One third of law firms failed key AML checks: what’s going on?

Recent figures from the Solicitors Regulation Authority (SRA) reveal that about 32.4% of law firms inspected over the past year were outright non-compliant with anti-money laundering (AML) regulations. That means nearly one in three firms failed to meet core obligations.

Surprisingly, only 112 firms out of 833 rated achieved full compliance; 451 were partially compliant, and 270 were non-compliant.¹

Why should a lawyer or a firm care? Because AML isn’t just a regulatory tick-box exercise. When a firm fails to carry out adequate client risk assessments, source of fund checks, or firm wide risk assessments, it leaves itself exposed. Not only to regulatory sanctions, but to reputational harm and potential involvement in illicit activity. Companies, such as RisqAML can help ensure that your firms staff receive high-quality AML training, and are aware of the risks money laundering could pose for your practice.

The SRA emphasises that the legal sector remains high-risk for money-laundering and related financial crime.² Fines imposed are not trivial. In one year the SRA imposed hundreds of thousands of pounds in penalties for AML breaches.

Where are the biggest problems?

From the report, the common failures include:

• Weak or missing firm-wide risk assessments (FWRA) – many firms either didn’t have them, or didn’t update them properly.
• Poor client and matter risk assessments (CMRA) – for example, not assessing or documenting risk on specific instructions or clients.
• Source of funds checks being either inadequate or missing.
• AML policies and procedures that might exist on paper but are not being followed or audited in practice.
• Conveyancing being flagged as a particularly high-risk area for money laundering.

What’s changing on the regulatory front

There’s another big shift to note. Responsibility for supervising AML in the legal profession is being transferred. The government has decided to move AML supervision for lawyers from the SRA to the Financial Conduct Authority (FCA). This change underscores how seriously regulators view the risk and how the field of AML is being treated as a more central regulatory concern rather than a peripheral compliance issue.

What this means for your firm (or if you work in a law firm)

If you’re part of a firm, or advising one, here are some practical take-aways:

• Don’t assume basic policies are enough: having a generic AML policy isn’t sufficient if it isn’t tailored, tested, reviewed and enforced.
• Check the firm-wide risk assessment: Does it really reflect the firm’s work, geography, clients, transaction types? Is it reviewed regularly?
• Drill down into client matter level risk: Are staff consistently documenting risk assessments, verifying identity, checking source of funds?
• Make sure the policies are alive and embedded: It’s one thing to have a document, another to have proof staff follow it, that controls work, that there is audit and oversight.
• Focus on high-risk areas: property transactions (conveyancing), trusts and company work, complex client structures all require extra care.
• Train staff, monitor performance, review controls: Firms were frequently cited for weak training, supervision or failure to make policies operational.

Be prepared for increased regulatory scrutiny and enforcement: With the upcoming transfer of supervision to the FCA and rising action by the SRA, firms cannot be complacent.

What can I do?

The good news is, that RisqAML can help. We can ensure that you and your firm are prepared, trained, and have the correct AML policies and procedures in place. Book a free consultation, and let us take the hassle out of AML compliance.

1. https://www.step.org/industry-news/one-three-uk-law-firms-not-compliant-aml-regulations-finds-sra ↩︎
2. https://www.lawgazette.co.uk/news/aml-one-third-of-inspected-firms-not-compliant/5124970.article ↩︎