- Publication Date
- 2022-09-26
The Solicitors Regulation Authority (SRA) conducted an audit of a law firm, following a referral from the SRA's AML Proactive Supervision team. The investigation revealed significant shortcomings in the firm's compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017).
The firm did not have a compliant AML firm-wide risk assessment, a requirement under Regulation 18 of the MLRs 2017, until July 2022. On January 2020, the firm made a declaration to the SRA that its risk assessment was compliant. However, the risk assessment did not consider the firm’s delivery channels, nor did it sufficiently regard the Legal Sector Affinity Group guidance, the SRA’s sectoral risk assessment, and the SRA's warning notice.
Additionally, the firm lacked compliant AML policies, controls, and procedures (PCPs) as required by Regulation 19 of the MLRs 2017. Until July 2022, the firm's AML policies, controls, and procedures were deficient as they omitted critical information such as identification and verification procedures, ongoing client monitoring, identification of Politically Exposed Persons (PEPs), and source of funds information.
The SRA scrutinized several transactions handled by the firm, noting one particular transaction involving the receipt of £75,000 in the firm's client account. The firm failed to conduct adequate ongoing monitoring and source of funds checks, as mandated by Regulation 28(11)(a) of the MLRs 2017. The documentation described the funds as comprising £25,000 from rentals and £50,000 from a loan, without further details or evidence provided.
In another case, a note on the firm's file incorrectly stated that the transaction was 'Below AML threshold', thus exempting it from source of funds scrutiny. However, Customer Due Diligence (CDD) is required for all transactions within the regulations' scope, barring very limited exceptions.
The firm's failure to heed the SRA's warning notice on money laundering and terrorist financing, updated several times to reflect changes in regulatory requirements, was also highlighted. Specifically, the firm overlooked warning signs regarding unusual and unexplained payments from third parties and loans from non-institutional lenders.
The matter risk assessment form provided by the firm was non-compliant with Regulations 28(12) and (13) of the MLRs 2017. The form was intended for client completion rather than by the firm, and it did not aid in determining the necessity for enhanced customer due diligence (EDD).
Upon completion of the investigation, the relevant lawyer admitted to the compliance failures, acknowledging the breaches in statutory money laundering regulations and the SRA's regulatory framework. They cooperated fully with the SRA, demonstrated remorse, and took steps to remedy the breaches.