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This page updates you on improvements to our anti-money laundering (AML) requirements and new guidance for financial advisers on combating money laundering.

In our experience, many financial advisers do not see money laundering as a significant risk to their business, mainly because most don’t handle client money. However, investment products are being used for ‘layering’ – that’s when criminals create a complex web of financial transactions to disguise the origin of the proceeds of crime. So you need to be alert to the possibility of your firm being used to launder money and ensure you have systems and controls in place to minimise this risk.

To do our bit, we have streamlined our AML rules to make them more effective, as part of our work to simplify the FSA Handbook. We have replaced the detailed AML rules with a broader requirement for firms to have risk-based controls on money laundering. The changes give you greater flexibility, enabling you to target resources to what is most likely to help deter and detect money laundering.

The changes came into effect at the beginning of March, with a transitional period until the end of August 2006 to give you time to become fully compliant with the new rules. The full text of the Policy Statement announces these changes, and includes the new Handbook material.

New guidance for firms

A good place to start is the new Joint Money Laundering Steering Group Guidance, which complements our rules. For the first time, there is specific guidance for financial advisers (available on the JMLSG website website under 'sectoral guidance'). This should be read in conjunction with Part 1 of the Guidance.

The Guidance is an essential tool if you are designing, implementing and monitoring risk-based AML systems and controls. Applying the Guidance in your firm can show that you have made the effort to meet our requirements to have systems and controls to deal with the risk of money laundering. Take a look at the Guidance, and make sure that you are aware of the range of new options it gives you, including:

• Identification of personal customers in some circumstances by using just a single document like a passport, rather than two as at present.
• The use of electronic ID verification methods. • New options for customers who don’t have documents like passports.
• Less reliance on ID checks, and more on ‘knowing your customer’.
• Reducing unnecessary duplication of ID checks, making life easier for your customers. In particular, product providers are encouraged to assume that you have properly identified the customer, removing the need for you to pass the provider copies of the ID documents.

What this means for your firm

The challenge now facing you is to take advantage of the opportunity to make life more difficult for the criminal while minimising inconvenience and cost to you and your customers. The likelihood is that this won’t be too costly or difficult for financial advisers because you know your clients and their business very well. It is unlikely that smaller firms will need expensive transaction monitoring software, for example. More important is having up-to-date customer information, so that you can spot anything unusual.

AML remains a high priority for us and it should also be for you. Effective defences against money laundering from firms like yours make a real impact in the fight against crime. We take lax procedures in firms seriously, and in the past we have used our enforcement powers to take action against firms with significant failings.

If you want to find out more about AML and financial crime, you can take our online course.