SRA review shows fifth of law firms fail on money laundering compliance

  • Fifth of firms reviewed don’t have required firm risk assessment
  • 7,000 firms will be checked for compliance
  • New annual Risk Outlook highlights 172 money laundering investigations this year

The SRA today announced increased checks on law firms after it was found that too many were not complying with anti-money laundering regulations, and warned of strong action against those who continue to fall short.

In March, the regulator wrote to 400 firms asking them to demonstrate compliance with the 2017 Money Laundering Regulations by sending their firm risk assessments. They received 400 responses, but 21 percent (83) were not compliant, either not addressing all the risk areas required (43), or sending over something other than a firm risk assessment (40) – for instance, a client or matter risk assessment.

The majority of firms (64%) were using templates. These firms’ risk assessments were generally of lower quality. Templates can be helpful, but too many firms appeared to take a ‘copy and paste’ approach, without thinking through the specific risks and issues faced by their firm.

The SRA also expressed concerns that many of the risk assessments (135 or 38 per cent) were dated recently. Although this could reflect an update of an earlier assessment, this suggests some firms may have only created one in response to the SRA’s request and therefore some firms may not have an existing risk assessment.

The SRA have highlighted  their concerns in an updated warning notice and said that they will be engaging with firms to make sure they comply promptly. If they do not, they will face enforcement action.

The SRA will shortly be writing to the 7,000 firms that fall under the scope of the Money Laundering Regulations to ask them to confirm they have a firm risk assessment in place. An extensive programme of targeted and in-depth visits to firms will also be carried out.

Paul Philip, SRA Chief Executive, said: “Money laundering supports criminal activity such as people trafficking, drug smuggling and terrorism. The damage money laundering does to society means that every solicitor must be fully committed to preventing it. The vast majority would never intend to get involved in criminal activities, but poor processes open the door to money launderers.

“A call from us should not be the prompt for a firm to get their act together. You need to take immediate action now if you are not on top of your money laundering risks. Where we have serious concerns, we will take strong action.”

Figures released in the SRA’s annual Risk Outlook show that so far this year 172 investigations linked to anti-money laundering compliance have been opened. In the last five years, the regulator has taken more than 60 such cases to the Solicitors Disciplinary Tribunal, resulting in more than 40 solicitors being struck-off or suspended.

The Outlook also highlights that new EU money laundering regulations are due to come into force by 10 January 2020. This will mean firms need to update their processes to bring them up to date with the new legislation.

Money laundering is one of the nine priority risks for the legal profession in the SRA’s annual Risk Outlook. Other risks highlighted include solicitors getting involved in dubious investment schemes, and the risks of losing information or money to cybercrime.

SRA to conduct widespread checks and visits to firms amid concerns over ‘cut and paste’ approach to AML

SRA concerned at firms’ ‘cut and paste’ approach to AML

(The Law Society Gazette, John Hyde, 29 October 2019)

Thousands of firms are to be contacted by the Solicitors Regulation Authority within the coming weeks asking what measures they have in place to combat money laundering.

The widespread checks on 7,000 firms that fall under the scope of money laundering regulations follow fears that many are doing little or nothing to meet their obligations.

In March the SRA wrote to 400 firms asking them to demonstrate compliance with the 2017 regulations by sending their risk assessments. Of the responses, 83 were found not to be compliant: firms either did not address all the risk areas required or they sent over something other than a concrete risk assessment.

It was found the majority of firms (64%) were using templates, many of which were of low quality. The SRA believes too many firms appear to take a ‘copy and paste’ approach without thinking through the specific risks and issues they individually face.

The regulator is also concerned that around 135 of the risk assessments were dated recently, suggesting either that many firms had coincidentally updated their assessment in recent weeks, or they had only created one in response to the SRA’s request.

As well as writing to the 7,000 at-risk firms, the SRA now plans an ‘extensive’ programme of targeted, in-depth visits to firms and calling in more firms’ risk assessments.

