Banks, Building Societies and Credit Unions provide products and services to personal and business customers.
These offer a range of products and services from the provision of basic bank account facilities, saving and investment products, and loan and credit products through to complex products for commercial business customers.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with the banking sector include:
A high risk that the proceeds of crime will pass through banking accounts at all stages of the money laundering process
The provision of account/transaction products and services to cash-generating businesses is a particular area of risk
Lending where there is an acceleration of an agreed repayment schedule, either by means of lump sum repayments, or early termination
Loans are made in one jurisdiction, and collateral is held in another
Investment management includes both discretionary and advisory management of segregated portfolios of assets (securities, derivatives, cash, property etc.)
Discretionary managers are given powers to decide upon stock selection and to undertake transactions within the portfolio as necessary, according to an investment mandate agreed between the firm and the customer.
Advisory relationships differ in that, having determined the appropriate stock selection, the manager has no power to deal without the customer’s authority. In some cases, the customer will execute their own transactions in light of the manager’s advice.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with the investment management industry include:
Funds (incoming and outgoing) may be handled by a third party, such as a custodian or administrator
Unexpected inflows/outflows of third party payments
Use of offshore trusts and companies as investment vehicles by customers
PEPs and customers from higher risk jurisdictions
Financial planners and advisers give customers advice on their investment needs (typically for long-term savings and pension provision) and selecting the appropriate products.
Financial planners and advisers either only give advice or they act on behalf of their customers in dealing with a product provider.
The typical customers of financial planners and advisers are personal clients (including high net worth individuals), trusts and companies.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with the financial planning sector include:
Criminals may seek to conduct their financial activity through a planner or adviser to disguise their involvement
Criminals may seek out planners and advisers as gatekeepers to the financial system to give the impression of respectability and legitimacy
Criminals may seek the assistance of planners and advisers to obscure who really owns or controls the funds and assets (that is, the beneficial owner)
Stockbrokers carry out transactions in securities with market counterparties, as agents for customers.
Some stockbrokers deal with high volumes of low value customer transactions, whereas others direct their services towards higher net worth customers, and thus have fewer customers.
Whilst stockbroking might be regarded as being of lower risk compared to many financial products and services, the risk is not as low as providing investment management services to the same types of customer from similar jurisdictions.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with the stockbroking sector include:
Stockbroking customers may adopt a variety of trading patterns making the identification of unusual behaviour difficult
Customers can quickly buy and sell in the markets which may create breaks in the audit trail
The firm is offering no advice and may have little or no knowledge of a particular customer’s motives
Customers are also free to spread their activities across a variety of brokers for perfectly valid reasons, and often do. Each broker may therefore actually have little in terms of transaction history from which to identify unusual behaviour
Many firms provide stockbroking services on a non- face-to-face basis, including via the internet
SUPERANNUATION AND PENSION FUNDS
Superannuation and pension products and services present various levels of vulnerability. Lower risk products include eligible rollover funds and defined benefits funds where they do not allow members to make contributions.
Higher risk products include accumulation funds and post-preservation accounts, which allow relatively easier movement of funds.
However, specific characteristics make the sector vulnerable to ML/TF and predicate crimes.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with the superannuation and pension fund industry include:
Extremely large number of member accounts and volume of transactions
Low levels of member engagement
Voluntary contributions to accumulation accounts by members, where the source of money is difficult to verify
Payments to members and outgoing rollovers that are vulnerable to fraud and illegal early release
A growing reliance on online delivery of products and services, resulting in less face-to face interaction with customers
The use of third parties and intermediaries
WEALTH AND ASSET MANAGEMENT
Wealth or asset management is the provision of banking and investment services in a closely managed relationship to high net worth clients.
Services will include bespoke services tailored to a client’s needs and may be provided through a range of products available to the client.
The availability of complex products and services that operate internationally within a reputable and secure wealth management environment that is familiar with high value transactions is attractive to money launderers and other criminals.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with the wealth and asset management industry include:
Wealthy and powerful clients may be reluctant or unwilling to provide adequate documents, details and explanations
Clients often have many accounts in more than one jurisdiction, either within the same firm or group, or with different firms
The transmission of funds and other assets by private clients often involves high value transactions, requiring rapid transfers to be made across accounts in different countries and regions of the world
Fintechs provide financial products and services to personal and business customers.
These offer a range of products and services from the provision of basic bank account facilities, saving and investment products and loan and credit products through to complex products for commercial business customers.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with the fintech sector include:
There is a high risk that the proceeds of crime will pass through the products and services offered by fintechs at the layer and integration stages of the money laundering process
The non-face-to-face provision of account/transaction products and services presents a particular area of risk, including bank accounts and lending products as well as Buy Now Pay Later.
HOW CAN CUSTOS ADVISORY HELP?
With over 50 years of expert knowledge and real world experience our AML/CTF compliance services solutions will help you to navigate your legal and regulatory requirements so that your business complies with its’ AML/CTF obligations in the fastest and most cost-effective way.
Custos Advisory provides a range of AML/CTF services and solutions to support your business in becoming AML/CTF compliant and maintaining compliance.
Our services and solutions allow you to tailor support based on your capacity, experience and budget.
