SRA AML audits: be prepared

10 April 2019

The Solicitors Regulation Authority (“SRA”) confirmed in March that it will be writing to a “large number” of firms (400) asking to see evidence of compliance with the Money Laundering Regulations 2017 (“MLR 2017”). A failure to respond to the SRA request can have regulatory and criminal consequences.

This action is taken under powers set out in the SRA Handbook 2011 and Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLR 2017”). See our related blog SRA to undertake AML audits as enforcers keep focus on “professional enablers”.

Risky business – the legal sector

The MLR 2017 (implementing the EU Fourth Money Laundering Directive) are based on a risk based approach where risk assessments need to be undertaken at government level, by supervisory authorities (e.g. SRA) and by relevant persons covered by the regime – including law firms. See our related blog Anti-Money Laundering: new rules and regulations in play.

Law firms have been identified by government as entities at risk of money laundering and lawyers as “professional enablers”.  See our related blog Tackling illicit finance: lawyers under the spotlight.

The Law Society’s own guidance for AML compliance for small firms confirms that:

A key feature of the Money Laundering Regulations is the ‘risk-based approach’ to preventing and detecting money laundering, and the specific requirement to undertake and maintain a documented practice-wide risk assessment.”

The SRA has confirmed that:

we want to make sure that firms have a money laundering risk assessment in place and are implementing it. A risk assessment is required by legislation and should be the backbone of a firm’s anti-money laundering approach”. 

Risk Assessment

The MLR 2017 confirms that “relevant persons” must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its business is subject. This will include information made available to them by the supervisory authority – in this case the SRA (see SRA Risk Assessment 2018) - and in light of their own business. Therefore, law firms will need to assess the size and nature of business and client base including risk factors relating to:

i. customers;
ii. countries or geographic areas in which it operates;
iii. products or services;
iv. transactions; and
v. delivery channels.

Responding to the SRA

It is clear from the SRA’s action that it is ramping up its enforcement action in this area to respond to what it reported as “a mixed picture” in terms of AML compliance.

If you have received a request for you AML risk assessment from the SRA you must respond. A failure to do can have regulatory and criminal consequences.

Lawyers can certainly not afford to be complacent – the legal sector is clearly a target and must continue to be vigilant and prepared to demonstrate compliance or face serious consequences.

For those firms which have not yet done so now would be a good moment to get their houses in order.

Kingsley Napley advises firms and individuals on anti-money laundering law and regulation including investigations by the SRA.

About the authors

Jonathan Grimes is a criminal lawyer specialising in serious and complex criminal cases. His practice includes all areas of financial services and business crime, including money laundering and proceeds of crime work. He advises in a wide variety of other criminal law matters with a particular emphasis on cases with an international aspect, including war crimes and related work. Jonathan is rated as a leading expert in Chambers UK and Legal 500 UK.

Iain Miller is a Partner in the Regulatory team. Iain acts for a number of large law firms in advising them on internal investigations, SRA investigations and money laundering. Iain is General Editor of the leading textbook on legal services regulation, Cordery on Legal Services as well as Chair of the Association of Regulatory and Disciplinary Lawyers.

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