Paul Philip, SRA chief executive, said: ‘Money laundering supports criminal activity such as people trafficking, drug smuggling and terrorism. The damage money laundering does to society means that every solicitor must be fully committed to preventing it. The vast majority would never intend to get involved in criminal activities, but poor processes open the door to money launderers.

‘A call from us should not be the prompt for a firm to get their act together. You need to take immediate action now if you are not on top of your money laundering risks. Where we have serious concerns, we will take strong action.’

Figures released in the SRA’s annual risk outlook, published today, show that so far this year it has opened 172 investigations linked to anti-money laundering compliance. In the past five years, the SRA has taken more than 60 such cases to the Solicitors Disciplinary Tribunal, resulting in more than 40 solicitors being struck off or suspended.

The regulator has highlighted its concerns in an updated warning notice and says it provides additional support including guidance, checklists and a suggested template for how to frame compliance methods.

New EU money laundering regulations requiring firms to update processes are due to come into force by 10 January 2020.

Recognising needs early is key for firms helping disabled consumers

New research has revealed what solicitor firms could do to improve access to their services for people with mental or physical disabilities.

And it found that early identification of needs and adjustments was vital if those with disabilities were to access legal services via solicitors. Commissioned by the Solicitors Regulation Authority (SRA), the research was undertaken by YouGov.

It saw more than 3,500 disabled people sharing their views on the challenges they face, and the reasonable adjustments firms could make to help them overcome these. More than half of those interviewed said they found accessing legal services difficult, with only one in four ever remembering being proactively asked if they need any reasonable adjustments to be made.

This problem is particularly acute for those whose disabilities are not immediately obvious, many of who say they lack the confidence to make requests themselves for information or services to be offered in a different way.

Once disabled people had hired a solicitor, their impression of the service was generally positive, with the most important factor influencing this being the attitude and flexibility of frontline staff working for a firm.

Key improvements the research suggested firms could make to be more accessible to disabled people included:

  • Proactively asking all clients if they need any reasonable adjustments to be made, with examples of what form these may take.
  • Introducing easier-to-navigate and more accessible websites, with dedicated information for those with disabilities.
  • Adding pictures of their offices on their website, to help people feel familiar with them and judge how accessible they will be before visiting.
  • Train staff in supporting vulnerable clients, and actively promote any relevant expertise, partnerships or accreditations.

SRA Chief Executive, Paul Philip, said: “All solicitors will recognise that disabled people often have multiple, complex and varying needs, that may not be immediately obvious. Accessing legal services can be complex enough without facing such added challenges, which is why it is so important that firms do all they reasonably can to help people overcome any difficulties.

“This research found that while some firms are clearly good at this, others have more to do. The insights should help firms to make the changes needed to support hundreds of thousands of people to access professional legal support when they need it.”

In compiling their research YouGov surveyed more than 3,500 disabled people through a combination of online surveys, one-to-one interviews and online forums. A workshop was also held with charities and stakeholder groups, alongside a review of existing literature published in this area.

Solicitors and law firms have duties under the Equality Act 2010 and the Code of Conduct to treat people fairly and without discriminating against them on the grounds of characteristics including disability.

Read the research on Reasonable adjustments in the provision of legal services.

New solicitors’ protocol for property transactions

The 2019 edition of the Law Society Conveyancing Protocol is out, with details on best practice in residential conveyancing transactions of freehold and leasehold property.

“The protocol is a tool which helps conveyancing solicitors to achieve most effectively the transfer of residential property. It aims to provide consistency across transactions and improve efficiency,” said Simon Davis, president of the Law Society of England and Wales.

“It has been adapted to ensure continued relevance for practitioners. This includes the new Law Society Code for Completion prepared following the Court of Appeal decision in Dreamvar.”

The new protocol aims to take account of the ever-increasing complexity of stamp duty land tax (SDLT) and the work of HM Land Registry to reduce requisition rates. It includes reminders to address issues early in the process which might otherwise create delays, such as restrictions in leases, and also contains new provisions in relation to lease terms.

