Amidst a tide of new and updated legal anti-money laundering (AML) regulation, conveyancing remains very much the highest risk area.
As part of this, failure to carry out Source of Funds (SoF) checks remains the second most common reason for an AML report to be received from the regulator. From the SRA report:
“Understanding the source of funds is crucial to understanding the risk of the transaction. While several firms were able to provide an explanation of the enquiries they made, on a large proportion of files there was no audit trail.”
Although forming a key data point for the evidence, a full and effective SoF check isn’t just about bank statements. It’s not even just about any technology used to effectively collect relevant data. At its heart, a SoF check is about understanding your client properly to come to the best decision within your risk parameters and then practically being able to evidence your methodology. If and when an internal or regulator review comes around, it’s critical to be able to explain the rationale and provide an audit trail to back it up. Reinforcing this, the SRA report goes on to say:
“Understanding the source of funds to be used in a transaction is a fundamental part of the risk-based approach. If someone understands whether the source of funds are legitimate, the risk of money laundering is greatly reduced. While we have seen a slight improvement, firms need to do more in this area and check source of funds more often than we are seeing them do, especially in high-risk transactions.”
There has definitely been an improvement in the sector, driven by improved internal processes, effective technological solutions and real commitment from legal teams to get this right. As the report says, there’s still a way to go, however. To reach a level of general compliance in the real and ongoing battle against laundering the proceeds of crime, 2 things need to happen:
- More firms and teams need to work to improve their commitment, internal processes and drive to put the necessary checks and audit trails in place. There are a lot of excellent and forward-looking firms already doing this and it needs to spread fully across the sector. The flow of dirty money will find the path of least resistance.
- The use of smart technology to make the checks actually achievable in an already crowded working day. Conveyancing is a sector that is already under significant pressure. To make these checks both effective and sustainable they need to be fast and they need to be simple for conveyancers and clients alike. There really is technology out there that will do that and give you everything you need to make a decision and provide you with the audit trail.
What about the checks themselves and how they are made up? On top of gathering financial data and situational information, the SRA had this to say:
“Firms’ AML policies should outline a list of potential red flags that fee earners must be aware of. These red flags should be tailored to the firm. We accept that it is impossible to list every possible red flag, given that criminals are constantly adapting their methods to launder money. However, the inclusion of a non-exhaustive list will help fee earners identify transactions that may be out of the ordinary.”
Whilst it is theoretically possible to do all of this manually or piecemeal with various solutions, it’s not really viable for a conveyancing firm to devote the people and resources to do it effectively in such a competitive market. As mentioned above, there is already technology in the marketplace that will do this and more for you. – gather bank transactions and data, provide tailored client questionnaires and fact finds, analyse and categorise the data, understand income and provide a list of potential red flags matched to your risk parameters.
There is a way to understand your client, provide an audit trail, meet the SoF regulations and combat crime. It exists, and it really is that simple. You just need to use it.
