What is a MLRO?

The MLRO (Money Laundering Reporting Officer) plays a critical role in ensuring a financial institution's compliance with Anti-Money Laundering (AML) regulations. Their responsibilities span multiple areas, including monitoring and reporting suspicious activities, maintaining regulatory compliance and liaising with authorities.

1) Monitoring and Reporting

• Analyse transactions: MLROs are tasked with ensuring the monitoring of financial transactions to detect suspicious activities. This involves analyzing transaction patterns and identifying anomalies that could indicate money laundering. Anomalies can relate to changes in payment methods, for example from Direct Debit to cash or crypto currencies. It could also be suspicious to overpay a product or service and ask for a transfer of the overpaid amount to a different bank account¹.

• Review customer behavior: In certain situations customer behavior might be considered suspicious with a need for further review. For example in case a customer is reluctant to share identifying information, shares inconsistent information or is unwilling to disclose the source of funds if asked. In Insurance it could be suspicious if a customer cancels a policy soon after it has been on risk. There are numerous examples of suspicious behaviors and those need to be identified and classified depending on the industry at hand².

• File Suspicious Activity Reports (SARs): Once a suspicious transaction or activity is identified, the MLRO files a SAR with the relevant financial intelligence units or authorities (e.g., FinCEN in the U.S. or the National Crime Agency in the UK) within the required time frame, ensuring that potential money laundering activities are promptly investigated. While a MLRO may be involved in filling out parts of the SAR, they often rely on the compliance team’s inputs to complete the report. A SAR usually includes³:

  • information of sender
  • data on business relation (assets, PEP, contracting party, beneficial owner, power of attorney, third parties)
  • reasons for filing the report
  • transaction / behavior details
  • enclosures (e.g., identifying documents, account statements, KYC profile etc.)

2) Regulatory Compliance

• Implement and oversee AML policies and procedures: The MLRO implements and oversees AML policies and procedures like CDD and EDD which are outlined in AML regulations such as the FATF Recommendations⁴. The MLRO takes care that these procedures are applied correctly within the organization to ensure compliance with regulatory requirements. Especially when identifying high-risk customers who require EDD, MLROs provide guidance, based on factors like customer profile, transaction types, or geographical risks.

• Ensure compliance with regulatory changes: AML regulations are constantly evolving, and it is the MLRO’s responsibility to stay informed about these changes and adjust the organization’s AML policies and procedures accordingly. The MLRO ensures that the organization remains compliant with new AML related regulations, standards, and best practices by implementing necessary changes in a timely manner.

• Perform internal audits and compliance reviews: The MLRO conducts internal audits and compliance reviews to assess the effectiveness of the AML program. This includes checking the adequacy of record-keeping, the accuracy of risk assessments during CDD and EDD, and the overall effectiveness of transaction monitoring systems. Based on the findings, the MLRO makes recommendations for improvements and ensures that any deficiencies are promptly addressed, escalated or reported.

• Educate employees: MLROs oversee training programs to educate employees about AML regulations and their role in preventing money laundering.

3) Liaison with Authorities

• Establish a primary contact: MLROs act as the main point of contact between the organization and regulatory bodies. They cooperate with financial intelligence units or authorities during investigations and provide necessary documentation and information to support inquiries.
• Assume authority: An MLRO must have the authority to report to financial intelligence units or authorities without needing another individual's permission⁵.

The MLRO has a specialized role focusing especially on AML, while the Compliance Officer has a broader mandate covering all aspects of regulatory compliance within the organization.

• MLRO: The MLRO is usually a senior compliance role that holds significant responsibility, particularly focused on AML compliance and reporting obligations. The MLRO is often directly responsible for interacting with regulators and overseeing the organization's AML strategy. In many organizations, the MLRO reports directly to the board of directors or senior management, highlighting their senior status and the critical nature of their role.
• Compliance Officer: The Compliance Officer typically manages a broader range of compliance responsibilities, including regulatory compliance, data protection, and general adherence to laws and standards beyond AML. Compliance Officers may report to the Chief Compliance Officer (CCO)⁶.

The MLRO is a pivotal leadership role within service firms mentioned above. This position requires a deep understanding of compliance frameworks and AML practices, tailored to the unique needs and risk profile of the company. Successful candidates for this role typically have a strong background in compliance, law, accounting, or consulting, with experience in roles such as Compliance Manager or Deputy MLRO.

While prior leadership in a compliance role is advantageous, the most important qualifications are a thorough understanding of regulatory standards, hands-on experience in managing compliance programs, and a commitment to continuous professional development through relevant training. In addition to technical expertise, the MLRO must possess excellent analytical and problem-solving skills, along with the ability to lead others in AML and compliance practices. This role is crucial in safeguarding the integrity of the firm and ensuring that it operates within the boundaries of the law⁸.

In the UK, personal accountability for compliance failures, particularly within senior management roles, is a key focus of the regulatory framework. There have been numerous instances where both firms and their MLROs have faced separate disciplinary actions due to shortcomings in meeting AML obligations. UK MLROs are also required to produce an annual report that details the specific risk exposures faced by their business and evaluates the effectiveness of the controls in place to mitigate these risks. Additionally, the Senior Managers and Certification Regime (SMCR) has further strengthened the emphasis on personal accountability, making senior executives increasingly responsible for compliance outcomes¹⁰.

This focus on individual accountability is not unique to the UK. In the United States, for instance, directors, officers, or employees who willfully violate the Bank Secrecy Act (BSA) can face significant civil penalties. In 2020, this was exemplified by a consent order issued by FinCEN against a former senior staff member for their role in failing to prevent BSA violations¹¹.

Similarly, in Hong Kong, the Securities and Futures Commission (SFC) Regulated individuals may face fines up to HK$10 million or three times the profit gained/loss avoided due to 'misconduct' or being deemed unfit by the SFC. The severity of fines depends on factors such as the intentionality of the misconduct, the impact on market integrity, and any financial benefit derived by the individual. The SFC also considers whether the conduct was widespread, the individual's role in the misconduct, and whether the firm took remedial actions. Cooperation with the SFC and previous disciplinary records also influence the level of fines¹².

These examples reflect a broader global trend, as highlighted in Fenergo’s Fines 2022 Report, which found that fines for individuals rose to a total of $31.2 million from $16.5 million in 2021 for financial crime and AML-related breaches worldwide¹³.