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Small and medium-sized IFA firms often assume their anti-money laundering (AML) risk is low. After all, most advisers know their clients personally – some for decades - and transactions are done through reputable providers. However, FCA reviews have shown that AML weaknesses are rarely about deliberate wrongdoing. More often they stem from familiarity, reluctance to challenge, and poor documentation.
For small and medium IFA firms, the concern is not that policies do not exist, but that they aren’t applied consistently or proportionately. Here are some commonly missed AML red flags, and why they matter more than many firms realise.
1. ‘We’ve known the client for years’
Long-standing clients can easily be considered as low risk, leading to common issues such as outdated client risk assessments, source of wealth not being regularly reviewed despite a change in circumstances, making assumptions of their needs based on personal relationships.
However, this can lead to complacency. It’s important that ongoing monitoring continues to be risk-based and proportionate, regardless of how long the client relationship has existed.
2. Source of wealth vs Source of funds
Most firms will be old hands at capturing source of funds for a transaction, but can often fail to understand and record their client’s overall wealth accumulation. Typical gaps in this area can include:
A clear, credible narrative should be on file explaining how the client built their wealth over time, proportionate to the risk.
3. Third party payments and introductions
Third party involvement is a common blind spot. Examples include:
For IFAs, any third-party funding should be clearly documented, justified and risk assessed, particularly where the relationship between parties is informal or unclear.
4. Inadequate ongoing monitoring between reviews
Annual reviews are often treated as the only AML “touchpoint”. This could mean that some indicators are missed, such as sudden changes in employment or business ownership, or significant increases in contributions.
AML monitoring should ideally be embedded into the advice lifecycle, not just limited to review meetings.
5. Staff not escalating concerns
In small firms, the adviser will often act as relationship manager, risk assessor and decision maker. This can reduce internal challenge, and common issues include:
It is important to ensure regular training for all staff on the escalation procedures within the firm, and to demonstrate a culture that supports challenge.
6. Poor AML record keeping
FCA reviews often identify incomplete AML files, missing risk assessments and undocumented decisions.
The quality of a firm’s AML documentation could be seen as a proxy for their overall compliance culture, so it’s important that this area is robust and well documented.
Final thoughts
For small and medium IFA practices, effective AML is not about complex procedures. It’s about:
Most AML failures aren’t down to firms ignoring the rules, but because good processes aren’t followed consistently once familiarity creeps in.
Are you confident that your AML framework would stand up to FCA scrutiny? Or could client familiarity be creating blind spots? If in doubt, it could be time for a practical review.
Our expert team is here for you – just give us a quick call or book a chat, and we’ll get started with an AML health check.
Sam boasts 20 years' experience in Financial Services, and has a real penchant for all things regulatory (yes, really!), making her a compliance connoisseur.
