ICAEW Practice Assurance Monitoring 2024
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The ICAEW has published its Practice Assurance Monitoring Report 2024, which summarises the results of more than 1,300 practice assurance reviews it carried out in 2023. The main area of focus during these reviews was anti-money laundering (AML) procedures.
In this blog, we take a look at a selection of the key findings and look ahead to ICAEW’s areas of focus for 2024.
Overall outcomes
Despite compliance with the practice assurance standards being critical for ICAEW firms, only 10% of those subject to on-site reviews in 2023 were found to have no matters requiring attention, with the portion being higher at 23% and 32% for telephone and desktop reviews respectively.
6% of firms subject to on-site reviews were reported to the practice assurance committee due to the findings identified. These included issues with anti-money laundering compliance, incorrect use of the description ‘Chartered Accountants’, issues with practising certificates, PII issues and failures to submit annual returns.
Anti-money laundering (AML) findings
Practice Assurance reviews focussed on AML compliance in 2023. The key findings from this area of focus were:
- The role of the money laundering reporting officer (MLRO)
All firms had a MLRO in place, and were confident that staff in the firm knew who they (and deputies, where applicable) were. 18% of MLROs though had not undertaken training specific to the MLRO role and 37% had not consulted externally as part of their role. Concerns were also raised by the ICAEW about MLROs not having sufficient time to undertake this essential role. Mercia can help with specialised training and our AML technical query service. - Firm-wide risk assessments
The vast majority of firms had a firm-wide risk assessment in place (which is a mandatory requirement), which was prepared by the MLRO (in consultation with different service lines and officers of the firm) and approved by the management board. In most cases, this was updated annually and there was a clear link with the firm’s CDD procedures. Firms should focus resources on the services and clients that have the highest risk of money laundering. - Sanctions
Whilst it is not mandatory to screen all clients against sanctions lists, it is essential to have appropriate risk-based policies for doing so. 68% of firms screened all new clients against sanctions lists at take on and 46% had rescreened all existing clients. 11% of firms identified at least one client in the last year that had been sanctioned – a figure that is perhaps higher than might be expected. - Prohibition of accountancy services to Russia
82% of firms had taken action to identify clients connected to Russia and considered the services provided to those clients. 15% of firms had disengaged from clients where they felt they may be prohibited from acting. Ensuring engagement teams are aware of the need to communicate possible client connections to Russia so these can be captured and considered on a timely basis is important to reduce the risk of inadvertent breaches. - Suspicious activity reports (SARs)
97% of MLROs felt confident that staff make the necessary reports, with 33% saying there were service lines that generated more reports than others. Accountants are still submitting far fewer reports than other regulated industries though. It’s extremely important that the decision to report (internally and externally) is carefully documented as it could be challenged by law enforcement and professional body supervisors.
Other findings
Unfortunately, the top five findings were unchanged from last year, highlighting the need for firms to take action to address deficiencies in these areas:
- Money Laundering Regulations
A worrying 47% of firms had deficiencies in this area. The most common findings were basic in nature – failures to update CDD and properly risk assessing clients being the most common. The ICAEW publishes a separate AML Supervision Report which is a useful read. Using an appropriate package such as the ICAEW Anti-Money Laundering Service can aid compliance with the regulations. - Clients’ Money Regulations
Lack of bank trust letters, lack of clients’ money compliance review, not using designated accounts where so required by the regulations and using office accounts to hold client money were the most common issues. Firms are advised to carefully review the regulations and regularly check their compliance. - ICAEW records and annual return
Not notifying ICAEW of changes to firm structures within the required timeframe and making errors on the annual return were the most common issues. Firms must ensure that where there are changes, ICAEW is notified promptly (usually within 10 business days). The annual return must not be used as a way of notifying the ICAEW of such changes. - Basis of fees and complaints, and engagement letters
Not informing clients of the basis of fees they would be charged, or the firm’s complaints procedure were the most common findings. Both of these can be easily included in an engagement letter. - Referrals and commissions
The most common issue was gaps in accounting for unregulated commissions and/or referral fees. Typically this is where firms have failed to inform clients in writing of the amount of commission / referral fee received and/or retaining it without obtaining client consent to do so.
Areas of focus for 2024
For its Practice Assurance reviews in 2024, the ICAEW is focussing on the use of AI and eligibility. With regard to the use of AI, reviewers will be discussing procedures firms have in place surrounding the use of such tools as ChatGPT and AI driven co-pilots in particular. These will include consideration of how client confidential data is being protected and how the firm is establishing the accuracy of the outputs of such tools. With regard to the other area of focus, eligibility, reviewers will be asking questions around firm structure and how firms keep on top of changes and compliance with relevant requirements.
How can Mercia help?
Mercia’s Practice Assurance – Regulatory Feedback training course will cover these areas and more and is available as a Mercia Live course on 14 November and on demand from 20 November 2024. Last year’s course is already available to view.
Mercia also offers a range of other training courses, support products including manuals and reviews to aid compliance with the regulations and offers a comprehensive technical query service for advice on your specific circumstances, including AML queries.