Anti-Money Laundering
Audits for UK Law Firms

LSAG guidance requires law firms under the SRA to carry out independent audits that examine the effectiveness of their AML policies “where appropriate to the nature and size of the practice”. This means that ultimately each firm must decide for themselves whether to carry out an independent audit, based on their size, the nature of their business and how well they feel they are fulfilling their AML compliance responsibilities. Usually the larger the firm, the harder it is to ensure AML compliance without an independent audit function. Also, firms that deal with higher risk matters and clients will be more likely to need to carry out independent audits in order to ensure AML compliance.

According to LSAG guidance, firms should take a risk-based approach to independent audits, but generally, audits should be done at regular intervals such as annually. LSAG also notes that in addition, widespread or more targeted audits may be required when there have been changes to the practice's risk profile, structure or services provided, and that for higher risk areas, audits might be required more frequently.

• Businesses can gain an objective, unbiased view of the effectiveness of their AML/CFT strategy and controls
• The reports provide practical recommendations that businesses can put into place
• Carrying out regular audits can improve a firm's image with clients, investors and regulators
• Firms can integrate insights and recommendations from the audits into processes and procedures and these can help optimise the business
• Regular audits can help ensure that any shortcomings in AML or CFT are identified quickly before they are discovered in a regulatory examination where they could lead to unnecessary fines or reputational damage

An independent AML audit should be checking for the following:

• Businesses can gain an objective, unbiased view of the effectiveness of their AML/CFT strategy and controls
• The reports provide practical recommendations that businesses can put into place
• Carrying out regular audits can improve a firm's image with clients, investors and regulators
• Firms can integrate insights and recommendations from the audits into processes and procedures and these can help optimise the business
• Regular audits can help ensure that any shortcomings in AML or CFT are identified quickly before they are discovered in a regulatory examination where they could lead to unnecessary fines or reputational damage

Subsequent audits should include the following:

• A statement on the firm's progress with regard to implementing recommendations from the previous audit
• A statement on how well those recommendations were implemented

No, according to the Money Laundering Regulations. However, in many circumstances it seems to be the most sensible option. LSAG guidance stresses:

• the audit should not be conducted by the firm's own compliance team or MLRO/MLCO
• the audit may not be conducted by the team who did the original work
• those conducting the audit must have expertise in Anti-Money Laundering and Terrorist Financing regulations

A larger firm might be able to satisfy the SRA requirements without conducting an external audit. However, once a smaller firm determines that it is necessary to conduct an independent audit they would probably want to conduct an external audit to ensure full compliance with the SRA's requirements.