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Compliance with money laundering regulations

In May 2019 the SRA published the findings of their review of certain law firms’ compliance with Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (‘MLR 2017’). Whilst they found no evidence of actual money laundering or that firms had any intention of becoming involved in criminal activities, breaches of the MLR 2017, poor training and processes were identified that could indicate that firms were unwittingly assisting money launderers.

As well as the need to perform and document an appropriate risk assessment, firms are required to act on this assessment through the design, implementation and monitoring of appropriate controls where risks are identified. Firms also face challenges in maintaining effective client on-boarding procedures, retaining adequate documentation around clients and transactions, providing appropriate training to staff and promoting a culture which supports the identification and reporting of potential issues.

Whilst the SRA’s review covered only a relatively small sample of 59 firms, they noted that over a third of firms in the sample (24) did not have adequate risk assessments that would cover the areas required by the legislation, with 4 of that number having no risk assessment in place at all.  As a result of their findings, the SRA has since published a warning notice highlighting their concerns in respect of money laundering risk assessments performed by firms.  It will also be writing to more than 400 firms to ask them to demonstrate their compliance with the requirements of MLR 2017 and their approach to risk assessments.

Firms will therefore want to make sure that they are well placed to respond to the compliance challenges raised by the SRA in their review, such as having a defined AML risk assessment process in place with suitable training for staff in respect of their obligations.

Matt Britton, Director – KPMG LLP