AML and Due Diligence

Laven Partners started the New Year by looking back at the developments and criticisms of AML highlighted throughout 2015. Switzerland and the UK noticeably raised AML as a primary area of focus, and Ireland closed the year with the production of its Report on AML in the Irish Banking Sector. Thematically all these jurisdictions have commented on the deficiencies within AML and the Central Bank of Ireland’s (CBI) report went further by highlighting areas of failure.

Central Bank of Ireland’s Report

A lack of demonstrable oversight, deficiencies in relevant on-boarding procedures and weaknesses in reporting activities are, to name just a few, part of the notable failures in the fund industry according to the CBI’s mid-November report on AML and the financing of terrorism in the Irish Banking Sector. Although the data considered for this report was derived from a specific area of the market, and a specific jurisdiction, the principles and guidance produced provide considerable food-for-thought across the wider financial services industry and across Europe.

The CBI focussed their research on the AML requirements for funds and fund service providers. Despite the prominence and importance of AML, acknowledged as commonplace, the findings of the CBI proved to be a real wake up call. Many of the findings demonstrated a considerable lack of basic oversight and a severe departure from cornerstone rules within compliance.

The scope of the report was broad. Some of the most notable issues included considerations related to risk assessments; ongoing monitoring provisions; the reliance on third parties when conducting due diligence; as well as the measures to be taken when on-boarding clients, especially those who are politically exposed. It was noted throughout the report that many AML-related requirements were completed on an ad-hoc basis rather than as a matter of protocol. Risk assessments have been seen to be completed on a one-off basis only and the necessary periodic reviews have been conducted infrequently, which is not in line with best practice standards. The report also highlights that although many entities use recognised outsourcers to complete their clients’ due diligence, in practice, few keep the necessary documentation to evidence the checks being carried out as well as to confirm the quality of the due diligence done.

When completing due diligence on clients there is a prevailing duty to separately confirm and document a client’s source of wealth and source of funds. This may be directly from the client or a beneficial owner and depending on the client, proportionate risk assessments must be undertaken. During the investigations conducted by the CBI it was discovered that many of the risk assessments conducted against potential clients were subjective in nature and this could allow for great inconsistencies in their application.

Additionally, the report noted an ongoing failure in institutions providing evidence that all on-boarding checks have been satisfactorily completed or that the checks have been suitability reviewed as may be necessary. In addition to the core on-boarding due diligence, there is an expectation that enhanced due diligence will be conducted if the initial assessment results prove the client to be high-risk, such as that of a politically exposed person. The CBI’s findings demonstrated that in spite of such initial risk-based conclusions being drawn, there were often no preventative policies and protocols in place to stop a client from being on-boarded before the necessary enhanced due diligence checks were completed and reviewed.


Sentiments of inadequacy towards existing policies has also been felt in other EMEA countries. Around the time that the CBI published its report, Switzerland announced the promulgation of new AML rules which aimed to tighten controls on money laundering. A report earlier in the year made by a government-appointed group found the Swiss still susceptible to financial crime. In order to cast out the nation’s infamous reputation of being a “haven for hidden cash”, an increase in transparency is felt necessary and the new rules will include a requirement to identify the controlling owner of legal entities and private companies. Any individual with a controlling interest of more than 25 percent, or exercising effective control would qualify as a “controlling owner”. The Swiss Banking Association has also said that if the controlling owner cannot be ascertained from the criteria, then banks must instead identify the highest-ranking employee. The crackdown on financial crime and better transparency seeks to make it more difficult for offenders to hide their money in companies or schemes with obscure ownership structures, thus targeting the perpetual gaps in financial crime enforcement.

United Kingdom

Similarly, following the enactment of the fourth EU AML Directive (June 2015), the FCA has also taken measures to improve on the UK’s current status. Although there is unlikely to be many substantial changes to UK regulated firms, the most notable change would concern the increasing transparency required of beneficial owners. Companies in the UK are already required to report on “significant controllers” since March 2015. The provisions in the Directive are intended to put Member States in a better position when combatting the threat of money laundering and terrorist financing. In this regard some tightening of the rules may be seen in the UK. If not in practical terms it would certainly be beneficial to remember to document and evidence all the checks done and the regularity of their review.

Due diligence at Laven Partners

Depending on the jurisdiction and client categorisation there are different levels of AML due diligence that are required prior to the on-boarding of a client. Laven Partners’ consultancy services operate on a global level and recognise the difficulties that have been echoed throughout the CBI’s report. Laven Partners have created and licence unique market leading regulatory technology that assists with and structures operational due diligence including for AML purposes.

Find out more about our Due Diligence services >

Call our London office  +44 (0)20 738 0010  Email  [email protected]

Regulatory Hosting

Laven offers a UK regulatory hosting platform which provides clients with the opportunity to conduct regulated activities as an Appointed Representative (AR).


Follow us on LinkedIn for company updates and the latest news.

Recent articles