ICAEW finds 1 in 5 firms falling short on AML - are you one of them?

Nearly one in five accounting firms supervised by the UK’s largest accountancy regulator failed to meet anti-money laundering (AML) standards, according to a new report. The Institute of Chartered Accountants in England and Wales (ICAEW) found that 19.3% of firms reviewed were non-compliant with AML regulations, up from 15.6% in the previous year.

The findings, released in ICAEW’s annual AML Supervision Report for 2023/2024, highlight ongoing challenges in the sector’s fight against financial crime. The regulator, which oversees about 11,000 firms, sanctioned 39 practices for AML weaknesses, imposing fines ranging from £560 to £8,000 and totalling £92,025.

The increase in non-compliance rates comes as ICAEW has tightened its monitoring approach. The regulator now focuses more on the effectiveness of firms’ AML procedures rather than just technical compliance. This shift has raised the bar for what constitutes satisfactory AML controls.

ICAEW’s risk-based supervision model targets resources towards firms deemed to present higher money laundering risks. High-risk firms are reviewed every two years, while those considered lower risk may only face scrutiny every eight years. In the past year, the regulator initiated 1,088 monitoring reviews, with 35% of these focusing on high and high-medium risk firms.

The report identified several key areas where firms fell short. The most common failing was a lack of ongoing customer due diligence, affecting 36.7% of non-compliant firms. This was followed by ineffective verification procedures (34.4%) and inadequate firm-wide risk assessments (27.9%).

The regulator also found that 27.4% of non-compliant firms had ineffective client identification procedures. In some cases, firms failed to properly identify all beneficial owners or fully understand the nature of their clients’ businesses.

ICAEW’s analysis pointed to several root causes behind these compliance failures. These include a lack of understanding of risk, firms assuming “it will never happen to me,” insufficient resources allocated to AML compliance, and a general lack of knowledge about regulatory requirements.

To address these issues, ICAEW has ramped up its educational efforts. The regulator provided a range of resources to help firms improve compliance, including webinars that attracted 2,753 attendees and short educational videos that garnered over 26,000 views. Its AML film, “All Too Familiar,” has been streamed more than 40,000 times.

The report also highlighted changes to ICAEW’s disciplinary framework, which came into effect in June 2023. The updated system allows for non-financial sanctions, such as mandated training for firms or individuals found to be non-compliant. It also broadened the threshold for interim orders, giving the regulator more tools to protect the public during ongoing investigations.

Looking ahead, ICAEW plans to continue evolving its supervisory approach. The regulator announced a thematic review on firm-wide risk assessments for 2024/25, recognising this as a critical area where many firms struggle.

The report comes against a backdrop of increased scrutiny on the role of professional services in combating financial crime. The UK’s Economic Crime Plan 2023-2026 recently introduced a universal definition of ‘professional enablers,’ describing them as individuals or organisations providing professional services that enable criminality, either deliberately or through negligence.

While ICAEW’s report shows that outright facilitation of money laundering remains rare among its supervised firms – with only one member excluded for this offense in the past year – the regulator stressed the importance of vigilance.