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The foundational document when is comes to AML compliance is the AML firm-wide risk assessment. It is often described as the keystone of money laundering compliance in a law firms. Once a well drafted AML firm-wide risk assessment (FWRA) is in place the remainder your AML policies and procedures, training and due diligence will flow from it. The Money Laundering Regulations 2017 sets out five key areas for the FWRA to focus on – clients, geographic, products and services, transactions, and delivery channels but there are many other elements that need to be considered. Regulation 18A of the money laundering regulations also requires firms to identify the risk of proliferation financing. This can either be considered separately or within the AML firm-wide risk assessment. Further guidance on how to carry out a proliferation financing risk assessment can be found in the Legal Sector Affinity Group guidance. I have been told by some of the AML assessors in Lexsure’s Independe...

During a routine AML audit the legal regulator practice to be non-compliant. This was due to the absence of a firmwide risk assessment and an updated AML policy and procedure, insufficient staff training on AML, and the MLRO not having completed enhanced AML training. The practice received written notice, providing two weeks to rectify the mentioned deficiencies. Failure to do so would result in disciplinary measures and perhaps fines. Within the specified period, the law firm addressed the issues by submitting a compliant AML policy , an AML firmwide risk assessment , and documentation showing AML training for both the MLRO and relevant staff members.

Recent SRA AML audits reveals a pattern of non-compliance with AML obligations among many firms. With this concern in focus, the SRA is contemplating fixed penalties for non-compliance. Law firms must now review and update AML processes diligently to avoid disciplinary measures, reputational harm, and hefty penalties. This comes at a time when the SRA are carrying out an extensive and ongoing programme of audits into firms’ AML compliance. This includes desk-based AML assessments as well as targeted, in-depth onsite inspections. If the firm should take on the relevant client or matter. The level of due diligence to be conducted – where there is a situation that presents a higher risk of money laundering or terrorist financing, then enhanced due diligence (EDD) may need to be conducted. Any other steps that should be taken to mitigate the risks posed. Firms are mandated to have a written and bespoke fimwide risk assessment (FWRA) . They must also have a complete a...

Law firm (sole practitioner CQS accredited) calls with AML concerns about a potential client. The client had a significant sum of money in an overseas account which was not in the client’s name. The firm made further enquiries with the client regarding the funds and requested additional evidence to satisfy source of funds/wealth requirements. The practitioner, also the MLRO, was advised of the current AML requirements of the Anti-Money Laundering & Combating Terrorist Financing Code and Money Laundering Regulations 2017. It was concluded that as the prospective client was unable to provide the practice with satisfactory source of funds/wealth evidence and therefore they would be unable to act for the client in this matter. The practice was of the opinion that as the instruction was outside the usual remit of their source of work as per their firmwide risk assessment , they would not act on this matter and thus ended the retainer.

The long awaited final HM Treasury Anti-money laundering and counter-terrorist financing: Supervision Report: 2022-23 has been issued, noting that the most common breaches in the legal sector. The government’s annual supervision report for the financial year 2022-23 offers a timely insight into the activities of the UK’s 25 anti-money laundering supervisors including the SRA during a period of transformation. Some of the conclusion reflect Lexsure’s experience conducting independent AML audits and advising law firms, were inadequate documented AML policies and procedures, inadequate CDD procedures, inadequate client matter risk assessment or records and no or inadequate firm-wide risk assessments . It was noted that a lack of knowledge or understanding of the regulations was a common theme among firms with noncompliance or poor procedures. Often, this was linked to firms using templates or third-party policies without fully tailoring them to the individual firm. It was...

The Solicitors Regulation Authority (SRA) assault on firm for breaches of anti-money laundering (AML) rules has continued, with Raegal Limited being fined £1,520 (an amount equivalent to 2.4% of its gross annual domestic turnover for the last financial year). On top of this an order of £1,350 was made for costs. The penalty was due to the the failing to prevent its client account from being used as a banking facility and failing to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017). In April 2023, the SRA commenced a forensic AML audit into the firm. On 16 January 2024, a forensic investigation officer prepared a report which identified concerns surrounding the use of the firm’s client account and the firm’s compliance with the MLRs 2017. The decision by the SRA sates that between 30 June 2017 and 28 February 2024, the firm failed to have in place an appropriate firm wide risk assessment (...

Last month’s webinar focusing on preparing for an AML audit by the SRA is now available to purchase. It focuses on the question 'SRA AML Assessments: Are You Audit Ready?' The 50 minute webinar focused on the following areas: Selection and pre-assessment: understand what to expect from proactive SRA visits. What does the communication from the SRA look like and what do they request?  Common and costly misconceptions Errors and omissions that most firms make What will happen after the visit?  Implications of adverse audit – beyond a financial penalty   How technology can not only mitigate risk but also provide evidence of compliance 

The SRA continues to levy large fines on regulated firms who have been in long-term breach of their obligations under the 2017 money laundering regulations. It is not clear whether the decision stems from an SRA AML Audit having been carried out. Fairhurst Menuhin & Co in Essex was fined £23,930, 2% of its turnover and close to the maximum the SRA can hand out, for not having proper AML policies, controls and procedures in place between 2017 and 2022. In addition, the firm failed to carry out adequate client/matter risk assessments on six files, while it received funds on account on four matters before completing customer due diligence. Its mitigation was co-operation with the SRA and having “some arrangements in place for managing the risk of money laundering prior to August 2022, including staff training and email reminders regarding ID/AML checks”. The firm had also taken steps to remedy the harm and there was no evidence that actual harm had materialised. No m...