Jon and the team

Seismic shifts in AML training: What law firms need to know

The SRA’s recent thematic review of AML training has set the tone for a new era in compliance. While the findings provide valuable insights, they also pose challenges for law firms trying to keep pace with ever-evolving expectations. For busy lawyers, understanding what the SRA now expects—and how to navigate these demands—is crucial.

This post unpacks the key takeaways from our recent webinar on the SRA’s thematic review and offers practical suggestions to help firms adapt.

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Regulating By The Back Door: The rise of quasi-rules in SRA regulation

A recurring theme in recent regulatory developments is the SRA’s increasing reliance on thematic reviews, warning notices, position papers, and other informal guidance to set expectations for law firms. While these documents are intended to clarify existing rules, they often feel like new regulations in disguise, raising fundamental questions about fairness, transparency, and the future of legal regulation.

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ICYMI: Sorry Seems to Be the Hardest Word – Reflections on the SRA’s latest tune at the COLP COFA conference 2024

The latest COLP COFA conference highlighted a notable dissonance between the SRA’s rhetoric and the expectations of legal professionals. Despite the SRA’s insistence on having learned from past mistakes, notably their role in the Axiom Ince scandal, the defensive posture and lack of genuine engagement on these issues left many attendees seeking more sincere acknowledgment and proactive changes.

This piece reflects on the implications of the SRA’s stance and its potential impact on trust within the legal community.

You can read the full post here

ICYMI: SRA Probate Thematic Review: Key takeaways and what it means for your firm

By Sophie Cisler

Earlier this year, the Solicitors Regulation Authority (SRA) conducted a thematic review of firms offering estate administration services. While the final review is still pending publication, a preview of their findings was shared at the recent SRA COLP COFA conference. Here’s what you need to know about the SRA probate thematic review and how it might impact your firm.

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News and Guidance

• The Times | Solicitors’ regulator chiefs must resign after damning Axiom report (paywall) – This opinion piece in The Times criticises the SRA for its handling of the Axiom Ince scandal. The Legal Services Board’s report highlights significant regulatory failings, including inadequate scrutiny of high-risk firms and governance red flags. Former SRA board member Tony Williams calls for leadership accountability, urging the resignation of the SRA chair and Chief Executive. The chair’s two-year term extension looks like “rewarding failure” and raises concerns about the regulator’s governance and credibility. The Gazette’s report on this story is here.
• The Law Society | “Inadequate” risk assessments put firms at risk of regulatory action – The SRA has identified that 23% of law firms are non-compliant with the Money Laundering Regulations, leading to increasingly strict enforcement actions. This Law Society post identifies common breaches including:
  • Inadequate client and matter risk assessments
  • Non-compliant firm-wide risk assessments
  • Deficient AML policies, controls, and procedures
  • Insufficient staff training
  • Failures in client identification and verification
  • Lack of ongoing transaction monitoring
  • Neglecting source of funds checks

The SRA emphasises the importance of tailored AML policies over generic, “off-the-shelf” solutions, which may not address specific firm risks. Additionally, the SRA has increased its focus on compliance with financial sanctions regimes, conducting spot checks to ensure adherence.

To mitigate regulatory risks, the Law Society says firms should:

• • Develop comprehensive, customised AML policies
  • Conduct thorough and regular risk assessments
  • Implement robust client due diligence procedures
  • Provide ongoing staff training
• SRA | Dedicated guidance issued to support in-house solicitors – The SRA has released new and updated guidance to support over 34,500 in-house solicitors in England and Wales. This initiative is intended to address unique compliance challenges faced by in-house legal professionals. The guidance covers:
  • Identifying the Client: Clarifying who the client is within an organisation to ensure proper legal representation.
  • Reporting Wrongdoing: Outlining obligations to report legal or regulatory breaches, even when facing internal pressures to conceal them.
  • Legal Professional Privilege: Providing clarity on the appropriate use of privilege, especially amid concerns about its misuse to suppress information.
  • Internal Investigations: Offering best practices for conducting investigations within organisations.
  • Employer Guidance: Helping employers understand and support the professional obligations of their in-house solicitors.
• LSB | Consultation launched on how legal regulators can fight economic crime – The Legal Services Board (LSB) has launched a consultation on guidance to help legal regulators meet a new regulatory objective: “promoting the prevention and detection of economic crime.” This objective, added to the Legal Services Act 2007 via the Economic Crime and Corporate Transparency Act 2023, requires regulators to actively address economic crime risks within the legal sector.

