The SRA has made no secret of its mission, partly brought on by pressure from the government, to crack down on firms who do not have adequate systems in place to prevent money laundering.
Further reform to the SRA’s approach on financial penalties came into force in the middle of 2023. For all firms, where a fine is to be imposed, the decision maker will now usually determine the penalty as a percentage of annual domestic turnover, up to a maximum of 5%. The idea of this was to create a penalty which will likely to deter any repetition by the same firm or others, and to uphold public confidence in the profession.
During 2023, both the SRA and the CLC uncovered widespread AML code breaches and non-compliance AML by UK law firms. According to the CLC, of the 52 conveyancing practices they inspected 19 had inadequate AML documented policies or procedures; 18 had inadequate AML client due diligence procedures; and 15 had inadequate AML firm-wide risk assessments. Similarly, the SRA’s own assessments revealed that only around one-third of firms were not fully compliant with their AML obligations.
Regulators have made it clear that they expect law firms and conveyancers to go beyond simply AML check measures; this includes carrying out (where necessary) source of funds checks; source of wealth checks; PEP and sanction checks; and enhanced checks.
Clear and up-to-date policies, combined with consistent and effective training and robust PEP and sanctions tests, are the key to making sure that every member of the conveyancing team is carrying out these enhanced checks when they need to and in a consistent and thorough manner.
The SRA and the CLC are also keen to see the wider adoption of proactive, ongoing monitoring measures for the risk profile of existing clients, to automatically detect problems and act if they arise. The SRA has said ongoing monitoring is “one of the most effective controls firms can put in place to protect against money laundering”.
Our research shows that many conveyancers are unsure what they need to do prove they have conducted ‘enhanced’ due diligence on a customer. While a clear checklist that all regulators have approved of would be ideal, the truth this just doesn’t exist for a very good reason. AML processes should operate on a risk-based approach depending on the individual market.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 – 33.5
Depending on the requirements of the case, the enhanced customer due diligence measures required under paragraph (1) may also include, among other things:
(a) seeking additional independent, reliable sources to verify information provided or made available to the relevant person;
(b) taking additional measures to understand better the background, ownership and financial situation of the customer, and other parties to the transaction;
(c) taking further steps to be satisfied that the transaction is consistent with the purpose and intended nature of the business relationship;
(d) increasing the monitoring of the business relationship, including greater scrutiny of transactions.
Boosting PEP and AML compliance involves implementing a robust compliance framework. Here are some effective strategies:
Training and Education: Regularly train staff on PEP and AML regulations. Provide updates on changes in legislation and best practice.
Enhanced Due Diligence: Conduct thorough due diligence on clients, especially for high-risk categories. Use risk assessment tools to identify potential PEP.
Client Verification: Implement stringent client identification procedures. Utilise reliable verification sources and technology to confirm identities.
Transaction Monitoring: Monitor transactions for unusual patterns or high-risk activities. Establish thresholds for review and escalation.
Record Keeping: Maintain detailed records of client identification, due diligence processes, and transactions. Ensure compliance with data protection regulations.
Regular Audits: Conduct periodic internal audits to assess compliance effectiveness. Address any gaps identified in the compliance process.
Collaboration with AML Compliance Platforms: Work with organisations specialising in AML to ensure full compliance and stay informed about regulatory changes.
Reporting Mechanisms: Establish clear protocols for reporting suspicious activities. Ensure staff are aware of their obligations to report.
Use of Technology: Leverage compliance platforms for automated monitoring and reporting. Implement databases for tracking PEP and other high-risk individuals.
Culture of Compliance: Foster a workplace culture that prioritises compliance and ethical behaviour. Encourage open discussions about compliance issues among staff.
By adopting these strategies, conveyancers can significantly enhance their PEP and AML compliance efforts, thereby reducing risk and ensuring adherence to regulatory standards.
Tim Barnett is CEO of Credas
One Response
Dear Today’s Conveyancer Team – could you please start marking these “articles” as adverts at the very top, so that we don’t read half way down before realising we’re being told that what we’re doing is wrong but, don’t worry, here’s the solution to the entire conveyancing process.