Friday, December 6, 2019

AML compliance - there is nowhere to hide!

Anti-money laundering (AML) remains at the top of the SRA’s agenda as we head into 2020. Here is a roundup of current key concerns in this area, which includes a summary of AML news from recent events we have attended:

SRA intervention

After finding that a significant number (21%) of the 400 firms contacted in March 2019 were severely falling short of their compliance obligations under the Money Laundering Regulations 2017, the SRA has announced plans to broaden its net and carry out a large-scale thematic review on 7,000 firms specialising in areas governed by the ML Regulations.

This will include a programme of checking firms’ AML risk assessments after this area was highlighted as a major concern following the investigations in March. The specific finding related to the firm wide risk assessment (a mandatory requirement under the ML Regulations) with the majority of firms surveyed (64%) found to be using low quality templates which had simply been adopted on a ‘copy and paste’ approach, without thought being given to the specific risks and issues that the firm faced.

Whilst there is nothing wrong with using template risk assessments, it is important that they are tailored to meet your firm’s specific requirements as a tick box approach will not be acceptable. Also bear in mind that the risk assessment should be reviewed regularly to consider new risk factors and updated as appropriate. The SRA has highlighted that a risk assessment which is dated recently and looks to be an initial version is likely to arouse suspicion that it was created only in response to their investigations.

It goes without saying that it is crucial that firms take their money laundering and wider compliance obligations seriously. The SRA will be looking for other areas of concern when carrying out the upcoming AML checks and will not hesitate in referring firms and individuals who do not come up to scratch for enforcement action.

To assist firms in creating a bespoke firm wide AML risk assessment, we have prepared a risk assessment questionnaire which helps to clarify the risks to which your firm is exposed, together with a template risk assessment with guidance notes as to how this can be tailored to meet your own requirements. This is available as part of our recently updated firm handbook/bank of policies and precedents; please contact us should you wish to find out more information about how this resource can be accessed.  

SRA Compliance Officers Conference on 30.11.19

The SRA reiterated that AML remains a big focus for them at their recent conference, which included reference to their upcoming large-scale thematic review. It was also reported that the NCA will be focusing on enhancing the SAR reporting regime after admitting it does not work and needs improving.  We will be keeping a close eye on developments, particularly bearing in mind the reporting issue for lawyers due to their inability to override legal professional privilege.

Modern Law Magazine roundtable in association with Smartsearch on 05.11.19 and 5MLD

We recently attended this roundtable event along with other AML and compliance experts. The general consensus was that the 5th Anti-Money Laundering Directive (5MLD), which is due to be transposed into UK law by 10.01.20, will impact most significantly on those firms who have an international presence, however clarity is expected once the updated version of the Legal Sector Affinity Group Guidance on AML is published.

It was agreed that all firms should be making sure they are compliant with 4MLD as the SRA will be marking against this when undertaking their upcoming AML thematic reviews. We also recommend that firms do not make any changes to their policies and procedures until the changes to the regulations are published and updated guidance is received from HMRC and the Law Society (via the Legal Sector Affinity Group Guidance).

For those looking for some practical guidance in the meantime, our AML expert, Bill Jones’ AML update webinar in July 2019 included guidance on how the regulations are expected to impact on firms. The webinar is available to clients currently enrolled on our Compliance and AML training libraries. Bill will also be presenting another AML webinar in January 2020 (the date for which will be announced shortly) which will provide further guidance.

Another interesting point which came to light from the roundtable event was the recommendation that Private Client lawyers undertaking probate work carry out source of funds check to ascertain how the deceased person acquired their funds and are alert to red flags which may indicate that they were involved in money laundering. Any concerns should be discussed with the MLRO who will then decide whether further action is required. We also encourage firms with our Risk & Compliance system to record money laundering suspicions within the Money Laundering module, which corroborates the documenting of decisions approach (see below).

ILFM Conference on 22.11.19

AML was also a topic on the agenda at the recent ILM Conference. A key point which was highlighted was the importance of firms documenting any decisions made in relation to CDD and other AML checks as what may make sense at the time of the transaction could be forgotten in a few years’ time. The maxim ‘if it is not written down, the firm did not do it’ was suggested as a good one for firms to reiterate to staff. The greater flexibility in decision making which is introduced by the new SRA Standards and Regulations makes this approach all the more important. The representatives from the SRA who presented on the new Accounts Rules endorsed this maxim as an appropriate stance for firms to take.

Our findings from auditing conveyancing files

We recently contributed to an article where experts discuss AML and conveyancing, in which we set out our findings of the most common breaches when carrying out file reviews. The article can be accessed at: https://www.todaysconveyancer.co.uk/main-news/experts-discuss-anti-money-laundering-conveyancing/.

If you would like to find out more about any of the topics discussed in this summary or require assistance with any aspect of your firm meeting its AML obligations, please contact us on 01206 321 391 or email support@riliance.co.uk. We also have a variety of training courses on AML, for both fee earners and support staff which we would be happy to discuss with you.