SRA Ramps up Anti-Money Laundering Drive

The regulator is driving forward its efforts to combat money laundering and to help firms comply with their legal obligations, following a review of 59 law firms providing trust and company services. The review has resulted in 26 law firms being referred into the regulator’s disciplinary process.

Money laundering is a scourge of the business world and particularly of law firms who are a key target of criminals. The Money Laundering Regulations (MLR) 2017 place particular responsibilities on firms and individuals offering services most likely to be targeted by money launderers. The government has highlighted the creation and administration of trusts and companies for clients as an area of legal service at the highest risk of exploitation by money launderers.

The Solicitors Regulation Authority (SRA) recently undertook a thematic review of law firms involved in trust and company service (TCSP) and found that a significant minority were not doing what they should to meet their obligations, with some firms falling “seriously short” of what is expected. However, no evidence of actual money laundering was found.

As a result of its review, the SRA made clear that if any of the 26 firms it has referred into its disciplinary processes fails to co-operate - or the breaches are significant - it will consider disciplinary action. The regulator has also issued a warning notice to the legal profession.

A further SRA review involving 400 more law firms has now begun, to check their compliance with the MLR.

SRA findings
The SRA has now published its findings which include:

  • No evidence was money laundering was found
  • No evidence was found of firms having any intention of becoming involved in criminal activities
  • A range of breaches of MLR 2017
  • Poor training and processes meaning firms could be unwittingly assisting money launderers
  • Concerns around anti-money laundering risk assessments and of customer due diligence


So why are TCSPs so attractive to money launderers?

Action plan for firms
It is clear there is plenty of room for improvement. As the SRA states, they need to understand who their client is and what money laundering risks they pose. It is particularly concerned about firms’ risks assessments which are a statutory requirement. A third of the 59 firms fell short of this requirement and four had no risk assessment at all.

Firms also need to tighten up their customer due diligence processes, particularly in relation to politically expose persons (PEPs). Specific training on the topic is vital (“Poor training leads to poor compliance,” says the report). Firms must also be more proactive in looking to identify and then report suspicious activity.

Firms must pay particular attention to the SRA warning notice, Compliance with the money laundering regulations – firm risk assessment, which the regulator published as a result of the review. The notice applies to regulated persons and firms who are under a legal obligation to ensure they do not facilitate money laundering or terrorist financing.

The expectations of firms are made clear in the warning notice, for example, firms’ risk assessments must be in writing, kept up-to-date and provided to the SRA when requested. Factors to be considered when undertaking money laundering risk assessments are helpfully set out in the warning notice. A firm’s failure to have a risk assessment in place is a significant breach of MLR; is potentially serious misconduct; and could lead to robust enforcement action.

SRA Chief Executive Paul Philip said: “The stakes are too high for solicitors to be anything but fully committed to preventing money laundering and the crime its supports. Most solicitors take their responsibilities seriously, but too many firms are falling short. Those firms should be on notice that compliance is not optional.”

The SRA has no choice but to take a firm stance on this. As a professional supervisory body, it has a statutory duty to ensure regulated firms assess risks and take proactive steps to mitigate and respond to money laundering issues, and to take appropriate action when firms fail to reach the required standard.

There are plans to set up a new dedicated AML team in the SRA, with increased resource to monitor and ensure compliance in this area.

You can read the review in full here

 

 

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