 2007 and can be found on www.opsi.gov.uk

In addition, everything you need to know is contained within the CCAB Guidance, which has been reproduced in full in Section 2 of the ICB Compliance Manual.