The Solicitors Regulation Authority (SRA) is maintaining its focus on anti-money laundering (AML) and has warned solicitor firms that they need to do more to properly assess any money laundering risks posed by clients. A Warning Notice issued on 18 October 2023 reveals that the SRA is still seeing persistent non-compliance with the Money Laundering, Terrorist Financing (Information on the Payer) Regulations 2017 (MLRs), despite them being in force for over six years. In the reporting period 2022/23, 51% of client or matter risk assessments were deemed ineffective.
The Warning Notice provides a reminder of the obligations owed and how to comply with them. Failure to comply with the Warning Notice may lead to disciplinary action and/or criminal prosecution.
The decision in November 2023 to fine a national law firm just over £100,000 for technical breaches of the MLRs, highlights that the SRA is taking these matters seriously and illustrates that failure to comply strictly with the MLRs can have significant financial (and reputational) consequences. In that case, multiple breaches of the MLRs had been committed in three conveyancing transactions. However, the firm had self-reported the three incidents, assisted the SRA throughout the investigation, admitted the breaches, made changes to systems, policies and procedures, and ensured that training to all relevant employees was regularly provided. Further, there was no suggestion that the transactions actually involved money laundering or any financial crime and the SRA considered that there was a low risk of repetition. Nevertheless, a not insignificant fine was considered appropriate.
An agreed outcome was reached with the firm without a referral to the Solicitors Disciplinary Tribunal (SDT). As the firm was registered as an ABS (alternative business structure) at the relevant time, the fine was calculated as a percentage of turnover. A 40% discount was then applied to take into account the mitigating factors.
It has been suggested that the large fine might put off law firms from self-reporting technical breaches in the future. The answer to that is that in this case there was the avoidance of a prosecution before the SDT and a 40% discount applied to the fine. Obviously, strict compliance with the MLRs should be the objective for all firms.
Due to the continuing levels of non-compliance with the MLRs, the SRA has indicated that it will consult on fixed financial penalties for AML systems and controls failings. This will include issues such as failing to carry out a client or matter risk assessment.
With the SRA continuing to lobby for further (and unlimited) fining powers, there is a strong incentive for law firms to ensure compliance with the MLRs (as well as the relevant paragraphs of the Code of Conduct for Solicitors, RELs and RFLs and the Code of Conduct for Firms). The SRA has made it clear that where it finds serious or widespread issues, it will take robust enforcement action. Firms must ensure, not only that they have a process for client/matter risk assessments in place that complies with the MLRs but, equally important, must ensure that the process is understood and properly followed by all staff.
