MoJ: Move will enable effective risk-based regulation
The government is to extend the Solicitors Regulation Authority’s (SRA) powers to demand information from solicitors and firms beyond money laundering matters to economic crime more generally.
It is being added to the Economic Crime and Corporate Transparency Bill currently going through Parliament.
At the moment, the SRA has the power to require firms to provide it with certain documents ahead of inspections it carries out in relation to money laundering.
However, approximately 3,200 law firms and sole practitioners are not covered by the Money Laundering Regulations.
Otherwise, the only way the SRA can force firms to hand over information and documents is by issuing a notice under section 44B of the Solicitors Act 1974. But this is only used where necessary for the purposes of an investigation, rather than a routine inspection, even if the firm has been targeted on a risk basis.
A briefing the Ministry of Justice published yesterday said this gap “means that the SRA cannot effectively practise proactive checks, and therefore risk-based regulation, across the whole of its regulated community”.
It went on: “The crisis in Ukraine has shone a light on the exposure of professional services sectors to economic crime. The legal services sector was assessed in [HM Treasury’s] national risk assessment of money laundering and terrorist financing (2020) as at a high risk of abuse for money laundering purposes.
“The sector is also exposed to further-reaching risks such as fraud or breaches of sanctions legislation. We need to ensure that legal services regulators have the powers they need to tackle economic crime.”
As a result, the government is introducing a new power so the SRA can “proactively request information from all regulated individuals, licensed bodies and firms within its regulated community, in relation to economic crime”.
It went on: “This will ensure that the SRA has the necessary proactive information request powers to fulfil its obligations to effectively oversee and enforce the deterrence and detection of economic crime.
“This will enable effective risk-based regulation and better targeting of the SRA’s monitoring and enforcement work in relation to economic crime.”
The SRA had no comment on the move.
The bill also gives the SRA unlimited fining powers in cases of economic crime and introduces a new regulatory objective for the Legal Services Act 2007 – affecting all of the regulators – that will require them to promote the prevention and detection of economic crime as a distinct priority.
The SRA issued guidance last year about money laundering-related inspections that sets out the documents it requires firms to provide no less than 21 days in advance.
These include the firm’s AML risk assessment, policies and procedures, training records and a list of fee-earners who undertake work within scope of the regulations along with a matter list.
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