Real Estate Agents Advised to Ramp up AML Measures
The Swedish national risk assessment report on money laundering 2021 confirmed the risk exposure of real estate agents. Scoring on risk level 3 out of 4, estate agents are subject to significant money laundering risk. The risk level is defined according to threat, vulnerability and risk. Generally, the national report says, the awareness or competence level is low.
Now the Swedish Estate Agents Inspectorate (FMI) says it is looking to increase supervision and its efforts to support the industry to step up their gear.
In a recent press release, the FMI states that the industry is struggling to grasp and comply with regulatory requirements and that routines, tools and operational procedures are needed to manage AML obligations. The financial intelligence unit confirms very few suspicious activity or transaction reports are submitted by brokerage companies, while on the other hand conceding several cases where estate agents consciously or unconsciously contributed to money laundering.
The new Real Estate Agency Act (2021:516) came into force on July 1, 2021. Estate agents that are fully registered or have a special registration for rental brokerage are thus obliged to comply with the Money Laundering Act. However even prior to 2021, AML compliance has been a legal requirement for individual estate agents. Certain obligations now rest with the agency (the legal entity) and some with the individual agent (the physical person).
With the Act comes the legal obligations to conduct a proper general risk assessment, document and effectively implement AML routines and guidelines for KYC (know your customer), monitoring, reporting and processing of personal data. Companies are further by law obliged to ensure personnel safety, preventing threats, and ensure guidelines and routines for internal control.
According to the FMI, the sector lacks necessary competence and capabilities to identify and report suspected transactions and activities.
In other words, real estate agents are lagging compared to other industries. Internationally property investments is one preferred modus for money laundering amongst financial criminals. Unless Sweden is an exception from the international experience, it is likely that once risks are assessed, processes review and inspections by the FMI are made that the industry could be in for an awakening.
The FMI is clear about the requirement on estate agents to be able to demonstrate a risk-based approach, saying that it is not just about having documents in place to avoid penalties and penalty fees. Measures must be adapted to the risks that exist in the operations of a company. Only then will AML efforts become effective and efficient.
The warning signs may be explained on several levels. As always, the tone at the top and level or awareness of both business risks and regulatory requirements. Another challenge may be the organizational and incentive structures within the sector that may not be conducive to a pro-active approach against money-laundering.
Looking ahead, with increased supervisory efforts by the FMI expecting estate agents to demonstrate functioning AML programs, there are plenty of good practices to leverage from other sectors and the AML community at large. While efforts need to be ramped up, a lot of companies are also concerned about escalating AML compliance costs.
There are a couple things most estate agents are well placed to consider at this juncture:
- Know your customer for real, not just on paper. Understand the typologies specific for your business and make sure to maintain an updated customer risk classification which aligns with your general risk assessment.
- Expedience and an effective KYC process will require smart systems and robust third-party data, i.e. information that is not provided by the individual customer itself. Meanwhile, the customer still must participate in the process. Just like any company in other sectors, brokerages need to carefully scrutinize their KYC process and data quality.
- Stress-test the implementation of your AML program through a mock supervisory inspection or “artificial washing”. With a view to the increased focus on effective implementation, this is a tactical means to achieve assurance.
- Take a strategic look at your options to optimize AML compliance costs through better systems or outsourcing of the entire KYC and transaction monitoring processes. An increasing number of agencies opt to outsource their AML controls and compliance function, to focus on their core business while having assurance of effective controls, regular know-how transfers and anchored expertise steadily available.
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