10 questions law firms need to be asking before advancing an effective and compliant AML programme
Increased Regulatory Scrutiny in the UK Legal Sector:
Key Factors and Implications
The legal sector in the UK is facing increased regulatory scrutiny due to a combination of factors: the upcoming FATF evaluation, where the UK aims to address previously identified areas for improvement; the sector's inherent vulnerability to money laundering risks given lawyers' involvement in high-value transactions and complex corporate structures; and the heightened focus on sanctions compliance following recent geopolitical events.
Regulators are particularly concerned with enhancing the sector's approach to sanctions screening and strengthening anti-money laundering practices, especially among smaller firms where compliance standards have been found to be less robust.
There is a concern that now that the Solicitors Regulation Authority (SRA) have unlimited fining powers, that law firms are under more scrutiny than ever. Never before has the legal sector seen such a level of scrutiny in legislative and regulatory change. The need to adopt more robust and proactive approaches to anti-money laundering (AML) supervision is evident.
This means that law firms should expect more requests for information, more proactive monitoring and tougher enforcement for non-compliance. In short, law firms should be prepared for more scrutiny.
10 Key questions law firms should be asking
In line with guidance provided by the SRA and the Law Society on what is expected of law firms and legal professionals, here are some of the crucial questions law firms need to be asking themselves:
Question 1:
Have we carried out a thorough risk assessment and are we confident our risk-based approach effectively identifies the vulnerabilities related to each of our areas of practice?
Question 2:
Have we made sufficient effort to segment our client base according to the level of potential risk each represents to our practice? Are we clear what enhanced due diligence (EDD) measures are required for higher risk clients, and how frequently we need to be monitoring our client base?
Question 3:
Are we confident our identity verification and authentication checks are sufficiently robust to be sure we know who we are onboarding?
Question 4:
Are we confident we have appropriate systems in place to mitigate the risk of identity fraud?
Question 5:
When handling client monies, do we have sufficient checks in place to ensure we are not handling proceeds of crime?
Question 6:
Are our screening procedures robust enough to be able to identify Politically Exposed Persons (PEPs), sanctions and adverse media related to not only our clients and their associates, but also our employees?
Question 7:
How frequently are we screening our clients for these risk factors and are we satisfied our screening approach will stand up to regulatory scrutiny?
Question 8:
Are we confident we have the right processes in place and the right information sources to identify beneficial owners effectively, particularly when dealing with international clients?
Question 9:
Have we established and implemented an effective ongoing monitoring program to promptly identify changes in client risk profiles and suspicious activities throughout the course of our business relationships?
Question 10:
Are our current policies, procedures and controls sufficiently transparent, with a clear audit trail available, in the event of an investigation?
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