According to the Financial Action Task Force (FATF) - the independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing – Red Flags can be divided into four categories: client, source of funds, professional advice and the nature of the transaction.

AML checks, or Anti-Money Laundering checks, are a crucial part of the financial system and are required by various regulatory bodies around the world. These checks are designed to prevent money laundering, terrorist financing, and other illegal activities. The specific AML checks required may vary depending on the jurisdiction and the nature of the business.

Encouraged by both the FATF and the FCA, a risk-based approach requires that firms thoroughly assess the money laundering threat posed to their business and deploy an appropriate amount of resources to counter it. This is a proactive approach that should enable companies to detect and diffuse any risk of money laundering before it can take place, whilst using resources efficiently.

AML controls, also known as anti-money laundering controls, are measures put in place by financial institutions to detect and prevent money laundering activities. These controls aim to ensure that the institution is not unknowingly facilitating or participating in illegal financial transactions. AML controls typically involve the implementation of strict customer identification and verification procedures, monitoring of customer transactions for suspicious activities, and reporting of any suspicious transactions to the relevant authorities.

Anti-money laundering, or AML, refers to the wider processes and controls businesses use to prevent financial crime. Know Your Customer, or KYC, is one part of AML and focuses on identifying customers, verifying their identity, and understanding the potential risk they present.

Customer due diligence, commonly known as CDD, is the process of identifying and verifying a customer and, where relevant, their beneficial owners. It can also involve understanding the purpose of the business relationship, the expected nature of transactions, and the customer’s source of funds.

Enhanced due diligence, or EDD, is required when a customer or transaction presents a higher risk of money laundering or terrorist financing. This may include relationships involving politically exposed persons, complex ownership structures, higher-risk jurisdictions or unusual activity. EDD normally involves obtaining additional information and applying more intensive ongoing monitoring.

Ongoing AML monitoring is the continued review of a customer and their activity after the initial onboarding checks have been completed. It helps businesses identify changes in customer details, ownership, risk level, or transaction behaviour that may require further investigation.

PEP checks identify whether a customer is a politically exposed person, a family member of a PEP or a known close associate. Because these individuals may present an increased risk of bribery or corruption, businesses may need to obtain senior management approval, establish their source of wealth and funds, and apply enhanced monitoring.

Sanctions screening checks customers and businesses against relevant national and international sanctions lists. It helps organisations identify people, companies or entities that may be subject to financial restrictions and determine whether further investigation or action is required.

The information required will depend on the customer and the level of risk involved. Checks may include the customer’s name, date of birth, address, business or employment details, beneficial ownership information, source of funds and the purpose of the business relationship.

AML checks should be reviewed on a risk-based basis rather than treated as a one-off exercise. A new review may be needed when customer circumstances change, ownership details are updated, unusual activity is detected, or the existing information is no longer considered reliable.

AML software can bring identity verification, due diligence, risk assessment, screening, monitoring, and reporting into one central system. Automating routine checks can reduce manual administration, improve consistency and provide a clearer audit trail while allowing compliance teams to focus on higher-risk cases.

AML software can automate checks and highlight potential risks, but it does not remove the need for appropriate oversight. Businesses remain responsible for assessing risk, investigating alerts, and ensuring that their AML policies and controls are proportionate to the nature and complexity of their operations.