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AML Supervision Report Issued

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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 also noted that smaller firms and sole practitioners sometimes considered the AML regulations to be disproportionate.

The report references a case study of a legal firm subject to an onsite audit.

The firm undertook 57% of work in scope of the regulations, and at the time of the inspection, there were 16 fee earners who worked at the firm, split over two offices. During the inspection, several breaches of the MLRs were identified

The firm had been relying on an AML policy that had not been updated since 2016. It was determined that there were insufficient records of staff training, and after discussions with fee earners, concluded that they were unclear of what a client/matter risk assessment was, or when identification and verification needed to be carried out. File reviews identified issues on six of matters, including:

  • a lack of identification and verification documents
  • a lack of source of funds/wealth information, despite money coming from overseas
  • unclear client/matter risk assessment process. In some matters, a client/matter risk assessment had not been carried out.

The firm also found problems with the Money Laundering Compliance Officer (MLCO’s) knowledge of the MLRs. After conducting a formal investigation into the firm, the regulator provided the firm with a compliance plan alongside their feedback letter and the firm is also likely to receive a fixed penalty notice for failings around its firm-wide and client-matter risk assessments.

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