A recent report, published October 30, by the Solicitors Regulation Authority uncovered that only a fifth of law firms were fully compliant with Anti-Money Laundering regulations.

It was also divulged that nearly twice as many firms and individuals as the year before were subject to enforcement action. The report identified the three significant points contributing to non-compliance were:

• Inadequate training/supervision of fee-earners.
• Systems and processes “that allow events to happen unchecked, such as receipt of funds or moving to the next stage in the transaction (rather than an automated ‘stop’ being put to a transaction when an element of customer due diligence has not been performed)”.
• Senior executives undervaluing the importance of having robust and compliant AML controls.

Since 5 April 2024, 5,683 of the 9,308 firms authorised by the SRA fell within the scope of the AML regulations. 512 of these were subject to an inspection for AML compliance or a desk-based review.

This has resulted in 110 firms being revealed to be fully compliant, with 284 (55%) revealed to be partially compliant, leaving a shocking 118 (23%) non-compliant.

In response to this, partially compliant law firms will be sent a ‘letter of engagement’ explaining how to become fully compliant or a compliance plan that will establish steps that need to be taken and when they need to be taken. The SRA does and will monitor results to ensure they are done.

Non-compliant firms failing to meet basic AML requirements will be subject to thorough investigations.

The report also divulged that 10% of the firm-wide risk assessments analysed by the SRA were not compliant. Some firms reportedly only put one in place after the regulator asked to see it, despite previous declarations that one wasn’t in place.

However, the SRA’s report did also disclose an improvement in client/matter risk assessments (CMRAs). Following last year’s Warning Notice on CMRAs, the report stated: “We are pleased to note the improvement in this area.” 19% of the 3,048 files looked at during the year reportedly did not include one, whereas 12% were ineffective. In the previous year, however, 51% of CMRAs reviewed were ineffective.

In relation to source of funds checks, the results were less positive; 25% of files that required source of funds checks failed to provide the necessary evidence.

“While several firms were able to provide an explanation of the enquiries they made, the files contained no audit trail to confirm the information provided.”

Remember: larger firms are expected to carry out regular independent audits on their compliance. To ensure compliance, the SRA has also started a three-year cyclical programme to review the outcomes of firms’ last independent audits.

So far, the SRA has taken enforcement action in 74 Anti-Money Laundering matters over the last year alone (almost double since the previous year, and significantly higher than any previous year). The SRA has placed this down to having more investigation officers at their disposal and more streamlined case management processes.

As a result, the above matters have led to 35 fines, 27 letters of advice, nine regulatory settlements – involving additional fines – two warnings, and a condition on a firm’s authorisation. Altogether, the collective fines amount to an overwhelming £557,000. Only four of the above-mentioned cases reached the Solicitors Disciplinary Tribunal, however, and two were unsuccessful.

Source: here.

Enhanced AML Systems & Processes

It is essential for all firms to demonstrate and uphold high standards in their AML systems and processes, as well as in their management and supervision. This also involves outlining how the firm operates, including the conduct of staff through set policies, controls and procedures.

It is also important to provide regular training to all staff on the firm’s policies and on their obligations, and to keep records of training for regulators to review at a later date.

At the Regulation & Compliance Office, we can offer a number of outsourced support solutions, including:

Regulation & Comliance Service  – Our Risk Management Assessment Service has been specifically designed for the purpose of reviewing and updating 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.

Reach Out to RACO

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