Why Credit Unions need to ensure their AML processes are fit for purpose

Unlike banks, which have customers and are owned by shareholders, Credit Unions are financial co-operatives which provide savings, loans and other financial services to their members. Credit Unions are owned and controlled by the people who use them, and therefore, the emphasis is on service, not profits.

Membership of a Credit Union is usually based on a common link - for example, working for the same company or in the same industry, or living in the same area - and can be a financial lifeline for their members.

Credit Unions are restricted in terms of the range and complexity of products they can offer, so tend to predominantly offer simple savings and loan products - although some do offer insurance and even mortgages. This lack of functionality and flexibility - combined with the fact that you have to be a member to use these services - means they are not necessarily seen as high risk in terms of money laundering.

However, large volumes of cash transactions go through Credit Unions, and often, they have only a few administrative staff and no dedicated AML officer; these factors, alongside the assumption that Credit Unions are unlikely to be targeted by money launderers is exactly why their AML and compliance processes need to be robust, as Martin Cheek, Managing Director of SmartSearch explains.

“In many ways, the nature of Credit Unions makes them lower risk - all the members know each other, and therefore anything suspicious would be picked up quicker than in a bigger organisation. But equally, the more ‘manual’ nature of a Credit Union’s processes, and the trust the members have in one another can make them much more vulnerable, enabling bad actors to take advantage and infiltrate their way in using fake information, or by stealing a genuine member’s ID.

SmartSearch offers an all-in-one AML solution, with identification, verification, screening, record keeping and ongoing monitoring all from one platform. Our ongoing monitoring service ensures that, as well as checking all new members at onboarding, every member is continually monitored against real-time global watchlists so that if their PEP, RCA or sanctions status changes, the Credit Union is alerted immediately.

The platform - which can be used as a standalone system or integrated into existing databases, from desktop or remotely via phone or tablet - has been designed to fit any firm’s budget by offering the same functionality no matter the volume of checks being processes, making it affordable for even the smallest Credit Unions.

Cheek concludes: “Many Credit Unions still rely on manual checking, which is not only time consuming and laborious, but open to error, and apart from the fact this means they could be enabling money laundering, it also means they could be fined for non-compliance - an area the FCA has been clamping down on recently. And while a Credit Union is unlikely to receive a fine on the scale of the £264m handed down to NatWest in December for AML failings - an FCA fine could still run into the hundreds of thousands, which could be fatal to a Credit Union.”

To find out how to prevent financial crime, ensure compliance with anti-money laundering requirements, and protect your Credit Union from huge fines and reputational damage, visit www.smartsearch.com

*https://www.bankofengland.co.uk/statistics/credit-union/2020/2020