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AML Risk in the TCSP sector

11/08/2022

Some in the TCSP sector believe their AML and sanctions risk profile is much lower than other financial institutions due to their limited financial exposures.

But the hard truth is that the underlying AML risk could be inherently higher. A client could be just one layer sitting among multiple corporate entities that conceal ultimate ownership, which is why robust, risk-based AML programmes are particularly crucial for TCSPs.

In 2021, the Institute of Chartered Accountants in England and Wales (ICAEW) reviewed its members in its Trust and company

service providers (TCSPs) thematic review 2021

and unearthed multiple deficiencies in TCSP AML processes.

Consequently, the institute, as the AML supervisor of no less than 11,000 firms, Recommended numerous improvements:

  • Ensuring registered addresses haven't been hijacked
  • Questioning the requirement for multiple nominee shareholdings or directorships and requesting additional details when asked to act as a nominee shareholder or director
  • The requirement to carry out firm-wide AML risk assessments
  • Improve the training of staff about red flags, risks, and customer-enhanced due diligence
  • Better onboarding procedures to better recognise risks

Another challenge for TCSPs is that providers depend on third-party service providers to execute trust and agency activities, highlighting the importance of know your vendor (KYC) due diligence. This has become increasingly important as many Western countries are now intent on prosecuting violators to the full, regardless of how unwitting a party they may be.

This zero-tolerance approach is resulting in even greater scrutiny of compliance cultures and TCSPs will now find themselves among those on the front line.

UNITED KINGDOM