Anti-money laundering compliance, in theory, is mandated and designed to help firms identify risk and to counteract legitimate concerns about criminals who may be hiding or moving illegally obtained money. Increasingly, in practice, those legal professionals working in compliance or who are obligated to perform compliance checks report that is becoming time- and resource-heavy and a major stress for the industry.
That was the central concern raised at a recent Dye & Durham roundtable on AML in conveyancing, which brought together conveyancers, compliance leads and legal technology specialists from across the sector.
Chaired by founder and CEO of Teal Compliance Amy Bell, the discussion set out a problem that will be familiar to most firms handling residential property work: compliance processes that keep expanding, without a corresponding increase in confidence that they’re actually catching the right things.
The three major compliance challenges law firms face
The Dye & Durham roundtable aimed to capture the sentiment of diverse legal practitioners and the issues they face in relation to meeting compliance demands and regulation. Three distinct compliance challenges were identified by the 13 conveyancers, compliance leads and technology specialists in discussion.
The first was the sentiment that documentation has become a substitute for judgement rather than a way to understand one’s clients. Many of those in attendance reported that they are collecting more evidence not because it clarifies risk, but because it’s easier to defend a thick file than a thin one if a regulator asks questions later. In short, firms may be collecting documents in anticipation of a regulator review rather than to fully understand a client.
The second was the increasing stress levels and toll this over-compliance was taking on staff with fee earners absorbing growing volumes of compliance work, much of it unbillable, on top of caseloads that were already stretched.
As several participants reported, a culture of over-documenting has become the safer default, even when it adds nothing to the risk assessment itself, with newer lawyers in particular entering a profession where the fear of getting AML wrong shapes almost every decision.
The final issue reported was the inefficiency of duplication of processes and document collection with clients routinely asked to provide the same identity and source of funds evidence to multiple firms during a single transaction.
Advice on compliance from legal practitioners
What can conveyancing firms do to cut down on these concerns and the practice of over-compliance? In the roundtable discussion, several pragmatic fixes emerged that firms can act on now without waiting for further regulatory clarity.
- Apply a proportionality test to every request. Before adding a document to a file, ask whether it changes the firm’s understanding of the client’s risk. If it doesn’t, ask where it needs to be collected or whether it is being collected out of overcaution.
- Set an internal and agreed bar for collection before any matter starts. Deciding in advance what ‘sufficient’ looks like for each risk tier prevents requests escalating ad hoc once a file is already underway and a fee earner is under pressure to be seen as meeting (or exceeding) requirements.
- Redesign training around reasoning, not repetition. Annual, box-ticking AML training was singled out in the roundtable as ineffective. Instead, shorter, scenario-based formats were favoured, on the basis that staff who understand why a check exists apply it more sensibly than staff who are simply following a script.
- Review checklists on a fixed schedule. Requirements added in response to a specific past incident tend to outlive their relevance. A periodic review keeps checks tied to actual risk rather than accumulated caution.
- Explain the reasoning to clients. When clients understand the purpose of a firm’s checks, they are much more likely to comply. Much of the friction clients raise (and frustration that might result) isn’t about the existence of AML checks; it’s about the lack of explanation for why the same information keeps being requested.
Where technology can help to minimise necessary compliance checks
The consensus at the roundtable was that automation has moved from a nice-to-have to close to a necessity, but only once a firm has already worked out what proportionate looks like.
Applied on top of a checklist that already over-collects, any technology that is used will just result in a faster over-collection. In contrary, when used well, technology can effectively remove the parts of the process that add cost without adding insight.
Dye & Durham’s Unity® platform, for example, integrates biometric ID and liveness checks, Safe Harbour verification for vendors and purchasers, and source of funds checks through open banking, directly into the case file, so results return in real time and the audit trail builds itself as the matter progresses, rather than being reconstructed after the fact.
Layer on PEPs and Sanctions checks and you can identify clients on sanctioned lists or as a politically exposed person immediately. That kind of integration addresses the duplication problem in a limited but meaningful way too: firms triggering checks from data they already hold spend less time re-requesting information the client has already provided elsewhere in the same transaction.
What technology doesn’t do, however, is replace the judgement that tells an experienced conveyancer when something isn’t quite lining up with a client. Honing those instincts and using checks to verify remains an important skillset for anyone in compliance.
Final takeaway
For any professional fielding these checks day to day, the roundtable’s conclusion will likely match your own experience: the volume of AML work has grown faster than anyone’s confidence that it’s catching the right things.
The way to challenge that reality isn’t necessarily to collect more documentation; rather, it’s ensuring that the processes and technology you and your firm adopt matches the compliance need, in a way that makes both firms and regulators confident that a firm truly knows their client.
