5 minute read
Lessons from the latest big fine in AML –and how to avoid being in the same boat
The Solicitors Regulation Authority have long sought an increase in their fining powers for traditional law firms. They’ve had the power to levy huge fines against ABS firms for ages and have been able to refer cases to the Solicitors Disciplinary Tribunal (SDT) for the ratification of an agreed decision. However, recently their powers were indeed extended, such that they can levy a fine of up to £25,000 without referral (and approval) of the SDT.
One of their recent big fines came for Anti Money Laundering (AML) failings by a two-partner firm in Oxfordshire, Ferguson Bricknell. They were fined £20,000 for breaches of the Money Laundering Regulations and the SRA’s Standards and Regulations.
To some £20,000 might not seem like a lot, but to a small firm, that’s huge! If you think about it, on a £200 hourly rate, at 20% profitability that means one lawyer would need to work for over 14 weeks to produce the profit to pay it – because that is where fines come from – we don’t budget for them!
The full decision is definitely worth reading, but in summary, the firm declared to the SRA that it had a compliant Practice Wide Risk Assessment. The SRA will do this from time to time – ask firms to confirm they are compliant with one part of the regulations, and then they will actually check a sample of the firms to see if this is the case. In this case they disagreed with the firm’s assessment that it’s risk assessment was compliant, and they then investigated further the firm’s AML compliance. The reasons given in this case give firms good insight into the approach taken by the SRA and here are 7 key lessons you can take away from this case.
1. When the SRA writes to the firm, make sure that someone responds. As I’ve said, they do this fairly regularly, and they will likely write to the COLP. The last time they did this, over 1000 firms did not reply on time. Having discussed this with clients, it appears that the emails from the SRA often go into junk, so make sure your COLP is checking their junk emails regularly.
2. If you are making a declaration to the firm that you are compliant, make sure you are. There is plenty of guidance around, including free templates for Practice Wide Risk Assessments. Don’t say you are compliant if you aren’t.
3. Keep up to date with reviews. Set reminders, and then action them. To prove you’ve reviewed the document, record the date and who did it (and if necessary, approved it) within a version control table in the document itself.
4. Consider an independent audit function. The requirement to establish an independent audit function is not mandatory for all firms, just those of a relevant size and nature. You can see in this judgement the clearest indication yet of what the SRA expect. The firm, although small had 75% of its fee income from conveyancing, which is considered by the National, and SRA Risk Assessment’s as high risk for money laundering. This backs up early comments by the SRA that it expects most firms to have an independent audit. The audit does not have to be external, but the challenge for most of the small firms is that the audit must be carried out by someone independent of the people who are responsible for the policies, controls and procedures, and most small firms don’t have people who are sufficiently knowledgeable about AML who are not involved in the AML activity.
5. Train your staff regularly. The latest Legal Sector Affinity Group Guidance makes it clear the regulators expect an at least annual refresher. In addition, the MLRO and the MLCO should have specialist training on their roles.
6. Carry out a matter risk assessment. This was brought in by the 2017 Money Laundering Regulations. The SRA will expect to see one on every file (including repeat work for existing clients) which falls within scope of the regulations (mainly transactional matters), and they expect to be able to see enough information to judge whether the assessment of risk is accurate. Ticking a few boxes is unlikely to be seen as adequate.
7. Carry out source of funds and wealth checks where necessary. Do it early, and don’t forget to make sure it is complete before you do the thing which might be money laundering – accepting or moving any money for a transaction through the client account!
This case makes it very clear how seriously the SRA are taking AML Compliance. They will take action against a firm who is not compliant even if there are no allegations of actual money laundering. They are looking for firms to take their responsibilities seriously, and if they don’t, they’ll discipline.
