AML Responsibilities for ARs: What You Need to Know

Who is Responsible for Conducting AML checks?

AML is a term we hopefully all understand. Its premise is to be aware of where a client’s money is coming from so that businesses can avoid being complicit to financial crime.

There is confusion surrounding who holds the responsibility to conduct AML checks when operating as an Appointed Representative (AR), is it you- the AR- or your Principal Firm? This short blog aims to provide a consolidated resource for your AML duties as an AR and to hopefully educate you on who constitutes a client for AML purposes and what best practices should be followed.

Ultimately, the responsibility is carried by the Principal Firm as a matter of law (Financial Services and Markets Act (FSMA) 2000)¹ and this is how the FCA sees it, but whether you are a corporate advisor, VC/PE fund (conducting corporate transactions), or fund distributor/placement agent, you as an AR or related party have AML duties and would still need to treat the corporates, funds and investors you deal with as clients or associated parties for AML purposes. In fact, the proposed changes to Section 39 of FSMA² will increase the scrutiny over Principal Firms and the ARs themselves over their own failures, if any. These changes could come in as soon as 2026 if the consultation progresses as expected.

Who counts as your client for AML purposes?

It depends on the type of AR you are:

Corporate Advisors

• Corporate clients raising capital.
• Investors approached to invest in deals, even if they don’t pay you directly. There is debate over whether this counts as a client, but the FCA classes it as such, and it would be best practice to do so.
• Corporates you make personal recommendations to.

Venture Capital / Private Equity Funds

• The GP of the fund.
• Although not clients naturally, portfolio companies in which the fund invests would be subject to due diligence and thus AML checks to avoid breaches of law and reputational damage.

Fund Distributors / Placement Agents

• Fund managers (GPs).
• The fund itself, including directors or beneficial owners.

Within their Policy Statement 22/11 (PS22/11)³, the FCA makes clear that even as ARs grow and consider applying for direct authorisation, it will be relevant to demonstrate having had strong systems and controls, especially for AML. This is something that can be developed whilst working under a Principal Firm and is vital to demonstrate you are capable of “delivering good outcomes”, which will increase the chances of a successful authorisation. Weak AML processes today may delay or derail your future application.

What process should be followed for AML checks?

“Firms are required to take a risk-based approach to customer due diligence and ongoing monitoring under the Money Laundering Regulations.” – FCA⁴

The answer unfortunately, is “it depends”. You need to apply a risk-based approach, and it depends on who your clients are- are they Politically Exposed Persons (PEPs)? Are they based in a high-risk jurisdiction? Are they offering high-risk products? Such parameters, among others, will trigger Enhanced Due Diligence (EDD), a process which requires additional checks on top of the Standard Client Due Diligence (SDD). However, just because a client is classified to be higher risk, this does not mean you cannot do business with them; it just means that you need to have the right policies and risk assessments in place, along with strong systems and controls to execute them.

This is where doing AML is worth it commercially, as it grounds you to onboard more clients depending on profiling and being able to demonstrate that the right checks have been performed.

In all cases, you will need to:

• Identify your client (individual/corporate, investor, fund, GP…).
• Verify their identity using reliable documentation or digital checks.
• Screen them against sanctions, enforcements, PEPs, and adverse media databases.
• Understand their ownership and control structures.
• Document your process to demonstrate compliance to your Principal Firm and, if asked, the FCA.
• Conduct ongoing monitoring to pick up any future adverse events in real-time, as frequently as required by risk profiling.

Can I just do a Google search to meet my regulatory requirements?

This is something we have heard a lot, and the regulator is cracking down on firms which only perform an adverse media check using Google or another search engine. It is a time-consuming approach, prone to human error and very hard for a person to search through such vast amounts of data manually, not to mention being able to demonstrate that you did. If your client is involved in a scandal abroad, it is unlikely you will find out unless it makes headlines in a UK publication, for example, unless the search is driven that way.

There is an array of tools available to automate this process, for example, with Leo, you can automatically scan global publications, filter out the false positives and receive translated extracts in English, ensuring that you do not miss a thing. One thing to note, only performing a Google search would probably be a red flag in the eyes of the FCA. It should only be treated as a supplementary activity to a broader search utilising technology.

ARs that embed technology for AML screening gain the following:

• Regulatory protection by safeguarding yourself and your Principal Firm from FCA scrutiny or enforcement.
• Reputation and trust from investors, corporates, and fund managers which are reassured when they see robust due diligence.
• Deal certainty by uncovering red flags before they derail a transaction.
• Operational efficiency by using technology for checks, which saves time and cost versus remediation later.
• Future-readiness by implementing robust systems which make your business more resilient and help prepare for direct authorisation.

How can Leo help me?

“Over 250 ARs already use Leo to undertake their compliance duties ” – Jerome Lussan, Leo RegTech CEO

We have condensed over 20 years of experience in building AML frameworks for financial services firms into one straightforward process all embedded in one central questionnaire. The questionnaire can be completed by the AR or the client/target firm. It is simple to use and includes tips and guidance to assist anyone through the onboarding process. It will prompt for relevant documentation so that it is uploaded and collated in the same end report. The questionnaire even self-adapts as answers flow through to gather the required information on individuals, corporates, funds, or fund managers .

Using the questionnaire, you will be able to run your AML checks, categorise the client, as well as conduct screening to identify sanctions, enforcements, PEPs and adverse media. Each step of your onboarding process is documented as evidence for your Principal Firm and when needed, the regulator.

Over 250 ARs already use Leo to undertake their compliance duties, we are the most trusted compliance tool in the space. The software was designed with ARs in mind from the outset, meaning you will have access to a system that is proportionate to your needs. For £1,000 per annum, we can provide you with an AML package to onboard and continuously screen your clients covering 200 such searches.

Summary

In short, AML is a crucial part of running a professional and trusted financial business. By carrying out AML checks on the corporates, funds and investors you deal with, you protect both yourself and your Principal Firm, avoid unnecessary risks, give confidence to the people you want to do business with and even improve your chances of a future FCA approval if that is what you wish for. Robust systems and controls will provide you with a much stronger application and a track record of compliance to evidence.

For £1,000 per annum, we can provide you with an AML package to onboard and continuously screen your clients.

At Leo, we have more than 20 years of experience in delivering compliance excellence. We are internationally recognised, featuring in the RegTech 100 list and have been named “Best Solution of Digital Transformation in Regulatory Compliance” by the European RegTech Insight Awards.

Get in touch today by emailing [email protected] or by following the link below to book a call with us.

We do a lot more than just our Client Onboarding Solution with AML checks, if you are interested in our other solutions the please find out more here: Compliance Monitoring Solution, Employee Compliance Solution, Online Training Solution

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1. FSMA 2000 Section 39 ↩︎
2. Policy Statement: The Appointed Representatives Regime ↩︎
3. Policy Statement 22/11 (PS22/11) ↩︎
4. FCA – High-risk customers, including politically exposed persons ↩︎