Posted by Brian Rogers, regulatory director at Legal Futures Associate Access Legal [1]
Rogers: Relying on estate agents for client due diligence is risky
Our latest anti-money laundering (AML) update webinar covered some important topics, including AML inspections, the scope of Money Laundering Regulations 2017 (MLR) and the Solicitors Regulation Authority’s (SRA) sectoral risk assessment.
Here, I’ll discuss some of the most important points from each, but feel free to watch the webinar for free on demand [2].
New AML inspections
The SRA has started a new round of AML inspections and updated its guidance on what to expect if you receive one.
All law firms have also recently been receiving requests from the SRA to complete an AML data collection exercise, which is likely to become an annual requirement.
The reason why all firms are receiving the requests is because, despite the title, the regulator is also collecting data around sanctions compliance, which applies to all firms whether or not they fall under the MLR.
Data returns cannot be completed via the SRA portal (not mySRA) until it opens in early August, but firms should start gathering the data now, especially as some of it may take some time to gather; the specimen questionnaire can be found here [3], along with guidance on it.
Scope of the MLR
A question that is often asked by firms is what is meant by ‘size and nature’ when it comes to whether a firm needs to appoint a money laundering compliance officer, and meet employee screening, and independent audit function requirements. As a result, the SRA has provided some guidance via Linkedin, which you can find here [4].
In the past, the SRA has taken the view that, unless you are a sole practitioner, where all roles are undertaken by one person, you should adopt the above obligations and that, if you don’t, you will face an uphill struggle to explain why you felt your firm wasn’t caught by the obligations.
Our best practice advice has always been to meet the obligations unless you are a sole practitioner.
AML fines
You will have read on Legal Futures (the latest just this Wednesday [5]) that we continue to see fines being levied on firms for basic level errors. Here are just some examples:
- £11,015 for allowing its client to be used as a banking facility;
- £9,000 for a lack of client due diligence and accepting money from an unknown third party;
- £23,930 for failing to have appropriate policies, controls and procedures in place between 2017 and 2022; and
- £17,223 for failing to have appropriate AML documentation in place.
Ironically, the SRA failed in its claim for £189,000 in costs on a high-profile money laundering case that it lost (it can still claim costs when unsuccessful if the prosecution was properly brought) because here it failed to follow its own guidance when bringing the case!
Away from the law, more than 250 estate agencies have been fined a total of over £1.6m for breaching AML requirements, HM Revenue & Customs has announced.
The fines ranged from £1,500 to over £50,000 and reinforce the view that, at present, law firms should not rely on estate agents to carry out client due diligence on their behalf unless they are completely sure they will do so properly, especially as law firms would remain liable for any errors/omissions.
Are you an AMLO?
Don’t worry, this is not a new role you have fulfil!
We recently raised a query with the SRA over its use in mySRA of the terms AMLO, AMLRO and AMLCO. Although the latter two make sense (MLRO/MLCO) the former was why we asked.
According to the SRA, all partners, directors and members are regarded as anti-money laundering officers (AMLO) for internal SRA purposes.
SRA sectoral risk assessment
The SRA updated its assessment in March 2024 [6], and you should note it in your firm-wide risk assessment (FWRA). We have had confirmation from the SRA’s ethics helpline that you should note even areas that may not apply to you to show that they have been considered.
Emerging risks have been identified as: facilitating vendor fraud, proliferation financing, technology, wider economic pressures, and supply chain risk.
The assessment also included observations made during proactive supervision: weak controls, simplistic approach to PEP checks, heavy reliance on external support, products and services, client risk, transaction risk, delivery channel risk, geographic risk, and sanctions risk.
Other updates
During the webinar, we also covered updates around new EU AML rules, the recent Financial Action Task Force plenary session, and other related topics.