5 things we learnt from the Law Society’s annual AML conference

Note: All data is from Financial Year 2021 / 2022

In September 2022, the Law Society held their annual Anti-Money Laundering and Financial Crime Conference which was attended by over 400 people in person and online. Here are our key takeaways:

1. Anti Money Laundering (AML) remains a major focus of the Solicitors Regulation Authority (SRA)

AML is still at the forefront of the SRA and they are continuing with their four pronged approach to AML Supervision:

Information – The SRA provide lots of information and guidance around AML, a link to their resource page can be found here.
Proactive supervision – The SRA carry out supervision through desk based review, inspections and thematic reviews.
Investigations – As of 22nd September 2022, the SRA had 224 open AML related investigations.
Enforcement – SRA has taken 51 actions of enforcement on AML related matters, including 29 fines.

2. Suspicious Activity Reports (SARs) are being reviewed by the SRA during their visits

While most SARs were written well, the SRA identified issues in relation to:

Glossary codes – these were missing in ⅔ of SARS
Client contact details – phone numbers / email addresses were missing in 28% of SARS
Defence firm was seeking – this was missing in 22% of SARS

3. Firm Wide Risk Assessments are still missing the mark for many firms

All firms declared to the SRA in 2021 that they had a firm wide risk assessment in place.

However, the reality is that many firms are only putting a firm wide risk assessment in place once the SRA come knocking. The SRA notes:

An AML policy or an operational risk assessment are not the same as a firm wide risk assessment – these need to be separate.
Using a template for the firm wide risk assessment is fine, as long as it is customised to suit the nature of your firm and you don’t leave it generic. You should consider all the services that your firm provides – SRA will compare to the practice areas listed on the firm’s website
You should expand on all risks that are identified – just saying that you work with high risk jurisdictions is insufficient, you need to list which specific countries you do business with.

The best firm-wide risk assessments show that all the firm’s business has been included and it is clear that each department has assessed their firm-wide risks. Quite often these originated from templates that were adapted to fit the needs of the firm.

4. The client and matter risk assessments are still problematic for many firms

In 2023 there will be a thematic review of client and matter risk assessments, as this is a heavy focus of the SRA.

The SRA reviewed 1325 client files. In 20% of the files there were no client or matter risk assessments completed. Where there was a client / matter risk assessment, there were some issues with their quality:

20% did not reflect the firm wide risk assessment. For example, the firm wide risk assessment may have flagged conveyancing as a high risk area, but at a matter level it was rated as low risk.
30% of client risk assessment didn’t clearly show when enhanced due diligence was required
42% of matter risk assessments were ineffective
Templates should not be basic forms that are “check box” in nature, they should allow for room to justify or explain your decisions

Good practices that the SRA encourage include:

Introducing client and risk assessments which allow for different factors for fee earners to consider, but then ultimately give fee earners their own judgement to make a final decision on the level of risk
Using different templates based on the type of work being provided
Templates with a variety of different risk factors, all of which combine to give a rating, and where necessary prompt the MLRO must get involved in the final decision

5. There are recurring trends in SRA enforcement

The SRA have seen some recurring trends and a few new ones, these include:

Failure to reply to information requests – this is currently one of the biggest problems. This includes failure to declare if a firm has a firm-wide risk assessment in place. It is also noted that 1000 firms did not respond to the AML Money laundering risks questionnaire which was required to be submitted to the SRA by the end of July 2022.
Failure to carry out CDD. This includes no identifying Ultimate Beneficial Owners or lacking information on Source of Funds and Source of Wealth.
Policy, procedures and controls are non compliant
Failing to notify the SRA that the firm is working as a trust or company service provider

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