Are you compliant with the Money Laundering Regulations? 

Earlier this year the Solicitors Regulation Authority (SRA) published the findings of its 2019/2020 law firm review, which encompassed an evaluation of policies, procedures, controls and file reviews.

Of the 74 firms visited, 67% were told to make changes to the way they worked and 9 firms, who revealed more serious offences, were subsequently referred for further investigation.

The areas of most concern were identified as:

• lack of an independent audit or an audit of insufficient quality
• lack of on-going screening of employees
• firm wide risk assessments
• matter risk assessments
• source of funds.

What is an independent audit

There appears to be some misunderstanding around the concept of independent audit, which the SRA has advised does not necessarily require such work to be undertaken by an external firm.

If the independent audit is to be undertaken internally, the individual(s) performing the audit must be independent of the money laundering reporting officer and the anti-money laundering team. The audit must be robust in its approach and involve an element of testing and document areas of recommendation for improvement, where required. In some firms this segregation of role will be difficult to achieve, and the firm may not have the experience of the methodology and documentary evidence required.

We would also suggest that the individual(s) delivering the audit findings and recommendations are of a sufficiently senior position for them to be given due consideration by the firm’s management.

Updated legislation

Some firms have not appreciated the implications of some of the changes brought in to being by the Fifth Money Laundering Directive, which came into force on 10 January 2020.

This included, but was not limited to:

• the expanded definition of a ‘tax adviser’ - firms should consider whether these changes bring the firm under the requirements of the anti-money laundering regulations
• complex and large transactions - firms are now required to identify and scrutinise either complex or unusually large transactions
• new products and practice reviews – there is a requirement for the assessment and mitigation of the risks associated with new products and new business practices
• reporting discrepancies to Companies House - the requirement to report to Companies House any discrepancy identified between information collected under the CDD requirements from the relevant Register and information collated while undertaking duties and responsibilities required under due diligence and on-going monitoring
• enhanced due diligence - changes in the requirements where enhanced due diligence must be applied.

An on-going review mindset

Documenting policies and procedures should not be viewed as a one-off project, firms are required to keep such systems and controls under regular review to ensure that new legislation, risks identified and guidance provided by relevant bodies, such as the SRA, the annual National Risk Assessment and the Legal Sector Affinity Group are also taken into consideration.

Do you need to undertake a review of your compliance?

If you haven’t undertaken an audit of your business, now would be an appropriate time to do so as regulators will expect a review to have already been undertaken.

If your firm did undertake a review a while ago you should consider how frequently you undertake a fresh review, and whether a revised approach is needed in that exercise.

How can we help?

We work with law firms of all sizes to provide the assurance they need to navigate AML requirements. Our multi-disciplinary team has the experience and insight to support you in your interactions with clients and regulators.

Contact us today and we will work with you to:

• perform an independent assessment of your AML systems, procedures and controls
• evaluate the effectiveness of your current policies and procedures
• evaluate your risk-rating methodologies
• make recommendations for improving existing systems and procedures
• review the effectiveness of your AML training
• assist your internal teams in the development of a robust audit programme.