Common Weaknesses in Housing Association Anti-money Laundering Compliance

Whilst the number of suspicious activity reports made by housing associations to the National Crime Agency has historically been very low, housing associations have a key role to play in tackling economic crime. Money laundering can seem a bit of an abstract concept but when you consider it in the context of the underlying crimes and anti-social behaviour, it is clear to see the effect it can have on communities. 

Many housing associations are subject to the The Money Laundering Regulations 2017 (the Regulations) because they carry out ‘estate agency work’. This is a very broad definition and will include many businesses who do not consider themselves to be estate agents. Additionally, housing associations may fall within the scope of the MLRs by virtue of their FCA consumer credit permissions and being an Annex 1 financial institution, which requires registration with the Financial Conduct Authority (FCA).

In early March, the FCA delivered a public letter to all entities that are registered with and supervised by it in relation to compliance with the MLRs identifying four weaknesses in anti-money laundering  (AML) compliance. We have considered these four areas below:

(1) Business Model: the FCA identified significant discrepancies between firms’ registered and actual activities, and insufficient controls and resources due to not keeping pace with business growth. You should regularly review your business activities to ensure that your AML registrations are still appropriate. AML should also be a consideration in merger due diligence. You should ascertain what AML registrations any potential merger partner has and consider what policies, controls and procedures may be appropriate for a larger business.

(2) Risk Assessment: the FCA found weaknesses in both business wide risk assessments and individual customer risk assessments, including lack of detail, unclear methodologies, inarticulate mitigation strategies, lack of documentation and even complete absence of a risk assessment in some cases. Your AML risk assessment is a crucial document which should set the scene for your approach to AML. Any policies, controls and procedures you put in place around AML should  stem from the risks identified in the risk assessment. Risk assessments must be business specific and not generic and should consider, amongst other things, your geographical location and the profile of your customers. Any AML risk assessment must be written and should be reviewed regularly and at least once a year.

(3) Due Diligence, Ongoing Monitoring and Policies and Procedures: the FCA identified that lack of detail in policies creates ambiguity around actions that staff need to take to comply with their obligations under the MLRs.  In some cases they observed a lack of appropriately documented policies and procedures for investigating and recording suspicious activity. It is essential to have clear written policies and procedures around customer due diligence and reporting suspicions of money laundering. All relevant staff should be familiar with these processes. 

(4) Governance, Management Information and Training: the FCA observed a lack of resources, inadequate training and a lack of appropriate oversight from senior management. All relevant staff should be trained at least every two years and it is important to keep records of the type of training received and who has attended/ completed it. There should also be a clear audit trail for financial crime related decision-making within an organisation, with staff of sufficient seniority appointed as a money laundering reporting officer and money laundering compliance officer, where appropriate. 

The FCA requires all Annex 1 financial institutions to undertake a gap analysis against these four areas by 5th September 2024 and has indicated an intention to increase its proactive supervision in coming months.  You don’t need to send anything to the FCA to show the work you have done but they have flagged that in future engagements with relevant entities they are likely to ask for  the findings from the gap analysis, evidence of the actions taken to address the gaps identified, and the progress of any remedial work and testing to show that the policies, controls and procedures are effective and working as intended.

Whilst housing associations supervised by HMRC for AML are not required to undertake the gap analysis, the suggestions from the FCA provide a useful basis for all housing associations to assess and improve their AML and MLR compliance. 

If you have any further queries around AML compliance, please do not hesitate to contact Rachel Orgill-Harris.