MLROs in Housing Associations: Is it a role in its own right or just a badge?
The Money Laundering Regulations 2017
The Money Laundering Regulations 2017 (‘the Regulations’) set out what regulated firms must do in order to comply with their AML obligations. These include requirements in relation to client due diligence; risk assessments; policies, controls and procedures; and staff training. It also includes the requirement to have a Money Laundering Reporting Officer and, if appropriate, a Money Laundering Compliance Officer; with the identity of the post-holders being notified to the relevant regulator within 14 days.
Do housing associations need an MLRO?
The extent to which housing associations are caught by the Regulations is a bit of a grey area and is beyond the scope of this article. Whilst it is best practice to comply with the Regulations as if they applied fully, housing associations do not need to register for money laundering supervision where they fall only into the Charities & Public Sector Bodies category, as they do not carry out activities “by way of business”.
However, most housing associations will appoint an MLRO because the importance of the role in the fight against financial crime is recognised as being important, and/or because certain activities have required them to register for supervision. However, the lack of consistency across housing associations can mean there is little support and guidance for MLROs in this sector, and the job of the MLRO can become downgraded to an ancillary part of an existing role rather than a role in its own right. In reality, it is a very senior and responsible position within an organisation, and in our experience it is unlikely to be possible to carry out the role effectively in addition to another full-time role.
What do MLROs do?
The role of the MLRO is most associated with receiving reports of knowledge or suspicion of money laundering from staff and reporting them to the National Crime Agency (‘NCA’). Failure to make such a Suspicious Activity Report (‘SAR’) is a criminal offence under the Proceeds of Crime Act 2002 (which applies to housing associations even if the Regulations do not), and the MLRO also has a personal liability if they fail to disclose information to the NCA.
The MLRO is also responsible for setting out the policies, controls and procedures designed to combat financial crime; ensuring that all staff at all levels receive adequate training on AML; conducting and reviewing the organisational risk assessment; ensuring that adequate CDD is undertaken; liaising with staff where a SAR has been made and/or a Defence Against Money Laundering has been requested; conducting audits; and reporting to the Board about the organisation’s AML compliance.
The MLRO might also wear the hat of the Money Laundering Compliance Officer (‘MLCO’), whose job it is to embed a culture of AML compliance; liaise with the regulator as appropriate; and who bears ultimate responsibility for breaches of the Regulations.
The consequences of the MLRO wearing the badge rather than fulfilling the role
One of the main problems that arises when the MLRO does not have sufficient time to devote to the role (because it is not the person’s ‘main’ job – they are simply wearing the MLRO ‘badge’), is that risk areas are not identified (a good example is the lack of fraud detected by housing associations (Nothing To See Here White paper), and/or staff do not know how to spot them.
This means that comparatively few reports are made to the NCA and presumably this is why the NCA does not consider it necessary for housing associations to have their own SAR code to use when making reports. This in turn means that the NCA has little meaningful data about how much money laundering there is in the sector or how it presents, and housing associations do not then see financial crime as a key risk issue for their audit and risk committees or have the benefit of using this information to make their financial crime controls as robust as they can be.
Support for MLROs in housing associations
Appointing a senior member of the business as an MLRO is a critical step to ensuring that housing associations comply with their AML obligations (or demonstrate best practice where they are not caught by the Regulations); and it should not be underestimated how much the role entails in order to carry it out effectively.
Tenet will be publishing a practical guide to help MLROs navigate the role and ensure that housing associations are doing their bit to combat financial crime.
If you are interested in receiving the practical guide, please email paula.crowther@tenetlaw.co.uk to register your interest.
