Fifth of law firms fail on money laundering compliance

A fifth of law firms fail on money laundering compliance and don’t have required firm risk assessment according to the Solicitors Regulation Authority (SRA)

The SRA says that in March, it wrote to 400 firms asking them to demonstrate compliance with the 2017 Money Laundering Regulations by sending their firm risk assessments. Of the 400 responses,  received 21 percent (83) were not compliant. They either did not address all the risk areas required (43), or they sent over something other than a firm risk assessment (40) – for instance, a client or matter risk assessment.

The majority of firms (64%) were using templates. These firms’ risk assessments were generally of lower quality. Templates can be helpful, but too many firms appeared to take a ‘copy and paste’ approach, without thinking through the specific risks and issues faced by their firm.

The SRA says it was also concerned that many of the risk assessments (135 or 38 per cent) were dated recently. Although this could reflect an update of an earlier assessment, this suggests some firms may have only created one in response to the request and therefore some firms may not have an existing risk assessment.

The SRA says it has highlighted its concerns in an updated warning notice, while also providing additional support, including guidance, checklists and a suggested template that reflects the learning from firms’ template submissions to the review exercise. It is also engaging with firms to make sure they comply promptly. If they do not, they will face enforcement action.

The SRA will shortly be writing to the 7,000 firms that fall under the scope of the Money Laundering Regulations to ask them to confirm they have a firm risk assessment in place. The SRA will also be carrying out an extensive programme of targeted, in-depth visits to firms and calling in more firms’ risk assessments.

Paul Philip, SRA Chief Executive, said “Money laundering supports criminal activity such as people trafficking, drug smuggling and terrorism. The damage money laundering does to society means that every solicitor must be fully committed to preventing it. The vast majority would never intend to get involved in criminal activities, but poor processes open the door to money launderers.”

“A call from us should not be the prompt for a firm to get their act together. You need to take immediate action now if you are not on top of your money laundering risks. Where we have serious concerns, we will take strong action.”

Figures released in SRA annual Risk Outlook show that so far this year they have opened 172 investigations linked to anti-money laundering compliance. In the last five years, have taken more than 60 such cases to the Solicitors Disciplinary Tribunal, resulting in more than 40 solicitors being struck-off or suspended.

The Outlook also highlights that new EU money laundering regulations are due to come into force by 10 January 2020. This will mean firms need to update their processes to bring them up to date with the new legislation.

Money laundering is one of the nine priority risks for the legal profession in the annual Risk Outlook. Other risks highlighted include solicitors getting involved in dubious investment schemes, and the risks of losing information or money to cybercrime.