The Solicitors Regulation Authority (SRA) has issued fines totalling £57,000 to eight more law firms for failures in their anti-money laundering (AML) controls.
A particular feature was not having client and matter risk assessments (CMRAs), or firm-wide risk assessments (FWRAs) in place.
The SRA’s annual AML report, published earlier this month, showed that 19% of the 3,048 files examined during the year did not include a CMRA, while 12% were ineffective, for example because the rationale for allocating a particular risk rating to a client or matter was not clear.
However, in the previous year, 51% of CMRAs reviewed were ineffective. “We are pleased to note the improvement in this area,” the report said. The SRA also issued a warning notice on CMRAs a year ago.
The largest fine was handed to Surrey firm Hill Johnson & Leo, which between June 2017 and July 2023 failed to have an FWRA in place or conduct CMRAs, as required by the 2017 Money Laundering Regulations.
Further, the SRA notice said, it had not complied with the predecessor 2007 regulations for the six years prior by failing to determine the extent of customer due diligence measures on a risk-sensitive basis.
All of its work was in scope of the 2017 regulations, mainly conveyancing, which “puts it at a greater risk of being used to launder money” – but there was no evidence of there being any direct loss to clients or actual harm caused.
The fine was set at 2% of the firm’s turnover of just over £1m, reduced by 15% to reflect how it “took steps to rectify its failures”, trained fee-earners and co-operated with the SRA. This took the penalty down to £18,094, plus costs of £600.
Stafford firm Tedstone George & Tedstone after an SRA inspection in summer 2023 found no CMRAs on any of the 11 client files it examined.
The firm was directed to implement a compliance plan for risk assessments and to review its open matters to ensure CMRAs were completed.
In February 2024, the firm confirmed that it ensured CMRAs were completed and recorded on all active files.
The SRA notice said: “It stated that risk assessments had been carried out previously on an informal basis and accepted that these had not been properly documented. Appropriate AML policies and procedures had however now been implemented and would be adhered to on every new instruction.”
The SRA found that, like Hill Johnson & Leo, Tedstone had also not complied with the 2007 regulations.
It was fined £13,030, and ordered to pay costs of £1,350, due to this “long-standing and serious breach of its AML regulatory obligations”.
The SRA said: “It is not sufficient to say that assessments were being carried out but not documented. Although the firm took steps to become fully compliant, this was only after the involvement of the SRA.”
The figure was 2% of the firm’s turnover, reduced to give credit for its early admissions.
Bull & Co in Andover similarly failed to have CMRAs in place from 2017 and was in breach of the 2007 regulations for the two years before that.
In mitigation, there was no evidence of harm, “a low risk of repetition”, the firm had co-operated with the investigation and was now compliant, plus it had shown remorse
The fine was set at 2% of its turnover, discounted by 10% to reflect the mitigation, leading to a final figure of £7,577, plus costs of £600.
Birmingham firm Margetts & Ritchie did not have an FWRA between June 2017 and February 2023, while all six files reviewed covered June 2017 to March 2024 – did not contain CMRAs.
Three of those files also lacked appropriate source of funds checks; one of them involved a property transaction where the client lived in Yemen, which is listed as a high-risk third country. This warranted enhanced due diligence.
The SRA notice said: “The issues identified are serious control failings and the conduct had the potential to cause significant harm. A general culture of failing to assess risks posed to the firm in relation to money laundering and terrorist financing, was indicated by failing to have in place a FWRA and not conducting CMRAs on files.
“The periods of time for non-compliance are substantial, especially considering over half of the firm’s work is in the field of conveyancing, a high-risk area of work.”
The fine was set at 2.8% of turnover, with a 20% discount then applied as Margetts & Ritchie was now in compliance with the help of an external consultant, plus it had co-operated. This meant a figure of £3,828 plus costs of £1,500.
Croydon firm Edridges & Drummonds, which mainly handles conveyancing, was fined £3,395, plus costs of £600, for failing to have a firm-wide risk assessment (FWRA) in place between 2017 and 2021, despite having declared to the SRA in 2020 that it did.
The FWRA was last updated in January 2024 “and is now deemed compliant”.
Further, between June 2017 and April 2024, the firm failed to establish and maintain fully compliant policies, controls and procedures, while on three files between June 2020 and May 2023, the firm failed to conduct ongoing monitoring and source of funds checks.
Its mitigation was similar to Bull & Co’s and the SRA determined a fine of 2.4% of turnover, reduced by 10% given the improvements since made, leading to a figure of £3,395.
Kent firm Ratcliffes, a recognised sole practice, also did not have CMRAs on client files up to March 2024.
Over half of the firm’s work was in scope of the 2017 regulations, “which is a significant amount of work that was not adequately risk assessed. Our records indicate that the firm has been carrying out in-scope work since before 2010, which is a significant period of time to be failing to properly record its assessment of client and matter risks”.
The basic penalty was set at 1.6% of turnover, £8,408, but reduced by 20% to £6,727 given that Ratcliffes was otherwise compliant with the regulations, “took steps to remedy the issue shortly before the SRA’s inspection”, and had co-operated with the regulator.
The SRA found that West Yorkshire firm Redfearns Solicitors did not have an FWRA from June 2017 until January 2023.
In mitigation, the firm said it would annually assess the risks it was subject to at partners’ meetings, but the assessments were not formally documented. An FWRA was put in place as soon as the SRA said it required one, while the SRA acknowledged that the firm was otherwise compliant with the regulations.
It set the penalty at 1.2% of turnover, reducing the figure by 40% given the mitigation, meaning a fine of £2,435.
Rochdale firm Hartley Thomas & Wright, another recognised sole practice, was fined £2,398, plus costs of £600 after it too failed to conduct adequate CMRAs for five years to October 2023.
A review of selected files also found two with no customer due diligence, and two conveyancing files involving cash transactions worth £34,000 and £160,000 which did not contain any information about the source of funds
The SRA decided that the impact of the misconduct was low “because it is accepted his firm had adequate AML policies, controls and procedures in place along with an appropriate firm-wide risk assessment to the size and nature of the business.
“Having these documents in place does mitigate the potential risk of impact. However, this is not substantial mitigation given the lack of CMRAs on all the files we reviewed.”
The mitigation, similar to the other firms, reduced the penalty by 20%.
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