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Anti-money laundering and client due-diligence

Now more than ever, anti-money laundering (“AML”) is a priority area for the government, law enforcement and regulators.

Why is anti-money laundering so important for the profession?

In 2019, the legal profession was criticised by the National Crime Agency for being slow to act to prevent it being used to facilitate the proceeds of crime being introduced into the United Kingdom’s economy. This criticism, together with the requirements of the 5th Money Laundering Directive, which came into force in January 2020, made AML (and related area of client due-diligence (“CDD”) the SRA’s primary area of focus for 2020. That focus has continued in 2021 and appears certain to be a key area of concern for the SRA going forward.

What is the impact of the 5th Money Laundering Directive?

The 5th Money Laundering Directive builds on earlier law and places even stricter obligations on many providers of legal services in how they manage their AML procedures. Even if you and your firm already had robust AML and client due diligence procedures in place before January 2020, you will still need (if you have not already done so) to change your practices depending on your firm’s profile and activities; if you think your systems and processes could be better, now is the time to bring them up to date.

How does the SRA expect firms to have responded?

At the very least, every practice must have conducted and documented a full firm-wide risk assessment, even if you consider the AML risks for your practice to be low. Your policies, controls and procedures then need to be tailored to your firm, based on this assessment. They need to be adequate to enable the prevention, detection and reporting of money laundering, and actively maintained.

You should be ready to demonstrate your compliance with these obligations at short notice. The SRA is not only responding to specific reports in this area but also conducted a thematic review of compliance with the requirements, which meant that it actively contacted 7,000 firms to check what they have in place and took steps to follow up with those who did not.

The SRA has promised robust enforcement action where obligations are not met. Whether you need an independent review of your risk assessment and policies, help preparing for an SRA inspection or other advice, we can help.

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