High-Value Dealers: Part 2 - Practical Steps for Compliance

Luxury interior designers are now required to adhere to comprehensive anti-money laundering (AML) regulations. In the last article (Part 1: High-Value Dealers - What's changing and why?), we outlined the upcoming changes to the legislation. This detailed guide outlines essential steps designers must take, including registration, client due diligence, sanctions screening, record-keeping, and establishing internal controls to ensure compliance.

Step 1: Registering Your Business

The first essential step towards AML compliance for luxury interior designers is registering your business with HM Revenue & Customs (HMRC). If your business regularly handles transactions involving high-value goods (valued at €10,000 or more), registration is mandatory. This includes businesses acting as High-Value Dealers (HVDs) or Art Market Participants.

The registration process involves completing an application through HMRC's online platform, paying the necessary fees, and renewing annually. You must register prior to engaging in any transactions that meet the regulatory thresholds. Failing to register when required can lead to substantial fines and legal repercussions.

Step 2: Customer Due Diligence (CDD)

Customer Due Diligence (CDD) is central to AML compliance. It involves verifying the identity of your clients and understanding the risks associated with them. For every new client, you must obtain reliable documents such as passports, driving licences, and recent utility bills or bank statements to confirm their identity and address.

Additionally, conducting a risk assessment for each client is essential. This helps determine if they pose an increased risk of money laundering, such as politically exposed persons (PEPs) or clients from high-risk jurisdictions. In situations involving higher risk, Enhanced Due Diligence (EDD) is required. EDD involves deeper investigation, including establishing the source of funds and wealth, to ensure your business is not unwittingly facilitating illicit financial activities.

Step 3: Sanctions Screening

Beginning in May 2025, sanctions screening will become a legal obligation for luxury interior designers dealing in high-value transactions. Sanctions checks are designed to identify if your clients are listed on official UK or international sanctions lists, indicating they are prohibited from engaging in certain financial activities.

These lists are regularly updated by bodies such as the Office of Financial Sanctions Implementation (OFSI). You must periodically screen clients and their associated entities or beneficial owners against these databases. If a client matches or you suspect a violation, reporting immediately to OFSI becomes mandatory. Non-compliance can result in severe legal and financial penalties, including criminal prosecution.

Step 4: Record-Keeping Requirements

Good record-keeping is a fundamental compliance requirement. Designers must maintain accurate and detailed records for at least five years after the completion of each transaction or the end of the business relationship. This includes client identity documents, records of transactions (such as invoices, receipts, and correspondence), and evidence of any risk assessments or sanctions checks conducted.

Proper records serve multiple purposes. They help businesses demonstrate their compliance during audits or regulatory inspections by HMRC, reduce the risk of fines and penalties, and protect the business against accusations of negligence or complicity in financial crimes. An organised approach, ideally through secure digital record-keeping systems, simplifies compliance and demonstrates a professional approach to risk management.

Step 5: Establishing Internal Controls

Implementing robust internal AML controls is crucial. This begins by developing a clear and practical AML policy tailored specifically to your business. Your policy should outline the procedures for client due diligence, sanctions screening, reporting suspicious activities, and maintaining compliant records.

Furthermore, it is essential to assign a designated compliance officer or AML officer within your organisation. This individual will oversee compliance activities, ensure policies are enforced, and act as the central point for reporting any suspicious activity internally and externally.

Training your staff on AML compliance is equally important. Employees, especially those involved directly with client interactions or financial transactions, should clearly understand their responsibilities under the AML regulations. Regular training sessions and updates about regulatory changes help your team remain vigilant and informed.

Practical Compliance Management Tips

Managing AML compliance effectively doesn't need to be burdensome. Practical measures can significantly ease the administrative workload. Utilising compliance-focused software solutions to automate client identity verification, sanctions screening, and record management can save substantial time and reduce errors.

It's also advisable to schedule periodic reviews of your compliance procedures and systems. Regular audits of your internal processes, client files, and transactions can identify potential issues before they escalate, ensuring ongoing compliance and enabling prompt corrective action.

Additionally, staying informed about regulatory developments through HMRC updates or professional industry resources is critical. Being proactive rather than reactive can prevent compliance breaches and associated penalties, thereby protecting your business reputation and ensuring smooth operational continuity.

Consequences of Non-Compliance

Non-compliance with AML regulations carries serious consequences. HMRC can impose significant financial penalties on businesses failing to meet their obligations. In severe cases, breaches of AML requirements can lead to criminal prosecution, potentially resulting in imprisonment or unlimited fines.

Furthermore, reputational damage can be equally devastating. Public disclosure of AML violations can severely impact client trust and future business opportunities. The negative publicity associated with regulatory non-compliance can have long-term implications for business growth and sustainability.

Therefore, strict adherence to AML regulations isn't merely a legal necessity but a crucial business practice safeguarding your professional integrity and client confidence.

What's Next?

In the final article in this series (Part 3: Simplifying Compliance with Third-Party Escrow Services), we examine how third-party escrow services for interior designers can substantially ease compliance burdens. These services handle complex AML obligations, freeing you to focus on delivering exceptional design solutions to your clients.