Anti money laundering check
Family VIII · Regulation
Not to be confused with client money protection.
Anti money laundering check covers the due diligence a regulated firm applies to establish who its client is, who ultimately owns or controls the client, and where the money involved comes from. The specific documents, thresholds and record-keeping periods are set by national law and by the firm's regulator, so they differ between jurisdictions and between firms. Checks are repeated when the client's risk profile or activity changes.
What the check typically involves
Requirements vary by country and regulator, but an AML check generally combines several layers:
- Identity verification of the client, using documents or electronic data sources.
- Beneficial ownership tracing, to identify the natural persons who ultimately own or control a legal entity.
- Sanctions and politically exposed person screening against applicable lists.
- Source of funds and source of wealth enquiries, particularly for larger deposits or higher-risk clients.
- Ongoing monitoring of transactions against the expected profile, with periodic review.
Failure to complete a required check normally prevents the firm from opening or continuing the relationship.
Worked example: source-of-funds enquiry
A firm's procedures require enhanced checks when an initial deposit exceeds the threshold set in its own policy. The figures below are illustrative only.
Why the requirements are not uniform
AML obligations derive from national transposition of international standards, so the practical steps differ. A firm may be permitted to rely on simplified due diligence for a low-risk domestic client, while a client from a higher-risk jurisdiction may face enhanced measures. Record retention periods, reporting duties and the definition of a reportable transaction are also set locally. A firm cannot waive a statutory check because a client objects to it.
Often confused with
- client money protection
- An anti money laundering check concerns verifying who the client is and where the money came from, whereas client money protection concerns how client funds are segregated and held; the visible sign is that the AML check produces identity and source-of-funds records, while client money protection produces segregation and reconciliation records.
See also
- asic regulated broker
- broker insolvency
- broker license
- cftc regulated broker
- chargeback
- client money protection