AML Customer Due Diligence

The customer due diligence process for accountancy firms is a statutory requirement under anti-money laundering rules. In practice, however, the same process determines which clients the firm actually works with, and therefore the level of risk, profitability and culture the business develops over time.

The AML risk based approach shapes the client portfolio

Every customer due diligence decision is also a decision about which clients the firm chooses to onboard, retain or terminate. The questions asked, how risk classification is carried out and when the firm says no all create a pattern that defines the client portfolio. This is not only about regulatory compliance, but about the types of businesses, ownership structures and business models with which the firm wants to be associated.

A firm that consistently accepts higher risk in order to “avoid losing the deal” will quickly build a client base with significantly greater regulatory and reputational risk. By contrast, a firm with a clearly implemented, risk-based customer due diligence process will, over time, tend to develop a cleaner, more predictable and more easily auditable client base.

Legal starting points – the AML risk based approach

Anti-money laundering legislation requires accountancy firms to work on a risk-based basis. In brief, this means that the firm must:

• Carry out a general risk assessment of the business
• Carry out individual risk assessments of clients and engagements
• Adapt customer due diligence to the level of risk
• Monitor and reassess client relationships on an ongoing basis

The AML risk based approach leaves room for judgement, but responsibility for those judgements rests with the firm. Customer due diligence procedures must therefore be not only legally sound, but also clearly anchored in management’s view of which clients the firm wants to work with.

From “all clients are welcome” to deliberate selection

Accountancy firms that have historically had a culture in which every new client is seen as welcome have exposed themselves to risk. Anti-money laundering rules mark a shift: some clients are simply not possible to assist, even where they would generate revenue.

Customer due diligence therefore becomes a practical tool for deciding which clients to accept, as a means of maintaining and developing a high-quality client portfolio. It also makes it clearer to employees why certain engagements cannot be accepted.

When commercial interest and customer due diligence collide

In practice, tensions often arise between business development and compliance. Typical situations include:

• A potentially highly profitable client with a complex ownership structure and limited transparency
• An existing client whose business has shifted towards higher-risk sectors
• Owners or management who want to “give the client a chance” despite insufficient information
• Employees who perceive customer due diligence questions as disruptive to the relationship and therefore avoid them

Without clear principles from management, the firm risks different client managers making their own assessments. This leads to uneven quality in customer due diligence and makes it difficult to justify why some clients are allowed to continue while others are rejected.

Make customer due diligence part of the firm’s strategy

The key is to elevate customer due diligence from an operational “paper requirement” to part of the firm’s overall strategy. Practical steps may include:

• Defining which types of clients and sectors the firm actively wants to work with, and which are excluded or require special review
• Linking risk classification and client approval to management or board level where the risk is higher
• Clarifying in the procedures when client relationships must be reassessed or terminated
• Training employees in how customer due diligence can be communicated professionally without damaging the relationship
• Using customer due diligence data, such as risk levels by sector, as a basis for decisions on service offerings and resource allocation

When the customer due diligence process is integrated into commercial governance, it becomes easier to stand by difficult decisions. Management can then demonstrate that a rejected client is not “lost revenue”, but a deliberate risk reduction aligned with the firm’s strategy.

How does the AML risk based approach affect culture, brand and recruitment?

The clients a firm works with affect not only risk and regulatory compliance, but also how the firm is perceived both externally and internally. A clear position on customer due diligence signals order, integrity and professionalism. This can be decisive when recruiting experienced employees who do not want to operate in grey areas, and when building trust with serious clients that are themselves subject to strict regulation.

Conversely, an “everything can be solved” attitude to customer due diligence risks creating a culture in which employees learn to deprioritise rules when they get in the way of the deal. Over time, this can become a greater threat to the firm’s brand than any single sanction.

Final reflection and practical support

For accountancy firms, customer due diligence is not only a matter of avoiding sanctions under the anti-money laundering framework, but a way to govern the clients around which the business should be built. By making the customer due diligence process clear, consistent and embedded in the firm’s strategy, it becomes easier to make difficult decisions, resist short-term interests and build a sustainable client portfolio for the long term. At morlings.se, you can find more information on how your firm can obtain support from lawyers with experience of both the anti-money laundering framework and commercially focused governance.