Professional Intermediary

A Professional Intermediary in the context of Anti-Money Laundering (AML) is a regulated entity or individual—typically lawyers, accountants, investment advisors, fiduciary service providers, or similar professionals—who performs elements of customer due diligence (CDD) on behalf of a relying financial institution. This concept stems from FATF Recommendation 17, allowing reliance on third parties for CDD tasks like customer identification, verification, and risk assessment, provided the intermediary is subject to equivalent AML supervision and shares records immediately upon request.

The relying institution remains fully responsible for the quality and adequacy of the CDD, treating the intermediary’s work as its own.

Purpose and Regulatory Basis

Professional intermediaries serve to streamline AML processes by permitting financial institutions to leverage the expertise and proximity of trusted third parties, reducing duplication in high-volume or cross-border scenarios while mitigating money laundering and terrorist financing (ML/TF) risks.

This matters because it balances efficiency with robust controls, ensuring CDD integrity without overburdening institutions, particularly in global transactions involving complex structures like trusts or offshore entities.

Key regulations include FATF Recommendation 17, which permits reliance on intermediaries for CDD elements (a)-(c) of Recommendation 10—namely identifying customers, verifying identity, and understanding purpose/risk—subject to conditions like immediate record access and supervisory equivalence. In the USA, the PATRIOT Act (Section 312) aligns with this via enhanced due diligence rules, allowing reliance but mandating ultimate responsibility. EU AML Directives (AMLD5/AMLD6) incorporate FATF standards, requiring member states to enable third-party reliance with safeguards, such as written agreements and risk assessments.

When and How it Applies

Reliance on professional intermediaries applies when a financial institution establishes a business relationship or handles occasional transactions where the intermediary has already performed compliant CDD, such as an accountant verifying a corporate client’s beneficial owners before a bank account opening. Triggers include introductions by lawyers in real estate deals, trust setup by fiduciaries, or investment advisors onboarding high-net-worth clients.

Real-world examples: A bank relies on a regulated law firm for CDD on a client’s trust structure in a property purchase; if the lawyer confirms identity via passports and source-of-funds documents, the bank adopts this without re-verification, but must access records instantly. In cross-border wire transfers, a U.S. bank might rely on a EU-supervised accountant for a non-resident client’s details, provided FATF-equivalent standards apply.

Types or Variants

Professional intermediaries primarily classify by profession and regulation level:

Lawyers and Notaries: Handle client identity in legal formations or asset transfers; common in trust/company service provider (TCSP) roles.
Accountants and Auditors: Verify financial backgrounds and beneficial ownership in business setups.
Investment Advisors and Fiduciaries: Introduce clients for wealth management, confirming risk profiles.
Trust and Company Service Providers (TCSPs): Manage entities where end-clients are obscured, a high-risk variant under FATF scrutiny.

Variants depend on jurisdiction: “Designated Non-Financial Businesses and Professions (DNFBPs)” per FATF include these when performing specified activities like entity formation.

Procedures and Implementation

Institutions implement reliance through a risk-based framework:

Assess intermediary’s eligibility: Confirm regulation, AML program adequacy, and track record via supervisory checks.
Execute written agreements specifying CDD standards, record-sharing timelines (immediate access), and audit rights.
Integrate into internal systems: Use APIs or portals for real-time CDD data retrieval; apply ongoing monitoring.
Conduct periodic reviews: Test samples of relied CDD for completeness.

Controls include senior management approval for reliance lists, training on FATF conditions, and technology like shared KYC platforms for automation.

Impact on Customers/Clients

Customers benefit from faster onboarding via intermediaries they already engage, reducing paperwork duplication—e.g., a corporate client uses its accountant for bank CDD. However, rights include data privacy under reliance agreements, with rights to access or correct shared information per GDPR or equivalent.

Restrictions arise from enhanced scrutiny: Delays if intermediary CDD flags risks, potential account freezes, or source-of-funds requests. Interactions involve transparent notifications about reliance, ensuring consent where required, balancing efficiency with privacy.

Duration, Review, and Resolution

Reliance persists for the business relationship’s duration or until CDD outdated (e.g., annually for high-risk). Reviews occur at onboarding, periodically (e.g., yearly), and on triggers like regulatory changes or suspicious activity.

Resolution involves refreshing CDD independently if intermediary fails standards, documenting rationales, and escalating to compliance officers. Ongoing obligations mandate continuous monitoring and record retention for 5-10 years per FATF Recommendation 11.

Reporting and Compliance Duties

Institutions document reliance decisions, agreements, and reviews in audit trails, reporting Suspicious Activity Reports (SARs) if intermediary CDD reveals red flags. Duties include annual effectiveness testing and regulator disclosures on reliance volumes.

Penalties for misuse—e.g., relying on non-compliant intermediaries—include fines (up to millions under FinCEN or FCA), license revocation, or criminal liability, as seen in cases like Danske Bank’s $2B penalty partly tied to weak third-party controls.

Professional intermediaries interconnect with:

CDD (Recommendation 10): Core process outsourced under reliance.
Third-Party Reliance (FATF R.17): Direct synonym, emphasizing conditions.
DNFBPs (R.22): Intermediaries often fall here, sharing gatekeeper duties.
Beneficial Ownership (R.10/24): Verified via intermediaries in complex structures.
PEP Screening and EDD: Heightened when relying on high-risk intermediaries.

Challenges and Best Practices

Challenges include inconsistent global standards (e.g., non-FATF jurisdictions), data-sharing delays, and over-reliance leading to blind spots. Tech gaps and high DNFBP ML risks exacerbate issues.

Best practices:

Maintain a vetted intermediary whitelist with scorecards.
Leverage RegTech for automated verification and alerts.
Train staff on immediate record-access protocols.
Conduct joint audits with intermediaries.

Recent Developments

Post-2024 FATF updates emphasize digital KYC sharing via platforms like blockchain consortia for real-time reliance. AMLD6 (2024) mandates DNFBP registration, tightening intermediary oversight. U.S. FinCEN’s 2025 Beneficial Ownership Rule enhances reliance requirements with corporate transparency data. AI-driven risk scoring and API ecosystems (e.g., Thomson Reuters ONESOURCE) address data silos.

Emerging trends include crypto intermediaries under MiCA, with reliance limited by pseudonymity risks.

In AML compliance, professional intermediaries enable efficient CDD reliance under FATF R.17, but demand rigorous oversight to safeguard against ML/TF. Financial institutions must prioritize accountability, technology, and reviews for robust defenses.

Professional Intermediary in Anti Money Laundering (AML)