The mandatory compliance and audit function

What does a compliance officer do?

A compliance officer ensures that the firm complies with applicable laws and regulations. This may include data protection legislation, as well as compliance with Anti-Money Laundering (AML) legislation within the organisation.

The compliance officer operates independently from the management board and performs various duties relating to AML, including:

• Drafting the AML and risk policy.
• Supervising internal procedures and risk management within the firm.
• Providing advice on AML compliance-related matters.
• Reporting periodically to the partners/management board.
• Acting as the contact person for the supervisory authority.

More information about the compliance function can be found here.

When is a compliance officer mandatory?

Depending on the sector and the size of the organisation, different obligations apply: 

1. Tax advisers, civil-law notaries and accountants:

   1. More than 50 employees on an annual basis.
   2. Where the risk policy shows that more than 75% of clients or transactions have a high-risk profile.

2. Law firms:

   1. With fifty or more solicitors on an annual basis: always mandatory.

   2. With 10–50 solicitors: mandatory where at least 50% of matters per year involve AML regulated services.

   3. With fewer than 10 solicitors: no separate compliance officer required; solicitors themselves are responsible for compliance.

3. Investment institutions: Depending on the nature and size of the institution.

Please note that the “nature and size” of a practice consists of multiple factors. In addition to the number of employees, this includes the number of clients, high-risk clients and assets under management. If your client base contains a relatively high proportion of high-risk clients, you will also require a compliance officer.

A compliance officer does not necessarily need to be employed internally. The function may also be outsourced. In that case, ensure that the compliance officer safeguards quality and complies with the firm’s specific policies.

What are the benefits of a compliance officer?

Even if you are not obliged to appoint a compliance officer, it may still be beneficial to do so. A compliance officer ensures that your firm always complies with applicable laws and regulations. Risks are identified and addressed at an early stage. This helps prevent potential fines and reputational damage, whilst strengthening the confidence of clients and investors.

Would you like to know more about our external AML compliance officer service? Please contact us.

In addition to the compliance function, you may also be subject to an obligation to conduct an external AML audit. The next section of this article explains this in more detail.

What does an external AML audit involve?

An external auditor will speak with several employees, review relevant documentation and then carry out a sample review of client files. During an external audit, the auditor will assess, among other things:

• The AML policy and risk analysis.
• Compliance with AML training obligations.
• A sample of files, including checks on:
  • Client identification (completeness and documentation).
  • Classification of (non-)AML-regulated services.
  • Determination of the UBO (Ultimate Beneficial Owner).
  • Screening and risk classification with supporting rationale.
  • Ongoing monitoring.
  • Reporting of unusual transactions.

The obligation to carry out an external audit, like the obligation to appoint a compliance officer, depends on the nature and size of the institution.

In addition, the same requirements apply as for the appointment of a compliance officer, with one exception: law firms with 10 to 50 solicitors must assess, based on the nature and size of the practice, whether an external audit is necessary.

Please note that the “nature and size” of a practice consists of several factors. In addition to the number of employees, the number of clients, high-risk clients and assets under management also play a role. If your client base contains a relatively high number of high-risk clients, you will therefore also be required to conduct an external audit.

What are the benefits of an external audit?

An external audit provides insight into the level of AML compliance within the organisation and helps identify areas for improvement in order to better comply with legislation. It also optimises internal processes and helps prevent sanctions from the supervisory authority where the audit outcome is positive.

Most common shortcomings in an AML audit

Common shortcomings identified during an audit include: insufficient documentation of client due diligence and risk classification, an inadequate or incorrectly implemented AML policy, insufficient monitoring of transactions and risk profiles, and inadequate compliance with training obligations within the organisation.

Would you like to know more about how to bring AML compliance within your organisation up to standard? Please contact RegLab for advice, an external compliance officer or an external audit.