“The Law Society is committed to providing support, advice and guidance to solicitors in all areas of relevant practice, in the best interests of clients and the public,” added Simon Davis.

The 2019 edition of the Protocol will take effect from 19 August 2019.

Read the Law Society Conveyancing Protocol

Find out more about Dreamvar

SRA probes 26 firms over money laundering

Almost half of firms placed under extra scrutiny by the Solicitors Regulation Authority for potential money laundering breaches could now face disciplinary proceedings after alleged failures were exposed.

Paul philip 16

Paul Philip: ‘compliance is not optional’

The regulator reviewed 59 firms that provide trust and company services – seen as a particular risk for criminals laundering money – and is now investigating 26 for possible rule breaches.

The review found no evidence that firms had actually laundered money or that they had any intention of becoming involved in criminal activities. But red flags were raised at more than a third of firms under review about their lack of adequate risk assessment. In four cases, firms had no risk assessment at all.

While 15 firms had turned down work following due diligence, a similar number were found to have inadequate processes in place to manage risks around politically exposed persons (PEPs), individuals whose prominence in public life could make them vulnerable to corruption.

SRA chief executive Paul Philip said: ‘Most solicitors take their responsibilities seriously, but too many firms are falling short. Those firms should be on notice that compliance is not optional. They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action.’

The SRA’s message has been repeated several times in recent years, but the prospect of sweeping prosecutions involving dozens of firms is intended to drive home the message that action is required.

The net is set to be cast wider in the coming months, with the regulator beginning a further compliance review of 400 firms, led by a new dedicated anti-money laundering unit.

Around 7,000 firms do work that falls under the scope of the government’s money laundering regulations. In the past five years, 60 cases have been brought before the tribunal linked to potential improper money movements, with more than 40 solicitors struck off.

A Law Society spokesperson said: ‘The SRA’s findings will help us pinpoint those elements of the regulations that members still find challenging and tailor our support services to member needs. The findings also help members understand and prepare for the level of detail that the SRA clearly expects to see in firms’ compliance procedures.

‘Chapters 2, 3 and 4 of the legal sector AML guidance deal with most of the challenges identified by the thematic review. Where a specific question is not answered by the guidance, members should call our Practice Advice Service for free and confidential advice.’

(Source: The Law Society Gazette, 13th May 2019)

SRA review shows too many law firms falling short on anti-money laundering

  • Review results in 26 firms entering disciplinary processes
  • SRA issues warning to profession about money laundering

A review has shown that a significant minority of law firms are not doing enough to prevent money laundering, with some falling seriously short.

Go to the review

The SRA’s review focused on 59 law firms providing trust and company services. The creation and administration of trusts and companies on behalf of clients has been highlighted by the government as one of the legal service areas at highest risk of exploitation by criminals to launder money.

The review did not find evidence of actual money laundering or that firms had any intention of becoming involved in criminal activities. However, it did find a range of breaches of the 2017 Money Laundering Regulations, as well as poor training and processes. This means firms could be unwittingly assisting money launderers.

One of the biggest areas of concern was firms’ risk assessments. A firm risk assessment is required in legislation and should be the backbone of a firm’s anti-money laundering approach. The SRA found that more than a third (24) of firms reviewed fell short in this area, including four that had no risk assessment at all.

There were also issues around appropriate customer due diligence. This included inadequate processes in almost a quarter (14) of firms to manage risks around Politically Exposed Persons, known as PEPs. However, in some instances effective customer due diligence did result in firms turning down work. Fifteen firms had done this, with one of the main reasons being evasive clients.

As a result of the review the SRA have put 26 firms into its disciplinary processes. The SRA has also published a warning notice reminding the profession of their obligations, particularly in relation to firm risk assessments. And the SRA has begun a further review of 400 other law firms to check compliance with the Government’s 2017 Money Laundering Regulations. This review will be led by a new dedicated anti-money laundering unit, being set up to bolster resources to prevent and detect money laundering.

