In recent months, the Solicitors Regulation Authority (SRA) has markedly intensified its Anti-Money Laundering (AML) enforcement actions, reflecting a stern commitment to mitigating AML risks within the legal sector. This trend is particularly evident from the notable rise in both the frequency and magnitude of fines levied against non-compliant firms. Law firm leaders need to take note. There is no sign of the regulator’s current obsession with AML waning.
Increased AML Fines
Emboldened by its new fining powers, the SRA has issued a series of punitive measures against several firms, primarily for failures related to implementing AML policies and procedures. In the first quarter of 2024 alone, at least ten decisions linked directly to AML infringements were recorded, a clear indication of the regulatory body’s sharpened focus on this area.
The cumulative fines across these ten cases in Q1 2024 amounted to almost £170,000.
Notably, nine out of these ten cases pertained to deficiencies in establishing proper AML frameworks. These firms were either unable to produce compliant AML paperwork upon request or failed during on-site inspections and document reviews by the SRA’s desk-based teams. The issues highlighted also include the absence of client matter risk assessments and inadequate staff training on AML risks and procedures, which are fundamental elements of a robust AML strategy.
On average, smaller firms can expect the cost of non-compliance with the Money Laundering Regulations to be somewhere in the region of £10,000 to £25,000 (plus costs, legal defence fees and reputation damage). Firms with higher turnover can expect to receive much higher penalties – see for example the £500,000 fine handed down to Clyde & Co.
Cases of Note
At the lower end of the scale, the SRA fining activity follows a familiar pattern:
- Austen-Jones Solicitors Limited – fined £15,202 for failing to train staff on AML, and not having the required documentation in place for a firm conducting property work.
- Batchelor Sharp – fined £23,035.50 for failing to undertake client and matter risk assessments on five files.
- Stephens Wilmot Ltd – fined £19,383 for failing to complete due diligence in a conveyancing transaction, resulting in a ‘vendor fraud’ of over £100,000.
- Hine Downing LLP– fined £20,870.68 for AML policy and process failures.
Notably, most of the recent fines are for purely systemic failures i.e. there does not have to be a finding that the accused firm acted in a transaction bearing the hallmarks of financial crime. It is enough for the auditor to find that the safeguards were not in place.
Implications for Solicitors
These developments should alarm solicitors and law firms about the SRA’s rigorous enforcement stance. The message is clear: superficial compliance checks or nominal adherence to AML regulations are inadequate. Firms must ensure that their AML policies are not only in place but are robust, comprehensive, and effectively implemented.
All firms subject to the Money Laundering Regulations should expect to receive an SRA audit, so need to be ready.
Mitigating Measures and Recommendations
- Risk Assessment: Regular and thorough review of risk assessments are crucial. Don’t use un-tailored templates. The SRA will look at both the high level firm-wide risk assessment and the file-level client and matter risk assessment. Firms can expect to receive a fine if the files reviewed by the SRA auditor do not have risk assessments completed.
- Training and Awareness: Continuous staff training on AML regulations, recognising red flags, the firm’s own policies and the proper channels for reporting suspicious activities is essential. We understand that the SRA auditing team is taking a closer look at AML training.
- Documentation and Record Keeping: Maintaining detailed and accessible records of client interactions, risk assessments, and decisions on transactions can provide critical evidence of compliance in the face of SRA inquiries.
- Independent Audit: Firms should consider regular independent audits to test the effectiveness of their AML controls, as required by the Regulations.
