The Solicitors Regulation Authority has recently updated its anti-money laundering Q&A about accepting cryptocurrency as a payment. In a key point, the regulator makes it clear that it does not currently recognise crypto as a “money” that can be paid into the client account. It also stresses that a valid client account can only be used via a bank or building society, neither of which has the facilities for cryptocurrency at this stage.

What other key areas should firms consider?

What does the SRA say about accepting cryptocurrency?

The Solicitors Regulation Authority (SRA) does not impose any outright restrictions in the Standards and Regulations regarding the acceptance of crypto assets as a payment for services. Additionally, there is nothing in the money laundering regulations against accepting these forms of payment. However, law firms must remain aware of the associated risks and proceed with caution in such matters.

Key factors to consider:

• Cryptocurrencies are not classified as “money” under the SRA’s Accounts Rules. Payments in crypto cannot be deposited in client accounts as the Accounts Rules require client money to be held in a bank or building society account, and no such accounts for cryptoassets currently exist.
• Any firm that accepts crypto payments must inform clients that these payments lack the same protections held in client accounts.
• Although these funds are not held in client accounts, compliance with safeguarding regulations still applies under rules 5.2 of the Code of Conduct for Firms and 4.2 of the Code of Conduct for Solicitors (‘You safeguard money and assets entrusted to you by clients and others’) if you are holding them on a client’s behalf for any reason. For example, as part of an estate administration or under a lasting power of attorney.

Read more about: Cryptocurrency query updated.

Protecting your firm against the risks:

Cryptocurrency payments carry significant risks and raise questions that firms must answer. The guidance includes recommended checks, such as: 

• The source of funds for their original crypto investment, particularly where it was a substantial amount in relation to their income/salary. 
• Claimed profits, given what you know about their initial investment and the changes in price over time. 
• Transactions using publicly available records. Bitcoin and many other crypto assets allow you to use Google to track down transactions involving specific assets or between specific wallets. You will need details of the client’s wallet or the assets held to check them against publicly available transaction databases, e.g., blockchain.com. 

Furthermore, part of the Anti-Money Laundering (AML) Regulations requires a business to undertake a formal risk assessment. The predominant purpose is to identify, manage and, where possible, eradicate the potential for firms to be caught up in money laundering, and cryptocurrency considerations form part of this. 

Client and matter risk assessments will help you to consider whether you are comfortable acting and, if so, to adjust your internal controls to the appropriate level according to the risk presented. For example, different aspects of your CDD controls may be adjusted to meet the identified risks. Regarding crypto assets, guidance provided by the Legal Sector Affinity Group includes sample questions for matter risk assessments, such as:  

• Does the matter involve new sources of finance – anything unregulated, e.g., involving crowdfunding platforms or some aspects of bitcoin/cryptocurrencies? 

Cryptocurrency should be an immediate high-risk indicator, and firms should report any client seeking to use cryptocurrency as part of their funds to the MLRO for further guidance. Enhanced Client Due Diligence is a must in these circumstances. Understanding how the currency has been financed, and by whom, is the starting point in deciding whether to allow a matter to proceed. 

Breaches of the regulations:

The SRA continues to emphasise the importance of thorough client and matter risk assessments, as well as client due diligence and enhanced client due diligence obligations, warning that firms failing to implement robust policies, controls, and procedures may face financial penalties.

The regulator has pointed out that this remains an area where improvements are still necessary. A new round of fines has been imposed on several firms for failing to conduct compliant client and matter risk assessments (CMRA) and for not performing required enhanced client due diligence.

Read about some of the most recent cases here:

Long-Serving Solicitor Fined £15,000 for Client Check Failings.

MAXIMUM FINE For Central London Law Firm.

Specialist Support for Navigating Cryptocurrency Compliance

When performed correctly, risk assessments provide valuable insight into a client and protect firms from exposure to Money Laundering, Terrorist Financing, and Risk. 

At Regulation and Compliance Office (RACO), we work with firms, their MLROs, MLCOs, and their COLPs and COFAs to provide tailored training and outsourced support solutions.

We assist firms in effectively managing risk, compliance, and regulation. By establishing and maintaining a compliant structure, our objective is to allow firms, their managers, and owners to focus on running their businesses and providing exceptional service to their clients. 

If you think your firm may be at risk, or want to confirm your firm is achieving the required standards, we can offer expert guidance and support, including: 

Regulation and Compliance Service  – Our Risk Management Assessment Service has been specifically designed to review and update a firm’s approach to risk and compliance management.

MLR 2017 Regulation 21  Independent Audit – A review of the firm’s approach to regulation and compliance, including AML procedures, with the audit meeting the requirements of Regulation 21 of AML 2017. The output provides the firm with a written gap analysis and solutions to remedy any issues and ensure compliance.

AML Training Courses – Our typical AML Training includes:

• AML Training for ALL staff to meet the firm’s obligation to provide annual training.
• One-to-one training for the MLRO and MLCO on their obligations and requirements.

Contact Us

For more information on the Regulation & Compliance Office and to discuss how we may be able to assist in accelerating your risk management, compliance, and regulation, you can call us on 0203 985 8550 or email us at info@regulationandcomplianceoffice.co.uk.