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What is a money laundering reporting officer? (MLRO)

Author: Niall Hearty  7 March 2024
4 min read

The money laundering reporting officer (MLRO) is the person at a firm who has the oversight of all activity relating to anti-money laundering.

Money laundering is estimated to cost the UK economy more than £100 billion each year[1], and to help tackle the problem, it is mandatory for certain firms to appoint a MLRO under UK legislation.

Relevant Law

The key pieces of UK legislation which are in place to combat money laundering and terrorist financing are:

In the legislation, the MLRO is referred to as a ‘nominated officer.’

Which businesses require a MLRO by law?

In general terms, businesses that handle significant sums of money are required to appoint a MLRO. In legal terms, it is any business that is operating within a ‘regulated sector’ as defined by Schedule 9 of POCA. Examples include:

  • Banks.
  • Money services businesses.
  • Letting agencies and estate agents.
  • Art market participants.
  • High-value dealers.
  • Accountancy firms.
  • Legal service providers.

Who can become a MLRO?

The designated MLRO should be a senior level employee, based in the UK, who is free to act on their own authority. It is often a managing director or a senior partner who takes on the role alongside their other day-to-day responsibilities.  

The MLRO does not need to hold a specific qualification, but they must apply to their supervising body to be approved. That is usually their professional body, the Financial Conduct Authority or HM Revenue and Customs. 

The ‘supervising bodies’ are set out in Schedule 9 of POCA, and there is a list of the supervising bodies on the Government’s website[2]

What are the responsibilities of a MLRO?

The role of the MLRO is to keep the firm vigilant against the risks of money-laundering, terrorist financing and fraud. 

The MLRO is the person assigned to receive disclosures under the Terrorism Act, and under POCA 2002. In practice, they have a range of responsibilities, including:

  • Checking that Customer Due Diligence and Know Your Client procedures are being carried out meticulously and correctly on every client.
  • Reviewing Suspicious Activity Reports (SARs) and submitting them to the National Crime Agency (NCA) through their portal. More information on how to do this can be found on the NCA’s website.[3]
  • Developing anti-money laundering (AML) policies and procedures in line with any regulatory or legislative updates. The MLRO must conduct periodic reviews of the policies to determine their effectiveness.
  • Developing and implementing an in-house training programme on effective anti-money laundering.
  • Attending regular training on AML to stay up-to-date with the latest developments.
  • Making annual reports to the firm’s senior management about the firm’s AML efforts.

Failure to comply can lead to criminal and civil penalties, including a custodial sentence of up to two years, a fine, and/or sanctions from the regulator. 

What challenges do MLROs face?

While the MLRO’s role is fairly well defined, putting in place effective anti-money laundering has a number of challenges.

Complexities of AML

Tackling money laundering is complex, and that is why the MLRO role is often given to particularly senior people in the firm. One of the biggest challenges for the MLRO is understanding exactly what money-laundering risks face the firm, and considering how to mitigate against them.

Reliance on Employees Understanding the Risks

Once the policies are in place, they are only effective if all employees understand what is required of them to protect the firm against financial crime. The effectiveness of the policy is reliant on employees spotting the signs of anti-money laundering and reporting it. 

Particularly in large organisations, it can be a challenge to get the message across clearly to employees and encourage them to report suspicious activity. MLROs need to implement regular and thorough training to foster the culture of compliance, and emphasise the importance of raising any concerns employees have about potential red flags on a new client.

Reluctance to Turn Away Work

Many of the regulated industries reward their employees on performance metrics. This can create a tension in terms of AML compliance, as people may be reluctant to turn down clients that may be higher risk.

Sensitivities Around the Client Relationship

If an employee is concerned about the AML risk of a potential client, they will need to seek out additional verification. This can cause delays in beginning the matter, which can frustrate clients, especially if the matter is urgent. Employees may feel pressure to rush the process to keep a client happy.

Creating a Process for Ongoing Due Diligence

Regulated firms must carry out ongoing due diligence on all clients to assess changes to their risk profiles. Without a systematic process for doing this, many firms fall foul of the requirement for ongoing due diligence. The MLRO should impose a process for regular customer due diligence reviews, which might form part of the annual client review, for example.

Time Commitment

The role of the MLRO is time-consuming, and requires regular essential training alongside the daily obligations around supervision and reporting. Often the MLRO has other roles within the business too, and it can be challenging to dedicate sufficient time to each obligation.

Key Takeaways

It is mandatory for regulated firms to have a MLRO. But many firms underestimate the burden that the role places on an individual. Nonetheless, the MLRO carries out an important function in order to comply with the relevant legislation and make the UK a more hostile environment for financial crime. 

At Rahman Ravelli our experienced AML lawyers have the expertise to help you comply with your AML obligations. We have experience of supporting firms who may have unknowingly failed to comply with AML regulations. We can help you prepare your response to any allegations, which gives you the strongest possible opportunity to avoid fines, convictions and/or reputational damage.

Sources

  1. https://www.gov.uk/government/publications/economic-crime-and-corporate-transparency-bill-2022-factsheets/fact-sheet-information-sharing-measures
  2. https://www.gov.uk/anti-money-laundering-registration
  3. https://www.nationalcrimeagency.gov.uk/what-we-do/crime-threats/money-laundering-and-illicit-finance/suspicious-activity-reports
Niall Hearty C 07998

Niall Hearty

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Niall has a wealth of corporate crime expertise and an ability to coordinate global bribery and corruption cases. His achievements in such investigations have made him a logical choice for corporate clients.

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