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Automatic fines likely for firms still failing on AML
19 October 2023

The SRA is likely to extend automatic fixed penalties to breaches of money-laundering regulations as it continues to come across routine non-compliance in the legal sector.

The fixed fines regime already apply to failures to co-operate with document requests or not meeting transparency requirements, but the regulator sees it as a potential tool for ensuring firms take the issue of AML more seriously.

The organisation says a ‘significant majority’ of firms are not fulfilling every one of their AML obligations and it is looking at being able to punish non-compliance more quickly without taking firms through the disciplinary process.

Further inspections of firms will take place in the coming weeks, with investigators wanting to see proof of relevant and functional risk assessments.

Speaking at the SRA’s compliance conference in Birmingham yesterday, chief executive Paul Philip said the organisation was ‘quite worried’ that messages about ensuring compliance were not getting through.

‘We are making the point that further compliance needs to happen, and we can see no other way forward than consulting on our automatic fining arrangements,’ he said.

Philip said the burden of meeting AML regulations was the most common complaint firms made to him, but he stressed these were regulations imposed by government and the SRA was required to ensure they were met.

‘I honestly believe the vast majority of solicitors are not doing it [non-compliance] deliberately and you are busy people,’ he told delegates. ‘But it is an important element and we are going to be coming down harder.’

The SRA has been moved to publish a warning notice to firms saying they need to do more to properly assess any money laundering risks posed by clients and the services they are offering.

The regulator has visited 30 firms for its latest review and all but two had a process in place for risk assessments. But several of the 28 firms were only partially compliant as their process was not properly used.

Most firms visited considered client and matter risk together in a single document, but failed to complete them comprehensively. One firm’s assessment of risk was limited to client risk only, and three firms’ risk assessment processes were limited to considering matter specific risks. A review of client files found fewer than half had actual documented client/matter assessments.

The two firms that did not have a process in place have already been referred to the SRA’s specialist investigation team.

Philip said: ‘What’s clear from our thematic review is that firms are well aware of what is required of them, but aren’t getting it right on the ground. That’s why we’ve published a warning notice, to remind the profession of its obligations.’

The SRA has also published a base template for firms and guidance on how to develop it.

In total in 2022/23, the regulator carried out 162 onsite and thematic inspections of firms and 73 desk-based reviews. It took action against 49 firms and individuals, with fines issued totalling £137,000.

Source: The Law Society Gazette, 19 October 2023

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