The sector in brief
Listing and financial advisers guide companies through listings, capital raising and corporate transactions. They check that a company meets the requirements of a market, help prepare documents and advise on structure. They are regulated by the Capital Markets Authority in the onshore market.
The AML risk comes from the nature of the work. A company seeking a listing may be controlled by people whose identity or background is not fully visible, and the capital it raises may come from investors whose funds have not been checked. An adviser who vouches for the company without enough scrutiny helps give it credibility it may not deserve.
Supervisors expect the adviser to treat the issuer as a client in the full sense: identify the real owners, understand the business and the reason for the transaction and be alert to signs that something does not fit.
Where the risk sits
Opaque ownership of the issuer
A company seeking a listing may be owned and controlled through layers of entities. The adviser needs to find the people at the end.
Source of capital
Investors who subscribe in an offering may be using funds from unknown sources, and the adviser may influence who is allocated shares.
Shell companies and reverse mergers
Listings of companies with little real business, or transactions designed to put a shell in front of the public, are a recognised risk.
Market abuse around deals
Information about a transaction can be misused before it is public. The proceeds of such abuse then need to be laundered.
Politically exposed controllers
Owners or directors with public positions or links need enhanced due diligence.
Who supervises you
Listing and financial advisers on the onshore market are supervised by the Capital Markets Authority. Advisers in a financial free zone answer to that zone's regulator. Check which regulator licensed you and what activities your licence covers.
The supervisor decides the detailed rules for your licence category, so always read its current guidance alongside this page.
What supervisors expect
- A compliance officer or MLRO with authority to decline an engagement or a deal.
- A business risk assessment that considers the types of issuers, sectors and countries the firm advises.
- Due diligence on issuers, including identification of owners, controllers and directors, and understanding of the business and the purpose of the transaction.
- Enquiries into the source of capital for significant investors and of the funds used in the transaction.
- Screening of the issuer, its owners and other key parties against sanctions lists with documented review.
- Escalation of concerns and reporting through goAML where there is suspicion.
- Training, record keeping and independent testing proportionate to the firm.
Red flags to watch
- An issuer whose business is thin, or whose accounts are inconsistent.
- Owners who are reluctant to be identified or are hidden behind nominees.
- A sudden rush to list with little explanation.
- Investors who appear connected but present as independent.
- Unusual fees or payments to third parties linked to the transaction.
- A previous adviser who resigned without explanation.
A worked example
A company in a hurry to list
A company with a small, recently formed business and a large proposed valuation asks an adviser to support a listing, saying that existing owners hold their shares through offshore entities and prefer not to be named. The adviser should refuse to proceed without the identity of the real owners and without evidence of the business and the source of funds. If the issuer will not cooperate, the adviser should decline, record the reason and tell the compliance officer, who considers whether a report is needed.
How Adventant helps
Questions answered
Is the issuer our client for AML purposes?
Yes, in the sense that you must identify it and understand its owners and business. The detail follows the risk, but advising an issuer you do not know is a clear supervisory concern.
How far do we look at investors in an offering?
In proportion to your role. If you influence allocation or handle money, you may need to check investors. If not, you should still know enough to spot a concern.
Can we rely on the issuer's lawyers or auditors?
You can use their work as part of your enquiries, but you remain responsible for your own checks and should satisfy yourself that the information is reliable.
What if the issuer is in a high-risk sector?
Apply enhanced due diligence, involve senior management and consider whether you should act at all. The decision and its reasons should be recorded.
Who decides whether to report?
The compliance officer or MLRO, after review. Staff should escalate promptly and not discuss the concern with the client.