FIC update clarifies risk-based approach to compliance

The Financial Intelligence Centre (FIC) has issued updated guidance to help Property Practitioners comply with a wide range of financial crime prevention rules based on a pragmatic, risk-based approach.

FIC’s recently issued Guidance Note 7B provides the latest updates of its guidance on how accountable institutions should apply the Financial Intelligence Centre Act (FICA).

While the update does not introduce major new obligations for property practitioners, it reinforces an important principle: effective FICA compliance starts with assessing risk, most importantly understanding your clients and remaining alert to potential financial crime.

Know Your Clients – applying a risk-based approach

Property practitioners work with a wide range of clients, including landlords, tenants, buyers and sellers. Guidance Note 7B reinforces the importance of understanding who your clients are, how they interact with your business, and the potential risk of money laundering, terrorist financing or proliferation financing that they may present.

In assessing each of these threats, FIC continues to promote a risk-based approach rather than a "tick-box" approach to compliance. This means due diligence measures should be proportionate to the specific risks presented by a particular client or transaction.

To accurately assess risk, agencies should maintain an up-to-date Risk Management and Compliance Programme (RMCP) and provide training to ensure staff understand how client risk assessments are performed.

Don't make assumptions about client types and risk levels

One of the stand-out clarifications in Guidance Note 7B is that under-served or low-income clients should not automatically be thought of as presenting a lower level of risk.

FIC's view is that estate agencies and other accountable institutions under FICA should assess the specific circumstances of the client and transaction before determining that a lower-risk classification is appropriate.

This is another useful reminder that risk ratings should be based on your agency's documented risk assessment methodology, and not on assumptions about a client's income, occupation, standing or background.

Simplified Due Diligence (SDD) still has a place

The FIC has also confirmed that SDD remains an important part of the risk-based approach.

Where a client or transaction genuinely presents a lower level of risk, agencies may still apply Simplified Due Diligence measures, provided this is supported by their RMCP and risk assessment process.

In other words, FIC is not expecting agencies to treat every client as high-risk. Instead, agencies should always be able to explain why a particular client or transaction has been assessed as low-, medium- or high-risk, and apply due diligence accordingly.

Stay alert to risk of terrorist and proliferation financing

Most estate agents are familiar with the concept of money laundering: criminals attempting to make illegally obtained money appear legitimate.

Guidance Note 7B reminds accountable institutions that there’s a much broader range of financial crime risks to remain vigilant to. These include terrorist financing, where funds are used to support terrorist activities, and proliferation financing, where funds or financial services contribute to the development or spread of nuclear, chemical or biological weapons.  

In a changing world with evolving risks, the message is not that estate agencies are expected to become experts in these areas. Rather, FIC expects accountable institutions to be aware of these risks as with any others, and to ensure they are appropriately considered in their compliance framework and RMCP.

How suspicious activity reporting works

The FIC's consultation feedback also provides a useful clarification regarding the reporting of suspicious activity within the business. The Centre confirmed that not every internal alert automatically results in a report to the FIC. Accountable institutions are expected to investigate unusual circumstances, exercise professional judgement and determine whether the activity is genuinely suspicious or unusual.  

For property practitioners, this reinforces the importance of knowing your clients, understanding what is normal in the context of a particular relationship or transaction, and recognising when something does not look right.

What should agencies do?

Most risk-aware agencies will not need to make significant changes as a result of Guidance Note 7B. However, this is a good opportunity to:

• Review your RMCP.

• Confirm that your client risk assessment remains fit for purpose.

• Ensure staff understand your agency's risk-based approach.

• Verify that suspicious activity escalation and reporting procedures remain effective.

• Consider whether money laundering, terrorist financing and proliferation financing risks are adequately addressed in your compliance framework.

Final thought

Guidance Note 7B is a timely reminder that FICA compliance is ultimately about understanding your clients and managing risk appropriately. Agencies that know their clients, apply proportionate due diligence and remain alert to unusual activity are already well on their way to meeting the FIC's expectations.

This article is intended for general information purposes only and does not constitute legal or compliance advice.