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Laundry

Simplifying the anti-money laundering process could deliver major benefits to advisers, providers and consumers.

The current process is cumbersome and expensive for practitioners and often frustrating for consumers.

Last November, I wrote in this column about the constructive fresh approach that the FSA was advocating for anti-money-laundering checks in its document ID, Diffusing the issue. At that time, I pointed out that the Adviser Forum would be holding a conference to look at how the industry could take advantage of these proposed changes.

On February 22, senior compliance and e-commerce staff from nine major adviser firms, nine life and pension companies, seven fund managers or supermarkets and five software providers attended this event and heard speakers from the FSA and the joint money laundering steering group give their latest views on anti-money laundering procedures.

There has tended to be a view that electronic checks are in some way inferior to paper-based identification and verification but the reverse is true. Forged paper documents of outstanding quality can be easily bought from a wide range of websites whereas electronic checks can, in fact, be shown to be far more reliable.

Chris Eridani-Ball, from the FSA’s financial crime policy unit, emphasised during his presentation the FSA believes “electronic checks can be part of a smarter agenda” and “the FSA thinks there is a lot of potential for using electronic verification”.

For the most part, money laundering processes being used in the industry were designed last century. Criminals are using the latest state-of-the-art technology so if we do not start working smarter we must be at a disadvantage. If we do not embrace the technology to keep up the quality, then money laundering procedures could deteriorate. No one who attended the meeting could be in any doubt that the regulator recognises this.

In the near future, the joint money laundering steering group will be putting forward a draft of new guidelines for consultation which it would appear are likely to encourage e-verification.

That is not to say that firms cannot already use electronic means to meet their money laundering obligations. From as early 1991, there are references to the use of electoral roll and credit reference checks.

The February 2001 JMLSG guidelines identify the options to use “alternative or supplementary” means to documentary evidence.

By using electronic processes, it is possible to carry out money laundering checks in minutes. Paper can be taken out of the process and far more detailed checks can be made than is possible with the present process of seeing and copying documents.

Electronic money laundering checks are one of those rare situations where everybody can win. The new processes are both cheaper and easier for all concerned but they also deliver a higher standard of checking based on long-standing records built up over a period of time rather than just a snapshot of documents as they appear on a given date.

Having said all this, it does not mean widespread adoption of electronic money laundering services will be plain sailing. Currently, there is no agreed industry model or benchmark which advisers can work to in the certainty that all product providers will take a consistent approach.

There is healthy competition within the market place with four main e-ID&V providers in the market. Two of those firms – Equifax and Experian – are very big established players in a range of credit services.

There are also two significant new players emerging, Call Credit and GB Group, which are offering innovative services.

In preparing for the conference, the Financial Technol-ogy Research Centre con- ducted meetings with all four of these organisations to examine their services and compare the operational methods and data services used. Copies of this study were provided to delegates. Advisers and providers will want to choose the suppliers which can best meet their needs but it is important to minimise situations where an adviser might carry out checks with one e-ID&V provider only to find the life office or fund manager uses a different service which produces a different result.

It is important to recognise that taking an electronic approach does not mean that you cannot revert to paper where necessary.

Some of the services are now being increasingly successful, with e-ID&V rates in the 90 per cent-plus range. Where a client cannot be identified electronically, traditional processes can be adopted but the failure of electronic checks could be taken as a clear flag of a possible higher level of risk which may need to be investigated more thoroughly. To address this and other issues, a group of major advisers, life and pension offices, fund management groups and fund supermarkets have agreed to work together to identify a consistent approach to e-ID&V. It was clear from the conference there is clear support for this.

Financial services is not recognised for welcoming change. In this instance, we have the chance to improve radically upon a process and have the clear support of the regulatory authorities to do so.

Both the FSA and the JMLSG should be applauded for their vision in recognising both the need and opportunity for the industry to work smarter.

The benefits will not be restricted to the money laundering process. By working smarter and removing paper, we also make it far more attractive for advisers to process new business electronically. Given the option of a paper application accompanied by paper money laundering which might take weeks to gather or an electronic process which can have laundering checks done in minutes,I suspect that a lot of advisers would start finding electronic submission more attractive.

There will be challenges in making this a reality but I believe that by working together these can be overcome. It will be essential to have everyone involved – all stakeholders, compliance, legal, risk as well as e-commerce. Judging by the response at the conference, this can be done. Organisations wanting to taking in the Adviser Forum work to achieve a consistent approach to money laundering or receive a copy of the comparative study of e-ID&V providers should contact me at ian.mckenna@ ftrc.co.uk

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