Key proposals in the consultation:

• • 1. Four outcomes for regulators:
    • Understand and mitigate risks of economic crime in their regulated communities.
    • Ensure legal professionals are equipped to meet obligations and avoid facilitating crime.
    • Monitor compliance with anti-economic crime standards.
    • Regularly evaluate and adapt standards to remain effective against emerging risks.
  • 2. Collaborative approach:
    • Regulators are encouraged to share best practices, case studies, and tools to build a cohesive response across the sector.
  • 3. Proportionality:
    • The guidance emphasises proportionate regulation, ensuring measures target genuine risks without placing undue burdens on legal professionals.

The consultation closes on 7 February 2025, with final guidance expected in Spring 2025.

Focus on: Complaints handling – lessons from the latest guidance

In light of The Law Society’s recent update to its Practice Note on Handling Complaints (October 2024), complaints handling has taken on renewed significance for compliance and client retention. Rooted in paragraph 8.5 of the SRA Code of Conduct, the guidance emphasises the need to treat clients fairly and to handle complaints “promptly, fairly, and free of charge.”

Here are some of the key takeaways from the updated guidance:

• Spot complaints early: Complaints are not always formal; they may manifest as informal expressions of dissatisfaction, such as passing comments in emails or phone calls. Addressing issues early can prevent escalation.
• Acknowledge promptly: Aim to acknowledge complaints within two working days. Early communication demonstrates commitment to resolving the issue.
• Inform and educate clients: Ensure clients are aware of your firm’s complaints procedure from the outset. This includes informing them of their rights, the Legal Ombudsman’s (LeO) contact details, and any alternative dispute resolution options.
• Be transparent: Maintain an open dialogue with the client. Keeping them informed reduces frustration and fosters trust.
• Record and track: A robust complaints register not only helps in monitoring issues but also provides insights into recurring problems, aiding in service improvement.
• Apologise where appropriate: For minor issues, a sincere apology can often defuse tension and satisfy the client.
• Notify insurers: For serious complaints, consult your professional indemnity insurer before acknowledging fault, as this may affect cover.
• Update policies: Reflect recent changes, such as the new LeO contact details (January 2024) and revised time limits for complaints (April 2023), in your firm’s Complaints Policy.

Effective complaints handling not only helps to maintain compliance with SRA requirements but also strengthens client relationships and enhances service quality.

Contact us to review your current complaints handling process.

Compliance corner – real life Q&As

Q: “Can we send property sale proceeds to a company’s beneficial owner instead of the company?”

A: Firms acting in property transactions for companies often encounter questions about handling funds, especially when the company’s ultimate beneficial owner (UBO) plays an active role. Two common scenarios illustrate the challenges: can sale proceeds be sent directly to the UBO, and what happens if the company lacks a bank account?

The starting point is clarity about who the client is. Generally, this will be the entity named in the engagement letter or identified on the Land Registry title. If the client is the company, funds should ordinarily be returned to the company. The entity is the client. The UBO is an interested third party. It can be easy to overlook this fundamental distinction in the heat of the moment.

However, the reality is more nuanced when the company doesn’t have a bank account, as is often the case with holding companies and SPVs. Do not underestimate how difficult it is to open a business bank account these days.

In such situations, there is some flexibility so long as you act with extreme caution. Firms proposing to send funds to the UBO should ensure two key conditions are met. First, the firm should obtain from the client a board resolution authorising the transfer to the UBO’s account to ensure a proper audit trail. Second, the UBO must provide a written statement confirming that the transfer is necessary because the company has no bank account and that any debts or tax liabilities arising from the transaction will be accounted for.

Bear in mind that solicitors must not facilitate tax evasion, so you will need to be on the lookout for any red flags.

