The 2017 Money Laundering Regulations (MLR 2017) have been drafted and were published just last week. Set to come into effect from June 27, the regulations around anti-money laundering (AML) and counter terrorism financing (CTF) will remain a focus for governments across Europe and globally for the foreseeable future. The regulatory environment has been getting stricter and this trend continues with MLR 2017 and AML5 coming further down the line.
The new money laundering regulations aim to provide greater transparency in financial transactions, making it easier for authorities to identify those institutions that may be deliberately or inadvertently engaging in money laundering activities. They have wide-reaching impact, affecting customer due diligence, vetting of politically exposed persons, risk assessments and the ways in which beneficial owners are identified. MLR 2017 will have substantial impact on how law firms onboard new customers.
The regulations will result in law firms enforcing customer due diligence processes in a more robust manner. Falling foul of the regulators could be costly, in addition to the inevitable reputational damage that would follow.
Another reason we can expect to see the Solicitors Regulation Authority focus on the know-your-client (KYC) processes of firms increase is because as a direct result of these new regulations the UK government, in conjunction with the Financial Conduct Authority, has committed to the creation of a new Office for Professional Body Anti-Money Laundering Supervision. This will have an overarching responsibility to strengthen the UK’s supervisory regime by improving co-ordination between AML supervisors and with law enforcement.
Employing regtech solutions will be key to transforming AML-CTF compliance into a competitive advantage
Some argue that the additional demands of AML and CTF regulations potentially slow down the onboarding process for law firms, and place undue burden on firms, lengthening the time and resource required before they can begin billing. Furthermore the necessary task of upskilling staff when new regulations are introduced and remediating the existing client base is a growing cost to firms.
What is certain is that implementing MLR 2017 will require firms to rethink their current approaches to KYC as new technology and improved processes are called for.
Compliance could be transformed by the use of digitisation and there is now a huge opportunity to achieve a competitive advantage if your firm can streamline KYC processes as part of onboarding and AML-CTF compliance. In response to increasing regulatory oversight and supervision, many firms have simply created processes that combine point computer systems with the manual work of reviewing and duplicating information, and because these are not end-to-end processes they remain fragmented, inefficient and will not scale.
Firms that can automate the KYC process will save time and money in the onboarding of customers. Regtech software enables KYC checks of corporate clients to be completed up to ten times faster and with substantial cost-savings. Through the use of web-based technology, an audit trail is also created, which drastically reduces the opportunity for human error and evidences consistent adherence to policies across the firm, from fee earners to associates or analysts.
Importantly, regtech firms can also assist law firms to scale their operations without increasing their compliance headcount. By enabling automation and refreshing policy checks in bulk, technology can be a lever for differentiation of service and containing costs.
The benefits of a visible audit trail, cost-reduction, removing human error, accelerating onboarding and ensuring consistent policy adherence make it imperative that regtech becomes a key priority for law firms in 2017. A huge opportunity exists for firms that are willing to address the 2017 Money Laundering Regulations with new approaches to their KYC processes. Employing regtech solutions will be key to transforming AML-CTF compliance into a competitive advantage.
