An independent AML audit for conveyancing firms should test whether anti-money laundering controls work on actual client files. A policy may explain what staff should do, but the file should show what they did, which evidence they considered and why they were satisfied that the transaction could proceed.
For partners, compliance officers and conveyancing managers, that distinction matters. A completed checklist can record that a task was performed without demonstrating that an unusual funding arrangement was understood or that a change in circumstances received appropriate scrutiny.
The Independent AML Audit website describes Lexsure’s approach to reviewing law firms’ AML arrangements. For conveyancing practices considering an audit, a useful starting question is: what will the reviewer test beyond the written procedures?
What does Regulation 21 require?
Regulation 21 of the Money Laundering Regulations 2017 requires an independent audit function where appropriate having regard to the size and nature of the business. Its responsibilities include evaluating the adequacy and effectiveness of the firm’s policies, controls and procedures, making recommendations and monitoring compliance with those recommendations.
This is a qualified requirement. It should not be presented as a universal obligation for every solicitor to purchase an annual external audit. However, a conveyancing practice should carefully assess its exposure and record the reasoning behind its audit arrangements.
Why file testing matters in a conveyancing practice
In its 2024–25 AML annual report, the SRA reported that 32% of the independent audits it reviewed were non-compliant because they did not include file reviews. It explained that a compliant audit should examine both the firm’s AML policies and a sample of client files.
That finding illustrates the gap between reviewing a procedure and testing its implementation. A policy might require scrutiny of third-party funding. File testing can establish whether staff recognised a third-party contribution, made appropriate enquiries and recorded their conclusions.
The sample should be selected to test the practice’s relevant risks. Choosing only straightforward, well-documented purchases may leave important weaknesses unexplored.
Five questions an independent AML audit should test
1. Does the risk assessment describe this transaction?
A useful test is whether another reviewer could understand the client and transaction from the recorded assessment. Generic descriptions such as “residential purchase” may explain the legal service without explaining the funding, ownership arrangements or unusual features.
For example, the auditor could compare the assessment with correspondence and financial evidence. If the correspondence reveals a company-funded deposit but the assessment describes personal savings, the discrepancy needs investigation.
2. Does the source of funds evidence support the explanation?
A practical review should follow the explanation through the documents. Where a buyer says that the deposit consists of accumulated earnings, does the evidence support that account? Where money comes from a sale, inheritance or gift, is the relevant explanation supported and recorded?
The SRA’s AML questions and answers distinguish the funds used for a particular transaction from a person’s overall wealth. They also explain that passage through a UK bank account does not establish that money is legitimate.
File testing should therefore examine the reasoning behind acceptance of the funds, rather than simply count the bank statements saved.
3. Were changes in funding recognised?
Illustrative example: A buyer initially proposes to use savings. Shortly before exchange, part of the deposit is replaced by a payment from a relative’s company.
An auditor could check whether the change was identified, whether the revised arrangement was understood, which further checks were considered appropriate and who authorised the next step.
The issue is whether the firm responded to the new information. An onboarding assessment cannot, by itself, explain a funding arrangement introduced several weeks later.
4. Can staff explain how they handle concerns?
A written escalation procedure is useful only if staff know when and how to use it. Interviews can test what a conveyancer would do if a client gives inconsistent explanations, resists a reasonable request for evidence or introduces an unexpected payer.
Useful questions include who receives the concern, how the decision is recorded and how unresolved issues affect the transaction timetable. The audit should also examine whether completion pressure undermines the procedure.
5. Are the conclusions visible on the file?
A file containing numerous documents can still lack a clear decision. The reviewer should be able to identify the relevant concern, the evidence obtained, the assessment made and any conditions imposed before proceeding.
This is particularly useful when a matter changes hands between fee earners. The incoming conveyancer should be able to understand the existing assessment and identify what remains outstanding.
Who can carry out an independent AML audit?
The SRA explains that independence does not necessarily require an external provider. An employee may carry out a compliant independent audit if they are not involved in creating or applying the policies, controls and procedures being reviewed.
For smaller practices, achieving that separation can be difficult. An external specialist may provide a practical solution, but the firm should still establish the reviewer’s competence, independence and proposed scope.
Before commissioning an audit, ask how conveyancing files will be selected, how findings will be supported by evidence and how implementation of recommendations will be monitored.
The audit report should lead to demonstrable action
Consider an audit that identifies inconsistent treatment of gifted deposits. Circulating a revised policy is one action, but it does not establish that the underlying weakness has been resolved.
A practical response might include updating the relevant workflow, explaining the change to staff and reviewing later files to test whether the revised approach is being followed. Each action should have an owner, a deadline and evidence of completion.
Management should also distinguish an isolated recording error from a recurring weakness affecting several fee earners or offices. The response should address the cause and extent of the finding.
What does this mean for buyers and sellers?
Clients may be asked for further evidence when their funding changes or an explanation needs clarification. Explaining likely requirements early can help clients gather the right documents and reduce avoidable disruption near exchange.
An independent audit helps a practice test whether those requests are consistent and proportionate. It does not replace the conveyancer’s responsibility to assess each matter.
Preparing to commission an audit
Our guide to preparing for an independent AML audit explains how to organise the process. Our article on how often a firm should conduct an independent AML audit considers the factors that affect timing.
When discussing the scope, make sure the proposed review addresses the risks your conveyancing team encounters and includes a clear approach to following up recommendations.
Would your conveyancing files withstand an independent AML review?
Find out how Lexsure’s independent AML audit service can help your firm assess its controls, identify weaknesses and prioritise improvements.
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Enquire about an independent AML audit →An independent audit supports compliance oversight. Responsibility for AML compliance remains with the firm.