Reports of AML breaches down 8%, SRA data shows

The number of reports received by the Solicitors Regulation Authority (SRA) regarding potential breaches of money laundering regulations fell by 8% from 273 to 252 between the 2021/22 financial year and the year prior, new data has revealed.

The data is contained within the SRA’s Anti-Money Laundering (AML) annual report 2021-22. With regards to the type of breaches seen, the following were the most significant reasons seen:

Specific matter reason Count
Failure to carry out/complete initial CDD 49
Failure to carry out a money laundering risk assessment 40
Failure to carry out a source of funds check 39
Failure to identify client 28
Failure to have proper AML procedures 26

This comes despite the sanctions drive seen by the SRA which has seen greatly increased resources devoted to ensuring AML compliance.

The number of money laundering-related matters which resulted in an internal outcome did, however, nearly treble from 16 to 43, though the regulator said this relates to firms’ failure to respond to their AML data request. With regards to fines, in 2021/22 the SRA issued 29 fines, totalling £286,976. Just eight firms or individuals were referred to the solicitors disciplinary tribunal, down from 13 the previous year.

Though the SRA said they have overall seen a “slight improvement”, they suggested firms need to do more in this area. Other issues they identified were:

  • Failures to apply enhanced customer due diligence (EDD).
  • Failure to have a firm-wide risk assessments (FWRA) or having a FWRA that was inadequate.
  • Poor policies, controls and procedures.
  • Failure to notify us of the appointments of money laundering reporting and compliance officers or seeking approval as a manager (BOOM).
  • Failing to have sufficient regard for issued warning notices and red flag indicators (as highlighted in a FATF report) in transactions.

They also identified three key themes that they believe contributed to these breaches:

  • Lack of understanding of the importance of the SRA’s role as a professional body supervisor and complying with data requests from the SRA.
  • Inadequate supervision or training of fee earners on firms’ policies, controls and procedures.
  • Having poor policies, controls and procedures, such as poor processes which allow the receipt of funds from clients when no checks had been carried out. The SRA said they expect to see an increase in the number of sanctions for such failings. This is on top of the historic common themes of failings relating to adequacy of CDD measures on individual transactions.

There were also 20 suspicious activity reports made to the National Crime Agency by the SRA, down from 39 the previous year – though the 20 reports concerned a striking £149 million of potentially criminal funds.

SRA Chair Anna Bradley said:

“Most firms take keeping ‘dirty’ money out of the legal sector very seriously. I would like to thank those firms that engaged with us through feeding into our thematic review, cooperation with proactive supervision and sharing their practical experiences of implementing the money laundering regulations.

But there is still a small minority of firms that do not take preventing money laundering seriously. In the last year we have seen a polarisation of the outcomes from our proactive supervision with more firms being assessed as either compliant or not compliant and fewer firms being assessed as partially compliant.

To those firms not doing enough to prevent money laundering, you need to take your obligations seriously and play your part. As we increase our inspection and desk-based review supervision now is the time to put your house in order.”

Read the full report here.

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