A series of procedures have to be followed, usually involving the adviser having physical sight of a number of documents to confirm that the customer is who they say they are. It can be a timeconsuming and costly process, especially when business is not being conducted face to face.
If a paraplanner or administrator whose time might be costed at £25 per hour spends 45 minutes getting the copies and supplying them to the necessary parties, then over the course of a transaction this will cost a firm nearly £20.
Since December 15 last year, the 2007 Money Laundering Regulations, introduced to implement the third EU money laundering directive, have further complicated the process by introducing the obligation for advisers to carry out enhanced due diligence measures for higher-risk situations. These might include customers involved with offshore companies or trusts, or those identified as politically exposed persons and those on the HM Treasury sanctions list.
The joint money laundering steering group also believes that customer activity in certain secondary markets, for example, traded endowment policies, can carry an increased money laundering risk.
It is my understanding that many small firms are struggling with meeting these latest obligations which can be extremely time consuming.
Ironically, it has long been recognised by the JMLSG and regulators that the quality of forged documents circulating in the UK is so good that only the most experienced person could be expected to spot the difference between authentic and counterfeit documents.
Consequently, we have a process that is highly timeconsuming, delivers virtually no value and, in the vast majority of cases, is sufficiently flawed that it is highly unlikely that criminal activity would be detected.
If this information could be checked electronically and the information recorded in a way that could be used not only to maintain the advisers’ record but could also be shared with the product provider, then there must be an opportunity to reduce significantly the time spent and the cost of meeting these obligations.
Such services have existed for some time but use has, for the most part, has been restricted to insurers and mortgage lenders, as up to now, these organisations have been reluctant to rely on money laundering checks carried out by third parties.
The 2007 regulations also clarified the position concerning reliance on authorised third parties, so there is far more scope for advisers to streamline they way they conduct these checks.
To be fair to the JMLSG, they have long recognised that electronic anti-moneylaundering checks are a far more reliable mechanism than traditional methods. These normally work by the user entering information they have about the client into a system which then validates the information against existing databases. These include the electoral roll, credit reference databases and utility suppliers as well as authenticating driving licences and passports. In 2006, changes to the AML guidelines introduced the concept of an industry benchmark designed for use with electronic checks.
A new service at www.eidv.co.uk enables adviser firms to carry out electronic AML checks for a fraction of the cost associated with traditional methods and in line with advisers’ increased responsibility to take a risk based approach to due diligence.
Advisers who have registered with the service can carry out checks in seconds by completing three simple screens which capture client information. The service verifies the information with external databases so the adviser does not have to see the document but using data such as the driving licence or passport number can establish the identity of a person and verify the information is correct. As the users only have to confirm the numbers from the documents, this can be done over the phone.
Where the customer passes the ID check, a confirmation of verification of identity certificate is generated. This can be printed and posted to the provider or converted to a PDF document that can be forwarded electronically.
Eleven leading life offices – Clerical Medical, Friends Provident, Legal & General, LV=, Norwich Union, Prudential, Scottish Widows, Skandia, Standard Life, Winterthur and Zurich – have, I understand, agreed to accept this document electronically from advisers using the service without an additional wet signature, as have FundsNetwork and six fund management groups – F&C, Fidelity Insight, Invesco, Jupiter and New Star.
The present version of the service does not automatically convert the documents to PDF so users will need to have software on their computer to create the PDF. You could buy the full Adobe Acrobat creation software, but, at a list price of £395 plus VAT, this is expensive. There are a wealth of free PDF creation packages that can be downloaded from the web, so if you don’t want to go the just Google “free PDF maker”.
In addition, an identity verification report is published showing all the checks carried out and the alert lists checked. This includes the HM Treasury Sanctions list, Office of Foreign Asset Control and politically exposed persons list. Again, this can be printed as the adviser’s client record or created as a PDF as a more durable record.
Advisers registering to use the service pay an initial fee of £250 plus VAT which includes the first 25 checks. Subsequent client checks cost £1.50 plus VAT and are bought in blocks of 100 upwards. Alternatively, there is a version of the service now available on The Exchange at a cost of £2.50 plus VAT per check. It is important to remember that joint-life business would need a search on each life.
Even before the introduction of the additional due diligence requirements in December, I have long believed that checks of this type were far more costeffective for advisers than looking at paper documents. At these prices, having an independent report to demonstrate the full extent of enquires carried out is money well spent.