Go to the warning notice

Paul Philip, SRA Chief Executive, said: “Money laundering damages society, supporting terrorists, drug dealers and people traffickers. The stakes are too high for solicitors to be anything but fully committed to preventing money laundering and the crime its supports.

“Most solicitors take their responsibilities seriously, but too many firms are falling short. Those firms should be on notice that compliance is not optional. They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action.”

In the last five years, the SRA has taken more than 60 cases, linked to potential improper money movements, to the Solicitors Disciplinary Tribunal. These cases have seen more than 40 solicitors being struck off, voluntarily coming off the roll, or suspended from practising.

SRA raises concerns over price transparency and legal support during property transactions

A review of how solicitors offer conveyancing services has raised concerns over how open they are about costs and whether they are doing enough to make sure buyers understand any potential contractual obligations.

The SRA’s “Residential Conveyancing Thematic Review” found that while most solicitors are doing what they should, there are a number of areas of concern.

While all the firms reviewed gave clients quotes before agreeing to work with them, the SRA found that in one third of cases (34%) these initial quotes did not include fees for additional work which should have been reasonably anticipated at the outset.

Typically, these missing costs related to processing bank transfers, accessing online portals, mortgage administration fees, electronic ID checks or administering gifted deposits.

Not only can this leave buyers having to pay unexpected costs, but there is a concern that some firms may be providing unrealistic initial quotes in order to win business.

The SRA also found that 37% of firms failed to be transparent about the mark-ups they added to the fee a bank charged for making a telegraphic transfer. In some cases, this led to clients being charged as much as 10 times the fee set by the bank.

There were also issues about solicitors not properly explaining the long-term implications of complex contractual clauses. In nearly a quarter (23%) of leasehold purchases it was found that solicitors did not explain the difference between freehold and leasehold models of ownership, instead relying on their client to get this information from elsewhere.

This is of particular concern, as leasehold purchasers can find themselves liable for fast rising charges, such as ground rents. In the long term, such payments may not only become unaffordable, but they may make it very difficult to sell the lease on.

Anna Bradley, SRA Chair, said: “It is disappointing to see examples of poor practice in conveyancing, which is so important to so many people. While many law firms and solicitors provide a good service and act in their clients’ best interests, those who don’t are letting down not only their clients, but also the profession as whole.

“People should be able to rely on their solicitors to be open about what their services will cost, and to explain the potential financial and legal implications of any transaction. When solicitors fail to do this, for example in relation to long term leasehold charges, they may be leaving their clients open to ever increasing and potentially unaffordable financial liabilities.

“We will now be looking closely at how firms are publishing their pricing for conveyancing through our programme of monitoring firms’ websites. We have already published information for the public on the issue of leaseholds and we will be sharing this report with the Government as it considers leasehold reform.”

As a direct result of the review six law firms were referred to the SRA’s internal disciplinary processes.

Other key findings of the review included:

  • All firms visited proactively communicated with clients at key stages and are increasingly using innovative techniques such as text, social media and online portals to do so.
  • 91% of firms acknowledged they had received requisitions from HM Land Registry that could have been avoided.
  • Nearly two-thirds (63%) of firms are already preparing for the move to HM Land Registry’s planned e-conveyancing platform.

In compiling the thematic review, the SRA visited a representative sample of 40 firms offering conveyancing services and conducted detailed analysis of 80 property deals. The review report will be shared widely so that law firms across England and Wales can learn from both the good and poor practice that it sets out.

Read the full report

SRA puts firms on notice for money laundering compliance checks

The SRA have today announced a plan to carry out rigorous checks on law firms to make sure they are meeting their anti-money laundering obligations.

The regulator will shortly be writing to an initial sample of 400 firms asking them to demonstrate compliance with the Government’s 2017 Money Laundering Regulations. There are around 7,000 SRA-regulated law firms who fall under the scope of these Regulations.

The SRA want to make sure that firms have a money laundering risk assessment in place and are implementing it. A risk assessment is required by legislation and should be the backbone of a firm’s anti-money laundering approach. If firms are not complying, they will go into the regulator’s enforcement processes.