This also sounds like a scenario where Enhanced Due Diligence (EDD) measures should apply. That means taking extra due diligence steps, keeping the transaction under increased scrutiny and obtaining senior management sign-off.

When receiving funds to or from a UBO or other third party, firms must adopt a risk-based approach erring on the side of caution. Rule 3.3 of the SRA Accounts Rules makes clear that client accounts must not be used as banking facilities. Payments into or withdrawals from client accounts must relate directly to the regulated legal service being provided—in this case, the property transaction. This is something of a hot topic for the SRA and the rule has been inconsistently applied, so you need to ensure you are entirely safe before proceeding. Before accepting funds, firms should ask themselves key questions: Who is sending the money? Why are they sending it? Does it make sense in the context of the transaction and the client’s risk profile? And crucially, can the source of funds be verified? You should almost certainly verify the identity of the third party.

To manage these complexities, it can be helpful to set expectations early. For instance, terms of business could include a provision stating that sale proceeds will be returned to the company’s account unless exceptional circumstances apply. Firms should also document their decisions thoroughly, recording the risk assessments and mitigation steps taken to ensure compliance. In challenging scenarios, consulting the SRA Ethics team can sometimes provide additional assistance.

Ultimately, handling funds in these situations requires carefully balancing practicalities with risk and regulatory obligations.

This is not legal advice. If you have a question you would like us to answer in this section, feel free to send it to info@jonathonbray.com 

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Webinar recording: Seismic shift in AML training expectations

Missed our AML training webinar? Catch the recording!

In our recent webinar, we explored the SRA’s significant shift in AML training expectations, dissecting their thematic review and what it means for firms. We discussed why generic training is no longer enough, the practical challenges of tailoring programmes, and how these changes could shape future inspections. We also tackled broader regulatory trends, like the SRA’s reliance on thematic reviews as quasi-rules. If you want actionable insights and a peek into the future of AML compliance, don’t miss this recording!

Passcode: zUJt#iP5

This recording is available for 30 days.

Next session: Compliance year roundup

Save the date: Wednesday, 18 December
Time: 12:00 PM (Live on Zoom)

In the last live webinar of 2024, we will have a look at the most notable (and under-the-radar) compliance developments that you should be aware of.

Invitations and registration links to follow. As always, existing clients get first refusal.

Training your team: Anti-money laundering

The SRA expects that all ‘relevant employees’ practicing within the scope of the Money Laundering Regulations (MLRs) must receive robust anti-money laundering (AML) training. Now is the time to ensure your firm is compliant. Failure to meet these obligations can result in significant fines and regulatory action.

Our comprehensive AML training is designed to equip your team with the knowledge and practical skills needed to identify, prevent, and report suspicious activities, safeguarding your firm from risk. Ensure your firm stays ahead of regulatory requirements and avoids potential pitfalls by enrolling your team today.

Formats available: Online | In person | On-demand

Don’t miss out—request a free quote today!

Safeguard Your Practice: Independent Anti-Money Laundering Audit

SRA and SDT disciplinary decisions

• Liam Connelly – A solicitor successfully appealed a decision by the SRA that rebuked him for allegedly breaching conduct rules by attempting to prevent a former client from reporting concerns about his firm. The Tribunal found that while the solicitor’s conduct could be seen as confusing and a breach of the Code, the aggravating factors cited by the SRA were overstated or unsupported, such as claims of intentional misconduct or risk of harm. Mitigating factors, including Connolly’s unblemished record, remorse, and swift resolution of the issue, were not given adequate weight.
• Roche Legal Limited – firm fined £4,968 (1.4% of turnover) for deficient FWRA and AML policies.
• Wilfred Light & Reid – firm fined £2,566 (about 2% of turnover) for AML policy and risk assessment failings.
• Richard Harbord – solicitor fined £8,500 for treating his firm’s client account as a personal account, and for failing to cooperate fully with the regulator.

What we do – contact us for further information about our services

• Outsourced COLP and COFA support
• Compliance audits
• New firm and ABS applications
• Independent AML audits (Regulation 21)
• Training (online, remote, on demand)
• AML and GDPR workshops
• PII cost reduction
• Remote file reviews
• TPMAs
• Escrow accounts
• AML and sanctions searches