Caroline Clark, insolvency compliance consultant, director of RMCSC and a fellow of the Insolvency Practitioners Association and R3, explains how Regulation 21 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 can be beneficial to insolvency practitioners.

Insolvency practitioners and judging the success of anti-money laundering policies

Insolvency practitioners take their anti-money laundering responsibilities very seriously, carrying out business wide risk assessments and setting up anti-money laundering policies, controls and procedures. However, it can be difficult to assess the success of these policies, controls and procedures. This is made even more difficult as there is still only limited guidance and training for insolvency practitioners about anti-money laundering compliance.

Since 2017, compliance with much of the anti-money laundering legislation has been regulated. The recognised professional bodies (RPBs) are supervisory authorities for the purpose of anti-money laundering regulation and anti-money laundering compliance is now included in monitoring visits. Much of the anti-money laundering legislation is structured around identifying risk and then bringing in systems to reduce that risk as far as possible.

As with insolvency regulation, if there has been a breach of legislation then the office holding insolvency practitioner is in a much stronger position if they can be show that the breach had already been identified and action was taken to correct any errors and prevent the breach of compliance from happening again.

What is Regulation 21 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017?

Regulation 21 (Reg 21) of The Money Laundering, Terrorist Financing, Transfer of Funds (Information on the Payer) Regulations 2017 (MLR) requires internal controls to be brought in to reduce the risk of inadvertent involvement in a money laundering offence. These internal controls include the well-known appointment of a nominated officer, who will effectively manage the firm’s anti-money laundering procedures.

The most useful internal control brought in by Reg 21 MLR is the independent audit which establishes the effectiveness of the firm’s anti-money laundering policies, controls and procedures. This is exactly what is needed to establish the success of anti-money laundering systems, and Reg 21 MLR even makes it a requirement that the audit includes recommendations on the anti-money laundering systems.

It may seem unusual to think that anti-money laundering legislation can be used for the benefit of insolvency practitioners, but Reg 21 audits can be of real practical use. An office holding insolvency practitioner who can tell their RPB that they have carried out Reg 21 audits and made changes to their anti-money laundering systems as a result should be in a much stronger position as regards anti-money laundering regulation than if the audits had not been carried out.

Are anti-money laundering Reg 21 audits a statutory requirement?

Reg 21 MLR starts with the statement, ‘Where appropriate with regard to the size and nature of its business’, and this applies to the appointment of a member of the board as the person in the firm who is responsible for compliance with anti-money laundering legislation and also to carrying out Reg 21 audits.

Therefore, if a firm has decided that it would be appropriate for a member of the board to be appointed to be responsible for anti-money laundering compliance then it seems reasonable to expect that the same firm should arrange for anti-money laundering Reg 21 audits to be carried out.

Reg 21 MLR itself excludes insolvency practitioners who work on their own with no employees or associates from the requirement to carry out anti-money laundering Reg 21 audits. Insolvency practitioners working on their own may still have Reg 21 audits carried out on their anti-money laundering systems to take advantage of the opportunity to learn about how compliant they are but the statutory requirement is not the same.

Although anti-money laundering Reg 21 audits are a statutory requirement, they are also internal controls for the office holding insolvency practitioner and there is no legal requirement for the report or recommendations arising from the Reg 21 audit to be shown to anyone outside the firm.

Summary

Everyone who is subject to MLR must carry out a Regulation 18 business-wide risk assessment and then establish anti-money laundering policies, controls and procedures to mitigate the risks identified during the risk assessment. The requirement for all these processes to be specific to the business concerned means that it is very difficult for generic documents bought in from a compliance provider to be fully compliant.

Anti-money laundering compliance can be improved easily by ensuring that the findings of the Regulation 18 risk assessment are reflected in the anti-money laundering policies, controls and procedures and by including anti-money laundering Reg 21 audits as an important internal control. 

About the author

Caroline Clark is an insolvency practitioner, director of RMCSC, and a fellow of the Insolvency Practitioners Association and R3. She established RMCSC in 2013, providing consultancy advice for insolvency practitioners about compliance with insolvency and anti-money laundering legislation, including Reg 21 audits.

See also

Place an insolvency notice

Changes and trust in the insolvency profession

What to know about the reforms to the regulation of insolvency practitioners

Find out more

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (Legislation)

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Publication date

4 April 2024

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.