Each case will be judged on its facts, but if there are serious issues or a lack of willing to resolve issues promptly, disciplinary action will be taken. The SRA also plan to carry out further compliance checks where sector-wide issues are found.

Paul Philip, SRA Chief Executive, said: “Money laundering is far from being a victimless crime and must be taken seriously. Solicitors, as enablers of moving funds around, can willingly or unwittingly be part of the problem. So we expect firms to be vigilant and they, in turn, can expect us to be robust in our enforcement action where solicitors firms are involved in money laundering or are not complying with the relevant legislation.”

The SRA stated that in the last five years, more than 60 cases – linked to potential improper money movements – were taken to the Solicitors Disciplinary Tribunal. This has resulted in more than 40 solicitors being struck off, voluntarily coming off the roll, or suspended from practising.

To learn more about our comprehensive to help you meet the requirements of the regulations, click here.

SRA confirms November launch date for new Standards and Regulations

The SRA have today confirmed that its new Standards and Regulations will come into effect on 25 November 2019, not this spring as previously advised.

Anna Bradley, chair of the SRA, said the revised date was a sensible move to give everyone – regulators and the regulated community – the chance to amend its methods. She added: ‘By stripping away outdated and unnecessary rules and giving solicitors more flexibility to design and deliver their services around their clients, our new regulations are designed to help people access a wide range of high quality services with the confidence that proper protections are in place. That can only be good for the public and the profession.’

The new regulations will be supported by the SRA’s revised enforcement strategy, which was introduced in February 2019, and sets out to provide greater clarity on the regulator’s approach in cases of potential misconduct.

The SRA has promised a range of guidance over the coming months including initial documents covering areas such as the Accounts Rules, practical application of the SRA Principles and which type of firms and individuals need authorising.

Coinciding with the introduction of Standards and Regulations, November will also see the SRA Digital Badge becoming a mandatory requirement for all regulated firms who run a website. First launched on a voluntary basis in December 2018, the badge uses smart technology to confirm to website visitors that a specific firm is regulated. It also provides a firm-specific link to information on the protections that this status provides to potential customers.

SRA reminds solicitors to adhere to their litigation obligations

Solicitors have been reminded to adhere to all their professional obligations when engaged in litigation, and not to become “hired guns” just carrying out instructions that are in the best interests of clients.

The SRA has refreshed its Balancing Duties in Litigation paper, which accompanies the autumn update of the Risk Outlook. The paper updates the March 2015 report, discussing the differing duties owed by solicitors in litigation and examining the ways in which misconduct can arise.

Citing examples, such as the use of non-disclosure agreements (NDAs) which expressly prevent lawful disclosure of issues such as discrimination, harassment or sexual abuse, the paper reiterates the profession must uphold all its obligations. These include always acting with integrity and upholding the rule of law.

Paul Philip, SRA Chief Executive, said: “Maintaining the correct balance between duties is not simple and all matters must be decided on the facts. Solicitors should of course advance their clients’ cases, but they are not ’hired guns’ whose only duty is to that client.

“They also owe duties to the courts, third parties and to the public interest. It is important for solicitors to recognise their wider duties and never to rationalise misconduct on the mistaken basis that their only duty is to their client, for example by including clauses in non-disclosure agreements which seek to prevent lawful disclosure of harassment or discrimination.

“Those who cross the line into misleading the courts or abusing the litigation process should have no doubt that if we have evidence of this, we will take action.”

Other key trends identified in the Risk Outlook update include:

  • A 43 percent increase in the number of money laundering reports (across the first three quarters of the year compared to 2017).
  • A 10 percent increase in the number of reports of misuse of client money compared to 2017 (now averaging 104 per month).
  • A nine percent increase in the amount of work being carried out online.
  • Reports of email modification fraud, which in the past have tended to mostly concern conveyancing, are increasingly related to other areas of work, and now account for more than half of all these reports received.

The Risk Outlook autumn update can be found here:

Go to the Autumn Update

The Balancing duties in litigation paper, can be found here:

Go to the paper