An SRA sanction for an anti money laundering failure may not be the end of the matter. For a conveyancing firm, it can be the beginning of a second and potentially more damaging problem: lender panel removal.
Consider the position of a firm that has invested in accreditation, maintained its professional indemnity insurance and regarded its compliance arrangements as broadly sound. It then receives an unwelcome communication from a lender or panel manager following a published AML finding.
The firm’s instinct may be to defend itself. It may point to its CQS accreditation, emphasise its long history and prepare a forceful, lawyerly response challenging the basis of the review.
That response may feel entirely natural. It may also miss the point.
A lender is not deciding whether the firm can continue to practise as a solicitor. It is deciding whether it remains willing to entrust that firm with mortgage funds, compliance with lender instructions and the protection of its security. Those are different questions, assessed through a different lens.
Panel membership is not secured by accreditation alone
CQS accreditation remains important. It can demonstrate that a firm has adopted recognised conveyancing standards and is subject to assessment. It should not, however, be treated as a guarantee of continuing lender panel membership.
Lenders and their panel managers are entitled to make their own risk decisions. They may consider regulatory findings, AML controls, claims history, transaction data, post completion performance and the quality of the firm’s response to concerns. An accreditation badge does not prevent them from asking whether the underlying systems work in practice.
This is why a firm can be accredited and still face panel suspension or removal. The key issue is no longer simply whether policies and procedures exist. It is whether the firm can produce credible evidence that its controls are effective, embedded and consistently followed.
As discussed in our earlier article, lender panels and compliance audits: why preparation is your firm’s strongest defence, panel membership should now be treated as something that must be actively protected rather than assumed to be permanent.
Why an AML breach matters to a mortgage lender
A lender may see an AML breach as evidence of wider weaknesses in governance, supervision or file controls. In a conveyancing practice, those concerns go directly to the handling of purchase money, the identification of borrowers and beneficial owners, source of funds enquiries and compliance with reporting obligations.
A published regulatory decision may therefore prompt questions such as:
- Was the failure confined to one file, one person or one period?
- Why did the firm’s own compliance controls fail to identify it?
- Could the same weakness affect other conveyancing matters?
- What corrective action has actually been completed?
- Has anyone independent tested whether the remediation works?
- Can the firm now demonstrate effective oversight rather than merely promise improvement?
Our earlier post, Why the SRA’s AML Crackdown Is a Direct Threat to Your Lender Panel Status, examines this wider commercial impact. The regulatory penalty may be painful, but losing access to important lender panels can threaten the viability of the conveyancing department itself.
Why the conventional solicitor’s response can make matters worse
Solicitors are trained to identify weaknesses in an allegation, protect their position and resist conclusions that appear unsupported. That approach is invaluable in litigation. It is not necessarily the right approach to a lender’s risk review.
A combative letter can fail because it answers the wrong question. The lender may not be seeking legal submissions about whether the SRA finding was fair. It may simply be deciding whether the firm remains within its risk appetite.
Arguments about the firm’s reputation, years in practice or accreditation will carry limited weight if they are not accompanied by evidence of effective remediation. Worse still, a defensive response that minimises the original breach may create a new concern about insight and governance.
The most persuasive response is usually led by evidence. It should acknowledge the relevant failing, explain its true scope, set out what has changed and demonstrate how the firm has tested those changes.
The value of an independent AML audit
An independent AML audit cannot guarantee that a lender will retain or reinstate a firm. Panel decisions remain matters for the lender. A properly scoped audit can, however, provide something that assertions from the firm itself cannot: objective evidence.
A robust independent AML audit should examine both the design of the firm’s framework and its operation in practice. That means going beyond a desktop review of the AML policy. It should include appropriate file sampling and test matters such as:
- the firm wide risk assessment and whether it reflects the work actually undertaken;
- client and matter risk assessments and the reasoning behind risk ratings;
- customer due diligence, beneficial ownership and electronic verification;
- PEP and sanctions screening, including the retention of evidence;
- source of funds and source of wealth enquiries;
- enhanced due diligence and high risk approval procedures;
- ongoing monitoring throughout the transaction;
- training, supervision, governance and MLRO oversight; and
- whether remedial measures have been implemented consistently across live files.
The benefit is not the production of a reassuring certificate. It is the identification of weaknesses before the firm makes claims that cannot be substantiated. A credible audit may confirm what has improved, expose what still requires attention and provide a documented action plan.
Do not commission an audit simply to obtain a favourable letter
If the objective is merely to secure a document saying that everything is now satisfactory, the exercise is unlikely to carry much weight. An independent AML audit must be allowed to be genuinely independent.
That means accepting that the auditor may identify further deficiencies. Those findings are not necessarily a reason to abandon an appeal. Properly addressed, they can demonstrate that the firm has stopped defending the indefensible and started managing risk seriously.
The sequence matters:
- understand precisely what went wrong;
- commission an appropriately scoped independent review;
- implement and document the necessary corrective action;
- test whether the revised controls are working; and
- present the lender or panel manager with concise, verifiable evidence.
For further practical context, see our earlier discussion of LMS lender panel removal, including the importance of remediation and the possible role of an independent audit in a reinstatement appeal.
Act before lender panel removal becomes an emergency
The best time to obtain independent assurance is before an SRA sanction, panel review or urgent questionnaire arrives.
A proactive audit gives the firm time to correct weaknesses in a controlled way. It also creates evidence that management has sought independent scrutiny, considered the findings and monitored the resulting action plan. If the firm is later questioned by a regulator, insurer, lender or panel manager, it is in a much stronger position than one commissioning an audit only after the damage has been done.
An independent AML audit is therefore not merely a regulatory exercise. For conveyancing firms, it can form part of the commercial protection of lender panel membership.
The central lesson
CQS accreditation is not a shield against lender panel removal. A solicitor style letter is not a substitute for evidence. And an AML policy is not proof that AML controls work.
When an AML breach brings a firm to the attention of a lender, the issue is no longer what the firm believed about its compliance arrangements. The issue is what it can prove.
A properly conducted independent AML audit, followed by documented remediation, can help the firm replace assertion with evidence. It cannot compel a lender to reverse its decision, but it may give the firm a far more credible basis on which to protect or seek to recover its panel position.
This article provides general information only. Lender panel decisions are specific to each lender, and an independent AML audit does not guarantee continued membership or reinstatement.