Confusion remains over the role of a Money-laundering Reporting Officer (MLRO). We've reviewed mainstream practices to identify key responsibilities.
While our focus is on UK MLROs, the role of an AML compliance officer is not all that different in other jurisdictions, especially across the EU, where the risk-based approach stands at the core of a financial crime risk mitigation programme.
The role of MLRO in the UK was enshrined in law in 2007. But over a decade later, even the definitions from institutions, including the Law Society, can seem ambiguous or vague at best.
Many think the first task is to undertake a financial crime risk assessment. It's not. Step one is to get clear guidance from senior management on the firm's overall risk assessment and risk appetite, as these are the primary drivers for the financial crime risk assessment.
An MLRO needs clear written guidance on the risks their firm has identified, the appetite to take on the various risk levels and a commitment to provide adequate resources to manage these risks.
Everything from there on follows a relatively structured model.
The financial crime risk assessment has to reflect the overall risk assessment. Even though the MLRO will be tasked to develop and maintain a firm's financial crime policy and procedures in response to the risk assessment, it is important to point out that the Board and Senior Management always remain ultimately accountable.
Therefore, the MLRO needs sufficient authority and seniority to challenge any frontline or senior management decisions that may conflict with the firm's risk appetite and subsequent controls.
If the MLRO decides that something needs reporting, the MLRO must not be overruled, yet unfortunately, it still happens. Management can update the risk assessment, risk appetite and subsequent controls to support a different view, but these changes must be reasoned and documented.
We've created a checklist of the 20 key responsibilities that may fall under the MLRO's remit. Every firm has a different organisational structure. You can use the list for a self-assessment to help you create the role from scratch or benchmark your existing setup.
Not really. Even though some claim to be 'qualified' MLROs, there is no such qualification. Seniority and authority come with experience, and a firm's senior management fully backs the MLRO even when the MLRO's stance is not commercially attractive.
Often, MLROs are isolated, as the other team members in advisory, due diligence or monitoring-type financial crime roles simply don't have the same level of accountability.
Effective training and communication are not enough. The Board must promote a culture where compliance is not just a good thing but an essential part of the firm's cultural fabric. Too often, firms run AML courses for everyone without ensuring that the training focuses on understanding the risks the firm is exposed to and how to deal with unusual and suspicious activity.
Senior management needs continuous and focused training to understand their individual accountability in the context of financial crime. Finally, a firm needs to have a clear and comprehensive training strategy that ensures that its financial crime teams (including the MLRO) are equipped to stay informed of regulations and evolve with the ever-changing regulatory and criminal landscape.
It may sound exciting and flattering to be offered an MLRO position, but the selection process should be two-way. The senior management must convince you of their support. This will be vital in the first six months, when uncomfortable conversations may occur.
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