To little fanfare, the Council for Licenced Conveyancers (CLC) announced a new Source of Funds (SOF) and Source of Wealth (SOF) checklist for their members at the end of May. Despite going under the radar, the new guidance provides valuable advice to the conveyancing trade particularly against the backdrop of significant and growing regulatory penalties for failures to perform anti-money laundering (AML) checks.
2022 saw the FCA issue 14 fines, up from 4 the previous year, with retail bank Santander being hit with a £108 million penalty for “serious and persistent gaps in its anti-money laundering controls.” However, it’s not just large corporates being targeted by the regulators. Earlier this year, the SRA fined Oxfordshire firm Ferguson Bricknell £20,000 for failing to have anti-money laundering training and systems in place.
With smaller firms coming under increasing scrutiny, it’s more important than ever that firms and their employees are aware of the latest guidelines to avoid potential penalties and help tackle money laundering itself.
Here are the key points to note from the CLC’s latest guidance:
Explain requirements for SOF/SOW clearly and in the practice’s terms or letter of engagement
Setting the consumer up for success is a key ingredient in reducing client friction in the source of funds process.
The regulator is encouraging firms to be bold in the strength of their message. If there’s ambiguity in the requirements for SOW and SOF, the consumer is likely to choose the option the law firm doesn’t want, or the path of least resistance. Consumers will be happy to follow guidance if it’s clearly set out from the very start and not a hidden surprise further down the line.
Conduct SOF/SOW as early in the process as possible to remove pressure
By carrying out the check early, firms are not just taking pressure away from the transaction at a later stage, it enables them to identify and take action on key issues early. Obtaining the information early and then analysing and assessing it puts the profession in a much better place to detect bad actors. It’s a much easier problem to solve if the conversation is had early.
Go beyond proof of funds
This is another key update in the guidelines. During a transaction, the CLC state it is no longer enough to know the money is coming from a UK bank account. Solicitors must answer how and from where did the client get the money for this transaction or business relationship.
It’s great to see the CLC taking such direct action to support the industry in addressing money laundering and recent news serves as a reminder that regulators are taking the issue increasingly seriously. The sector needs to act swiftly if it wants to avoid potential penalties and credibility damage that can ensue from improper activities.
Written by Tom Lyes, Head of Property and Legal Services at Armalytix.
