The Judgement Calls That Make a Good MLRO

On paper, the Money Laundering Reporting Officer’s job is well defined. The MLRO oversees the firm’s anti-money laundering systems and controls, receives internal suspicious activity reports, decides whether to report to the National Crime Agency, and reports to the board each year on how well the framework is working. At firms within the Senior Managers regime, the role is the SMF17 function and needs the regulator’s approval.

What the job description doesn’t capture is how much of the role comes down to judgement. Frameworks, policies and systems matter, but the moments that define an MLRO are individual decisions, often made under time pressure, with incomplete information and with the business waiting for an answer. Those are the moments regulators look at when something goes wrong, and they are what firms should be hiring for.

This article looks at six of them. For the hiring side, including what SMF Capital looks for in candidates and how permanent, interim and fractional appointments work, see its page on MLRO recruitment (SMF17).

1. Whether to Report

The core decision is whether an internal report from a member of staff gives grounds to know or suspect money laundering, and so whether to submit a suspicious activity report to the National Crime Agency. The legal threshold of suspicion is low, but it is not nothing. An MLRO who reports everything floods the system with poor-quality reports and protects no one. One who reports too little exposes the firm, and personally risks committing an offence of failing to disclose.

Good MLROs document their reasoning on every internal report, whether or not they submit an external one. That record is what shows, months or years later, that the decision was considered and reasonable. SMF Capital’s guide to suspicious activity reports and the nominated officer explains the framework.

2. Whether to Let a Transaction Proceed

Where the firm suspects that a transaction involves criminal property but needs to proceed with it, the MLRO can request a defence against money laundering (a DAML) from the NCA. The NCA has seven working days to respond, and if it refuses, a further moratorium period follows. During that time the customer is waiting, the business is under pressure, and the MLRO must avoid saying anything that could tip the customer off.

Managing that is as much about people as law. The MLRO has to hold the line with colleagues who want the transaction completed, coordinate what the customer is told without tipping off, and decide what happens to the relationship afterwards.

3. What to Do About a Sanctions Match

A screening alert that may be a sanctioned person is time-critical. If the match is real, the firm must freeze the assets and report to the Office of Financial Sanctions Implementation. If it is a false positive, holding a legitimate customer’s money without good reason causes harm of its own. The MLRO, or the sanctions lead reporting to them, has to resolve the alert quickly and defensibly. Since 2022, sanctions work has grown sharply at many firms, which is why some now appoint a dedicated sanctions lead.

4. Whether to Keep a Customer

Exiting customers is sometimes the right answer to financial crime risk, and sometimes a way of avoiding it. Regulators have become more critical of blanket de-risking, particularly where it affects whole categories of customer rather than individual risks. The MLRO has to decide case by case: can this risk be managed through enhanced due diligence and monitoring, or is it outside the firm’s appetite? Getting this wrong in either direction draws criticism. SMF Capital’s guide to customer due diligence and enhanced due diligence covers the standards involved.

5. How Candid to Be With the Board

The annual MLRO report is one of the most important documents a regulated firm produces on financial crime. A good report tells the board plainly where the framework is working, where it isn’t, what resources are needed and what risks the firm is carrying. A poor report reassures. The temptation to soften findings is real, especially when the MLRO knows the business is under cost pressure or the board doesn’t want bad news.

The FCA’s Financial Crime Guide is clear that senior management must engage with financial crime risk, and they can only do that if the MLRO tells them the truth. For firms that submit the annual financial crime data return, SMF Capital’s guide to REP-CRIM explains what is reported.

6. When to Push Back on the Business

Growth creates the most difficult judgement calls of all: a new product, a new market, a large new customer, a partnership with a higher-risk business. The MLRO’s view may slow things down or stop them. Good MLROs engage early, understand the commercial goal and help find a way to achieve it within the firm’s risk appetite. But they also know when the answer has to be no, and they are prepared to say so and record it. That independence is exactly why the role carries personal accountability.

What This Means When Hiring

These decisions point to the qualities that matter most in an MLRO, beyond technical knowledge:

Asking candidates to talk through real decisions, rather than describe their framework, is the quickest way to find out how they think. The best answers include what they got wrong as well as what they got right.

Firms also need to match the MLRO to their risk profile. A crypto business needs someone with genuine digital asset experience; a payments firm needs someone who knows transaction monitoring at scale; a wealth manager needs depth in source of wealth and politically exposed persons. Not every firm needs a full-time MLRO either. Smaller firms often use a fractional MLRO, and firms facing a backlog or a regulatory deadline often need interim cover.

For a full overview of the role, the sectors SMF Capital recruits for, what it looks for in candidates and how approval works, read MLRO recruitment (SMF17).