All firms doing work within the scope of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 must have a practice wide (also referred to as firm wide) risk assessment (PWRA) in place. You may have seen reports recently of the SRA contacting firms to request these along with their policies, controls and procedures (PCPs) and issuing fines where sufficiently compliant documents could not be provided.
Given that this is a fast-developing area, we advise that firms review their PWRA at least once a year in line with the Legal Sector Affinity Group (LSAG) guidance and whenever there are changes to regulations, guidance or technological developments.
The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 came into force on 1st September 2022 and include an obligation for regulated entities to identify, assess and mitigate the risk of proliferation financing. This brings with it a requirement for firms to carry out a PWRA (either as a stand-alone document or as part of their existing PWRA) and have PCPs in place to address the risk of proliferation financing.
Proliferation financing is defined in the regulations as including, but not being limited to, the provision of funds or financial services in connection with the possession or use of chemical, biological, radiological or nuclear weapons and technology (including dual-use technology – i.e. it could be used for either civil or military purposes) and dual-use goods in connection with such weapons. The key focus here is on the threats posed by rogue states and the strict implementation of the sanctions regime to prevent bringing certain restricted goods or funds to these states.
Even if in your day-to-day work you are unlikely to be directly involved in high-risk areas such as trade finance, aviation and shipping, and you may not be dealing with relevant manufacturers and exporters, it is worth bearing in mind that the financial transactions required to enable the movement of the goods in question may be facilitated through the UK as part of seemingly unrelated and innocent transactions. We would therefore advise that you reflect in your PWRA that you and relevant staff in your firm are aware of the risk of proliferation financing and have given due consideration to the specific rules under the sanctions regime.