Tuesday, August 20, 2019

Anti-Money Laundering Update

AML remains a hot topic in the legal compliance world – here is a quick roundup of recent events.

SRA Thematic Reviews

AML and compliance with the Money Laundering Regulations 2017 have been a big focus for the SRA in 2019.  In March, it announced its intention to write to an initial sample of 400 firms to ask them to demonstrate compliance with the Regulations, which included evidencing that they had a firm wide AML risk assessment in place and are implementing it. Firms that were not complying were told they would face disciplinary proceedings.

In May, continuing the theme, the SRA published its thematic review of 59 trust and company service providers which revealed breaches of the Regulations, poor AML training and processes and exposed the risk of firms unwittingly assisting money launderers. One of the biggest areas of concern was a lack of or an insufficient firm wide risk assessment. Other issues identified included inadequate client due diligence checks, particularly with regard to managing risks of Politically Exposed Persons. 26 of the 59 firms were escalated to the SRA’s disciplinary processes following the review.

Following on from the review, the SRA published a warning notice reminding firms of their obligations to comply with the Regulations and to not facilitate money laundering or terrorist financing. This included specific reference to their firmwide risk assessment which ‘should form the backbone of your policies and procedures to prevent money laundering'.

A review of a further 400 other law firms has also been announced to continue checking compliance with the Regulations, which is to be led by the SRA’s new dedicated AML unit.

Law Commission’s project on AML

The Law Commission has also been focusing on AML and recently undertook a project on the SARs regime which looked at the current system for reporting suspicious financial activity and why it is not working as well as it should.

The Commission’s report was published in June and is currently with the Government awaiting review and an interim response. Recommendations within it include:

  • The creation of an advisory board with oversight for SAR the regime, with a remit to oversee the drafting of guidance, to measure the effectiveness of the regime and advise the Secretary of State on way to improve it.
  • A standardised form for the submission of - prescribing the form in which suspicious activity is reported, making use of technology to devise an online interactive form.
  • Statutory guidance on a number of key legislative concepts underpinning the reporting regime, to assist the regulated sector in complying with their legal obligations. This includes guidance on suspicion, appropriate consent and arrangements with prior consent and what may amount to a reasonable excuse.

Day to day operations

As well as the wider regulatory review, our experience of working with a wide variety of clients has emphasised that real issues still remain at the grassroot level, with fee earners consistently failing to obtain sufficient ID and source of funds evidence, which includes evidence from third parties. Another ongoing theme is the failure to thoroughly check the full results of electronic ID checks; just because a report may give you an overall “green light” it does not mean there may not be other areas of concern that need to be addressed before you can proceed.

Please contact us if you would like to discuss AML training options as we have a wide variety available, including both onsite bespoke sessions and online training courses. We also have a template firm wide risk assessment available as part of our AML resources pack.

By way of insight, the Department for Digital, Culture, Media & Sport and the Cabinet office recently released a consultation paper into how the government can support improvements in ID verification and the secure use of digital identifies. The aim is that over time, a secure alternative to producing passports, driving licenses and utility bills will be established however there is initial scepticism as to how this will fare given the poor track record of national identity schemes in the UK.  Evidence gained during the consultation is expected to inform policy making and government priorities.

The consultation paper is available to view at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/818801/Digital_Identity_-_Call_for_Evidence.pdf. Responses should be sent to digital-identity-cfe@culture.gov.uk by midnight on 15th September 2019.