The Solicitors Regulation Authority carried out an investigation into the firm following an inspection by its AML Supervision team.
The investigation identified areas of concern in relation to the firm’s compliance with the Money Laundering, Terrorist Financing (Information on the Payer) Regulations 2017 (MLRs 2017), the SRA Principles 2011, the SRA Code of Conduct 2011, the SRA Principles 2019 and the SRA Code of Conduct for Firms 2019.
Firm-wide risk assessment (FWRA)
The firm did not have in place a documented FWRA between 26 June 2017 and December 2021, in breach of Regulation 18 of the MLRs 2017. The firm is required to have an FWRA, which includes the details of the firm’s assessment of risk in five key areas.
In a letter dated 19 July 2024, the firm was asked to provide its FWRA as part of the ‘pre-inspection questionnaire’. The questionnaire also asked when the firm first implemented its FWRA.
In August of last year, the firm sent its AML documents, which included its FWRA. This document was reviewed by the AML Associate and was deemed to be compliant, but further guidance was provided to improve the document. The firm provided the Investigation Officer with an updated FWRA, taking into account this guidance on 2 January 2025.
However, in its responses to our pre-inspection questionnaire, the firm indicated that its FWRA was first drafted in December 2021. Consequently, between June 2017 and December 2021, the firm failed to have an FWRA in place in accordance with the requirements of Regulations 18(1) and 18(4) of the MLRs 2017.
Policies, controls and procedures (PCPs)
Between June 2017 and January 2025, the firm failed to establish and maintain fully compliant policies, controls, and procedures (PCPs) to mitigate and effectively manage the risks of money laundering and terrorist financing.
As part of the firm’s pre-inspection documents, the firm provided the AML Associate with its current PCPs. Upon review, the AML Associate, did not deem the firm’s PCPs compliant. This is because many of the mandatory points required by Regulation 19 of the MLRs were not contained within the document or lacked sufficient detail.
These points included:
- Reporting discrepancies to Companies House – Reg 30A
- Source of funds – Reg 28(11)
- Politically exposed persons – Reg 35
- Enhanced due diligence – Reg 33
- Simplified due diligence – Reg 37
- Reliance – Reg 39
The document also made reference to out-of-date Regulations.
The firm was provided with guidance in order to bring its PCPs into compliance with Regulation 19 of the MLRs 2017. In January, 2025, the AML Associate received an email attaching the firm’s revised PCPs, the guidance was clearly considered when the document was amended, and the firm is now trading with compliant PCPs in place.
Consequently, it is the case that between June 2017 and January 2025, the firm failed to establish and maintain compliant PCPs, to mitigate and effectively manage the risks of money laundering and terrorist financing, pursuant to Regulation 19(1)(a) of the MLRs 2017 and regularly review and update them pursuant to Regulation 19(1)(b) of the MLRs 2017.
The conduct showed a disregard for statutory and regulatory obligations and had the potential to cause harm, by facilitating dubious transactions that could have led to money laundering (and/or terrorist financing). This could have been avoided had the firm established adequate AML documentation and controls.
Based on the evidence the firm provided of its annual domestic turnover, this resulted in a basic penalty of £11,262.
The SRA considered mitigating factors and considered that the basic penalty should be discounted by ten per cent. This is to take account of the following factors as indicated by the Guidance.
- Remedy harm – the firm took steps to rectify the non-compliant documents and is now fully compliant with the MLRs 2017.
- Cooperating with the investigation – the firm has cooperated with the SRA’s AML Proactive and AML Investigation teams.
The penalty was then lowered to £10,136.