SPECIAL FEATURE: The perfect AML partner and how to find them – Armalytix

Special Feature: Richard McCall, CEO and co-founder of Armalytix, has written an article on whether financial and property services have found their perfect AML partner and how to find a matchmaker you can trust.

If you’ve ever been set up on a first date either via dating apps such as Hinge and Tinder or on a blind date through a friend, then you’ve used a “matchmaker”. While modern day matchmakers aren’t quite the same as those of more traditional times gone by, their purpose is one and the same: to couple up two previously separate parties with the intention of joining them.

Now, the financial services industry is in need of a matchmaker. Firms are being set up on multiple “dates” with sources of data from across the traditional, and now the crypto, worlds as it becomes subject to increased regulation. A strong matchmaker is needed to match up what the AML checks require and the relevant data sources from the client, providing fast and accurate checks that give precious time and confidence to firms.

If they are successful in selecting a good matchmaker, the process becomes much easier. It would be the start of a flourishing relationship between companies and those providing their AML checks.

Problems there for all to see

One example of a major AML problem lies in the UK property market. It has for many years been a money laundering hub, filled with profits earned through criminal activity. The government, however, is finally making moves to take control of the market.

The Economic Crime Bill, launched in response to Russia’s invasion of Ukraine, has fast tracked ideas that were originally discussed by David Cameron back in 2016. The Register of Overseas Entities (ROE), implemented in August, has been long awaited, and will help the UK to stop the flow of dirty money that seeps through the ‘laundromat’, as the London property market has become infamously named. The changes will make AML checks easier and more transparent, as it requires overseas owners to annually update their information, hopefully discouraging foreign owners from using the London property market for money laundering purposes, but it does throw up an additional problem for those conducting legitimate business in the property world.

As the government cracks down, regulators are beginning to demand more and more information from professional services companies, such as estate agents and conveyancers, about who their clients are and where their money is coming from to confirm that it is legitimate. This will require companies in the property world to have their due diligence checks up to scratch or risk reputational and financial damage.

Weighed down and under pressure

Many of these companies in the house buying and selling chain have not taken the warning of reputational damage seriously, and despite the clear failures of AML checks, more than two thirds of estate agents haven’t upgraded their AML checks to be fully electronic. They are instead sticking to paper records, a surefire way to allow criminals to hide their crimes in plain sight and make a mockery of any steps forward the government tries to make. Criminals can prey on time poor employees, hiding amidst the vast quantities of paper trails that conveyancers and estate agents must scan, allowing them to make sure that their crimes are undetected and continuing their reign of terror over the London property market.

Paper records, therefore, are clearly not the answer, and as the gap is bridged between the crypto and the traditional finance world, with crypto firms now having to be registered and comply with the Financial Conduct Authority’s Money Laundering, Terrorist Financing and Transfer of Funds regulation (AML/CFT), crypto wallets will only add to the paper pressure. The digital asset will be brought more under the government’s control, but for already weighed down employees in the property world, this added data source will likely tip them over the edge, unless society’s obsession with using paper changes quickly.

A good matchmaker is required

Luckily, there is an easy solution. By using Open Banking alongside crypto wallets, AML check companies can become engines of proof, acting as a data sharing bridge between the customer and the intended recipient. They can easily access multiple data sources, which can then be collated into an easy-to-read report for firms to complete any compliance or due diligence checks. By leaving the background regulation checks to those who get it not only ensures the company’s compliance on the AML front, but it also gives them more time to focus on value-add activities.

Happily ever after?

Traditional financial services are already on the back foot when it comes to these checks, as they are still attempting to follow the paper trial to figure out the truth. The merging of crypto is only going to add further issues for them, as they must now take the new asset class into account for checks. The government is clamping down on foreign ownership, so there needs to be a strong process in place to ensure that money is legitimate, and owners are who they say they are.

All these data sources, from crypto-wallets to personal data, to multiple bank accounts and pay slips will need to be pulled together into easy-to-read accounts. This is where the matchmaker will earn his dollar – pulling all these data sources together and ensuring that the traditional finance and crypto blind date is truly successful.