As we approach the end of another year, compliance professionals are reflecting on key developments, challenges, and emerging trends in 2024. Recently, we hosted the “Compliance Year Round-Up 2024” webinar, a discussion that unpacked the current regulatory landscape and looked forward to what might be in store for 2025. If you missed the live session, here are some highlights.
AML compliance: inspections, fines and common pitfalls
Anti-Money Laundering (AML) compliance took centre stage of the discussion. With the SRA conducting hundreds of AML inspections every year, it is a case of “not if, but when” every firm within scope of the Money Laundering Regulations will receive their visit.
It is findings from these visits that prompt further investigation and the regular fining decisions we are getting used to seeing. A firm which is found to have “non-compliant” (in the SRA’s view) AML controls in place can expect to face a turnover-based fine of 1.5% to 3%. We can expect the level of fines to continue creeping up as the regulator uses them to nudge the profession to meet its standards. Unlimited fines are now in play.
This year, firms were encouraged to move beyond generic, high-level training and adopt tailored, ongoing approaches that address real-world, practice-specific scenarios. Client Matter Risk Assessments (CMRAs) remain a critical area of concern as the SRA’s scrutiny of them intensifies. Independent audits under Regulation 21 were highlighted, with inspectors expecting firms not only to conduct audits but also to take meaningful action based on the findings. There is an expectation that the SRA will start to look more closely at the substantive CDD and source of funds enquiries made on files, and that they will move beyond the current focus of residential conveyancing.
Emerging risks such as vendor fraud, economic pressures, and technology—as identified in the SRA’s sectoral risk assessment—were flagged as areas that should now feature prominently in firm-wide risk assessments.
The Axiom Ince scandal
One of the central discussions during the webinar revolved around the fallout from the LSB’s independent Axiom Ince report, which was described as a “watershed moment” with significant implications for the legal profession and regulatory trust.
The SRA’s response to the report—viewed by many as overly defensive and lacking humility—sparked a broader conversation on how such scandals undermine trust in the regulator and profession alike. Questions about the need for leadership changes within the SRA, and the potential for long-term reforms to intervention policies and authorisation processes, were key talking points.
Firms have already been hit in the pocket thanks to the three-fold increase to Compensation Fund contributions. It is yet to be seen what form the LSB’s unprecedented enforcement action against the SRA will take – this, too, could have knock-on implications for regulated firms.
Client money and client account interest
The SRA’s consumer protection review was initiated in direct response to the Axiom Ince scandal, and has the potential to fundamentally change the way that client money is managed. All alternative options to solicitors client accounts are being explored by the SRA, and the profession is being urged to respond to the three-part consultation by the 21 February 2025 deadline.
The potential for third-party managed accounts (TPMAs) becoming standard practice raised questions about experience from other jurisdictions, operational efficiency and compliance. A viable market for TPMAs is not currently in place and the SRA is putting a lot of faith in providers stepping in to fill the void. Surely they will only do so if the commercial opportunity is there, which suggests someone is going to have to pay for these platforms – either clients or law firms themselves.
Calculating and paying interest on client accounts remains a logistical hurdle for many firms, and the importance of clear, robust client money policies was underscored. Firms were reminded of the need to communicate transparently with clients about how interest on client accounts is handled.
Reforming how solicitors manage residual balances would be a relatively easy win for the SRA. The upcoming Accounts Rules Spot-check is clearly looking at the scale of the issue. We can expect there to be new rules to tighten up controls in this area, along with accountants reports.
Sanctions compliance
Sanctions compliance emerged as another hot topic in 2024. Firms are now expected to include detailed sanctions risk assessments either within their firm-wide assessments or as standalone documents. The SRA’s emphasis on emerging sanctions risks means that compliance reviews need to be more responsive to global changes. Integrating sanctions compliance into broader frameworks is increasingly seen as non-negotiable.
Technology and AI in compliance
With AI tools now ubiquitous in many practices, the risks—particularly breaches of client confidentiality—were discussed in depth. The necessity for firms to implement dedicated AI policies is becoming unavoidable, and the ethical dilemma of charging clients for AI-assisted work is something that firms will have to grapple with.
Attendees were encouraged to understand the opportunities and limitations of AI and ensure its use aligns with both ethical and regulatory requirements. The conversation also touched on how firms can proactively address AI’s integration into practice management and client services.
Professional ethics and public trust
The discussion delved into professional ethics and public trust, with the Post Office scandal serving as a stark reminder of the human impact of ethical lapses. Anticipated prosecutions of solicitors linked to the scandal suggests that the SRA is taking this seriously. Breaches of other ethics-based developments such as SLAPPs (Strategic Lawsuits Against Public Participation) and NDAs were explored, alongside a renewed focus on continuing competence.
The legal profession’s role in rebuilding public trust was a recurring thread, highlighting that ethical failings can significantly damage not just individual firms but the sector as a whole.
Watch the recording
The “Compliance Year Round-Up 2024” webinar offers insights for lawyers, compliance officers, practice managers, and anybody who wants to stay ahead of regulatory trends. Don’t forget it counts towards CPD!
Watch the recording here (expires 31 January 2025) – use passcode 37!+nU4f
What were your biggest compliance challenges in 2024?
