Anti-money laundering: glossary of terms
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Do you know your AML from your KYC? How about EDD and SDD? This guide will provide guidance on the acronyms used by compliance professionals and what they mean.
| Term | Acronym | Definition |
|---|---|---|
| Adverse Media | AM | Adverse media, or negative news, is unfavourable news or information. |
| Anti-Money Laundering | AML | AML is a blanket term for the constantly evolving laws and regulations that are in place to prevent money laundering and other related financial crimes. Anti-money laundering controls seek to stop criminals from disguising illegally obtained funds as legitimate. |
| Beneficial Owner | BO | The beneficial owner as defined in regulation 5 of the MLR to a body corporate means; any individual who exercises ultimate control over the management of the body corporate; any individual who ultimately owns or controls (in each case whether directly or indirectly), including through bearer shareholdings or by other means, more than 25% of the shares or voting rights in the body corporate; or an individual who controls the body corporate. |
| Client Due Diligence | CDD | CDD is the collective term for the checks you must do on your clients, which may differ depending on the circumstances. It is holistic and is wider than simply undertaking the identification and verification of clients. |
| Client Risk Assessment | CRA | A client risk assessment must identify and assess the risks posed by an individual client. A client risk assessment must always be carried out at the beginning of a client relationship. The primary purpose of a client and matter risk assessment is to determine the level of client due diligence needed. |
| Criminal Property | Criminal property is the property that constitutes a person's benefit from criminal conduct. | |
| Enhanced Due Diligence | EDD | EDD is a set of additional measures aimed at identifying and mitigating the risk posed by high-risk customers and transactions. |
| Financial Action Task Force | FATF | The Financial Action Task Force leads global action to tackle money laundering, terrorist and proliferation financing. They set international standards aiming to prevent these illegal activities and the harm they cause to society. |
| Firm-Wide Risk Assessment | FWRA | A firm-wide risk assessment is to help you identify the money laundering risks your firm is, or could be, exposed to, and consider how any risks could be mitigated. Essentially, it will help your firm to take a risk-based approach to preventing money laundering. |
| Fraud | Fraud is defined as a criminal deception committed by a person who acts falsely and deceitfully. | |
| High-Risk Third Country | HRTC | The UK's high-risk third countries for anti-money laundering purposes are set out in the Financial Action Task Force's lists of 'jurisdictions under increased monitoring' and 'high-risk jurisdictions subject to a call for action'. For a current list of jurisdictions, visit FATF’s website. |
| Identification | ID | Identification of a client or a beneficial owner is simply being told or otherwise coming to know a client's identifying details, such as their name and address. |
| Know Your Client | KYC | Anti-money laundering (AML) policies and procedures are designed to establish the true identity of a customer and to identify normal and expected activities, as well as to detect any unusual activities. It's important to note that KYC (Know Your Customer) and CDD (Customer Due Diligence) are interconnected terms used to describe a firm's AML measures. Some suggest that CDD is a component of KYC, while others argue that KYC is part of CDD. One perspective is that KYC involves the initial identification and verification measures taken during client onboarding to determine normal and expected transactions. On the other hand, CDD utilises KYC information, considering the laws regarding money laundering, terrorist financing, and the overall financial crime risk of each client and matter. |
| Matter/Service Risk Assessment | MRA | A matter risk assessment should focus on the specific risk factors that a matter presents, beyond, or different to, the client risks already identified. |
| Money laundering | ML | Money laundering is how criminals make the proceeds of crime appear legitimate. |
| Money Laundering Compliance Officer | MLCO | Where appropriate to the size and nature of a firm must appoint a member of the Board (or equivalent) as being responsible for the practice’s compliance with the Regulations. The MLCO will bear the ultimate responsibility for any breaches of the regulations. |
| Money Laundering Regulations | MLR | This refers to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) as amended. |
| Money Laundering Reporting Officer | MLRO | A money laundering reporting officer is an employee appointed to oversee a firm's compliance with anti-money laundering. One of the main responsibilities of an MLRO is to report suspicions of money laundering or terrorist financing to the National Crime Agency as per legal obligations. |
| National Crime Agency | NCA | The National Crime Agency is a law enforcement agency in the UK. |
| National Risk Assessment | NRA | The NRA sets out the key money laundering and terrorist financing risks for the UK. |
| Office for Professional Body Anti-Money Laundering Supervision | OPBAS | OPBAS operates within the FCA to reduce the harm of money laundering and terrorist financing. It ensures high supervision standards by professional body supervisors. |
| Ongoing Monitoring | Ongoing monitoring involves regularly reviewing client transactions to ensure they align with our understanding of the client, their business, and associated risks. This includes keeping CDD documents up to date, scrutinising all transactions, staying alert for changes in risk assessments, and watching for suspicious activities like money laundering or terrorist financing. | |
| Open Banking | Open banking is a government-backed initiative which through using technology allows a consumer to safely and securely share their banking data with Thirdfort. | |
| Policies, Controls and Procedures | PCPs | Firms need to establish and maintain written policies, controls, and procedures to manage and mitigate money laundering and terrorist financing risks identified in the firm-wide risk assessment. They must also document their approach to compliance and practical AML activities. |
| Political Exposed Person | PEP | A PEP is someone who has been appointed by a community institution, an international body, or a state, including the UK, to a high-profile position within the last 12 months. |
| Proceeds of Crime Act 2002 | POCA | The Proceeds of Crime Act 2002 is an act of the Parliament of the United Kingdom which provides for the confiscation or civil recovery of the proceeds from crime and contains the principal money laundering legislation in the UK. |
| Red Flag | Red flags are warnings that there may be potential signs of fraud or money laundering. | |
| Risk-based approach | RBA | A risk-based approach is a core anti-money laundering compliance principle. In short, this refers to adjusting the level and type of compliance work done (frequency, intensity and/or amount), to the risks present. |
| Sanctions | Sanctions are restrictive measures that can be put in place to fulfil a range of purposes. | |
| Sectoral Risk Assessment | Professional supervisors must conduct a risk assessment for their sectors to help estimate risks for firms. | |
| Simplified Due Diligence | SDD | Simplifed Due Dilligence is the lowest level of client due diligence permitted and is reserved for those clients who pertain a low risk of money laundering or terrorist financing. |
| Source of funds | SoF | Source of Funds refers to the funds that are being used to fund the specific transaction in hand – i.e., the origin of the funds used for the transactions or activities that occur within the business relationship or occasional transaction. |
| Source of wealth | SoW | SoW describes the economic, business and/or commercial activities that generated, or significantly contributed to, the client’s overall net worth/entire body of wealth. |
| Suspicious Activity Reports | SARs | Suspicious Activity Reports alert law enforcement to potential instances of money laundering or terrorist financing. |
| UK Financial Intelligence Unit | UKFIU | The UK Financial Intelligence Unit has national responsibility for receiving, analysing and disseminating intelligence submitted through |
| Verification | V | Verification is obtaining evidence that supports a claim such as identity. |
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