Sanctions: SRA to review whether firms have improved controls
The Solicitors Regulation Authority (SRA) has written to give guidance to more than 1,000 law firms that admit they do not have basic controls in place to mitigate sanctions risk.
They are firms not in scope of the money laundering regulations and follows a survey the regulator conducted last year to help it understand their exposure to sanctions risk and the controls they had in place to mitigate those risks.
More than 3,000 firms completed the survey, of which nearly 1,700 did not do, or were unsure if they did, one or more of the following: identify their clients, verify their clients’ identities, check source of funds and check if a client was subject to sanctions.
The SRA found that more than 1,000 firms had a greater risk of having a client who was a designated person for sanctions purposes because of their areas of work or because they (or their clients) had a connection to a sanctioned country.
Twenty-six firms had dealt with a matter involving a designated person.
The letters sent include SRA guidance on complying and on completing firm-wide sanctions risk assessments, including a template for firms to use.
They also included information on client identification and screening, which firms can do for free using the online tool offered by the Office of Financial Sanctions Implementation.
Juliet Oliver, SRA deputy chief executive, said: “Strengthening the financial sanctions regime is an important part of the government’s response to war in Europe, and law firms have to a key role to play.
“The sanctions regime applies to all firms that provide legal services, not just those that are captured by the anti-money laundering regulations.
“Firms we have written to responded to our survey last year by saying they did not have or were not aware of a written-down firm-wide risk assessment, or the process for identifying an ultimate beneficial owner.
“The support we’ve provided should help address these issues and help firms remain compliant.”
The SRA said it would be carrying out desk-based reviews of a sample of these firms to test their controls later this year. It is already running a programme of sanctions inspections.
Last year, as part of the inspections it conducted for adherence to anti-money laundering rules, the SRA also checked on sanctions compliance.
It found that 10% of firms did not check whether new clients were designated persons, 47% of firms did not check existing clients and only 20% checked counterparties.
Just one in five firms were aware of the steps they must take should they encounter a designated person. “There is a strict liability on behalf of firms to comply with the sanctions regime,” the SRA pointed out.
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