Navigating AML Compliance in 2025

As we step into 2025, solicitors regulated by the SRA face a shifting landscape of anti-money laundering (AML) compliance. The UK's commitment to combating financial crime has led to heightened regulatory requirements and intensified enforcement, making it essential for law firms to stay ahead. Here's what you need to know to protect your practice and ensure compliance.

1. Increased SRA Audits

Starting January 2025, the number of law firms subject to SRA audits will likely rise from 500 to 750. This significant increase means that your firm is more likely to face scrutiny. Some firms will face their second audit. Preparing for these audits requires a proactive approach, including up-to-date firm-wide risk assessments (FWRAs) and robust AML controls.

2. Stricter Penalties and Enforcement

The SRA's recent consultation on financial penalties proposes tying fines to a firm's turnover. This approach could result in substantial fines for even minor breaches, disproportionately affecting smaller and mid-sized firms. This underscores the importance of ensuring compliance with all AML regulations to avoid costly penalties.

3. Common Compliance Pitfalls

Some of the most frequent areas where firms fall short include:

Inadequate Client and Matter Risk Assessments: Tailored assessments are vital to identify potential risks.
Non-Compliant Firm-Wide Risk Assessments (FWRAs): Regularly updated FWRAs are a cornerstone of AML compliance.
Insufficient Policies, Controls, and Procedures (PCPs): These must be clearly documented and effectively implemented.
Lack of Proper Staff Training: Comprehensive, ongoing training is essential at all levels of the firm.
Failure to Conduct Source of Funds Checks: Verifying the origin of funds is non-negotiable.

4. Enhanced Due Diligence (EDD)

Firms must take extra precautions when dealing with high-risk clients or transactions. This includes:

Robust client verification, including proof of identity and current address.
Identifying beneficial owners in complex corporate structures.
Applying additional checks for politically exposed persons (PEPs) and high-risk jurisdictions.

5. Leveraging Technology for Compliance

Technology is becoming an indispensable ally in AML compliance. Automated systems can help enforce compliance policies, flag incomplete due diligence, and halt risky transactions. Investing in the right technology (CDDmonitor being one example) not only reduces manual errors but also demonstrates a commitment to best practices.

6. Training and Education

The SRA plans to conduct a thematic review on AML training in 2025. Firms must prioritise training to ensure all relevant staff understand their obligations and can identify red flags. Effective training programs should be ongoing and tailored to the specific risks faced by your firm.

7. Key Identity Verification Measures

Every client must provide:

Proof of identity (e.g., passport or driving license).
Valid proof of address.
Evidence of their right to reside in the UK, where applicable.

Additionally, solicitors should inquire about clients' professional history, reasons for changing law firms, and the duration of property ownership when selling.

8. Trust Registration Requirements

All UK express trusts and certain non-UK trusts are now subject to AML regulations and must register with HMRC. Firms handling trust work should ensure compliance with these requirements to avoid penalties.

9. Ongoing Russian Sanctions and Broader Compliance

With continued sanctions against Russia and other jurisdictions, firms must remain vigilant in conducting sanctions-related checks and ensuring compliance with the latest regulations.

Final Thoughts

2025 is shaping up to be a pivotal year for AML compliance in the legal sector. Solicitors must adopt a proactive approach, focusing on:

Regular risk assessments.
Strengthened internal controls.
Detailed records of compliance efforts.
Comprehensive training for all staff.

The SRA's heightened scrutiny underscores the need for meticulous compliance practices. By staying informed and prepared, solicitors can navigate these challenges while safeguarding their firms and reputations.

For further information, consult the latest SRA and Law Society guidance on AML compliance.

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