A Money Laundering Reporting Officer or MLRO plays an important role in a financial institution’s battle against money laundering. All regulated financial institutions are required to appoint an MLRO who is in charge of the firm’s anti-money laundering policies and programmes.
An MLRO holds a key role in protecting the integrity of the financial system. The officer carrying out this function must make informed decisions as to whether a business is being abused to launder the proceeds of criminal activity or provide financial support to terrorists. If an abuse is found, the MLRO should also alert the authorities.
In this article, we will dive into the details of the role of an MLRO and the responsibilities attached to taking on the role.
Who is a Money Laundering Reporting Officer (MLRO)?
Also known as a nominated officer in some countries, a Money Laundering Reporting Officer (MLRO) works against the money laundering and financing of the terrorism framework. MRLOs are responsible for reporting on money laundering information or raise concern to the relevant authorities if required.
MRLOs decide on reporting that may affect a company’s relationship with its customer and exposure to criminal, legal, regulatory, and disciplinary action. They take sufficient responsibility to ensure that the business can access all client files and business information to make the necessary decisions.
The MLRO’s responsibilities could result in substantial legal ramifications, including civil and criminal penalties. If a firm’s AML protections are judged to be insufficient, the MLRO may face substantial fines and, in the worst-case scenario, a prison sentence.
Because the role of MLRO is so critical to a company’s success, it’s critical that senior executives understand and consider it carefully.
What does an MLRO do?
The UK’s Financial Conduct Authority’s handbook describes the role of a MLRO as the following:
- The job of the MLRO is to act as the focal point within the relevant firm for the oversight of all activity relating to anti-money laundering.
- The MLRO needs to be senior, to be free to act on his own authority and to be informed of any relevant knowledge or suspicion in the relevant firm.
- A firm must ensure that its MLRO has a sufficient level of seniority within the relevant firm; and has sufficient resources, including sufficient time and (if necessary) support staff.
- A firm must also ensure that its MLRO is able to monitor the day-to-day operation of its anti-money laundering policies; and respond promptly to any reasonable request for information made by regulators.
- An MLRO is required to consider Money Laundering reports and determine if there are any grounds to submit a Suspicious Transaction Report (STR) to enforcement agencies.
What are the duties of an MLRO?
According to the FCA, an MLRO has the following statutory responsibilities:
- Receiving internal reports of knowledge or suspicions about money laundering
- Taking reasonable steps to gain access to any relevant know your business information, such as a client’s financial circumstances or the financial circumstances of anyone acting on the client’s behalf; and the features of any transactions that the relevant firm has entered into with or for the client.
- Making external reports to authorities if he/she knows or suspects; or has reasonable grounds to know or suspect that a person has been engaged in money laundering.
- Obtaining and using national and international findings related to money laundering policies and programmes.
- Taking reasonable steps to establish and maintain adequate arrangements for awareness and training
- Making annual reports to the relevant firm’s senior management
In addition to the above, some key duties of the MLRO are the following:
- The officer should plan the legislation for the development of AML policies, systems, and procedures to ensure effective implementation.
- The officer must ensure its customers know and can execute Customer Due Diligence (CDD). It enables the person in question to know their customers.
- The officer should develop and implement an in-house AML programme for the purpose of training its employees.
- The MLRO should be able to evaluate the risk of money laundering, identify problems in compliance and analyse them.
- The officer should be sure that the AML guarantees sufficient proof or else the firm’s MLRO may be subject to higher fines or worse sanctions.
- The MLROs should also review the business’s internal policies, procedures, and professional relationships to ensure its systems are able to process and prevent any previously identified instances of proceeds of crime or funding of terrorism.
- MLROs have to advise the senior management about the risk exposure the businesses face from money laundering and how to manage that risk.
How to be an effective Money Laundering Reporting Officer (MLRO)?
In order to fit the Money Laundering Reporting Officer job description, the officer has to have the necessary experience and knowledge of the AML programme and be well suited with money laundering techniques.
Also, the person should be of sufficient seniority to take independent actions whenever necessary. Dedication, honesty and integrity are fundamental traits for an MLRO.
There are several requirements that a business must meet when considering the MLRO’s function within its overall organisational set-up.
Authority and independence
An MLRO should be in a position of sufficient seniority within the organisation to be able to make the essential decisions. They should not be under undue pressure to oppose decisions that they believe are ill-suited to defend the company from potential money laundering misuse.
They must be free of financial and other conflicts of interest. When deciding on the optimal course of action, contrasting functions or having one’s pay based on financial considerations can have an undue influence on an MLRO.
Access to information and confidentiality
Any decision taken by the MLRO must be well informed. Therefore, the MLRO is required to have access to any or all information the officer deems necessary to assess internal reports or to otherwise carry out any other AML functions that they are responsible for.
The MLRO needs to have a sound understanding of the day-to-day operations of the business. Outsourcing is prohibited due to the confidentiality that surrounds the work of the officer as the knowledge on reports made to authorities and on any request for information received from the same cannot be disclosed.
Understanding money laundering risk
A sound level of experience in all aspects of financial crime that could ultimately lead to money laundering must be included in the knowledge bank of an MLRO. MLROs must be able to recognise the money laundering risks that the company faces and how they might be exploited subsequently. This necessitates not just a solid knowledge of the company’s offerings and activities, but also a broad comprehension of a customer’s activities or behaviour.
With a thorough awareness of money laundering risk, the MLRO can assess if internal reports are legitimate and should be escalated by filing a STR with the FIAU. The MLRO will help the company avoid the risks of non-compliance as well as the otherwise costly weight of over-compliance.
An MLRO should know the concept of legal professional privilege since they might be required to disclose sensitive information with legal implications for the business and its employees. Knowing what information must be revealed, and when, is a central focus of the MLRO mandate. Keeping this in mind, while an MLRO does not necessarily need to be legally trained, knowledge of the field will always prove useful.
Are there ‘certified’ MLROs?
Not really. There is no such certification as of now. Seniority and authority in the AML subject matter the most when it comes to the appointment of an MLRO. The appointment of an MLRO must be notified and approved by regulators in many jurisdictions.
The role of technology in an MLRO’s job
Apart from necessary human resources, businesses should provide MLROs with technological resources to carry out his/her diverse range of activities and duties effectively. He should have necessary solutions for audit, analysis, managerial information and external reporting.
There are modern software solutions based on artificial intelligence and machine learning that can manage the end-to-end of AML compliance programmes including transaction monitoring, screening and customer due diligence such as the Tookitaki Anti-Money Laundering Suite. Our solution can not only improve the efficiency of the AML compliance team but also ease internal and external reporting and audit with its unique Explainable AI framework.
Speak to one of our experts today to understand how our solutions help MLROs and their teams to effectively detect financial crime and ease reporting.
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