We have already predicted further regulatory action (Risk Update, September 2018), with the Solicitors Regulation Authority (SRA) under scrutiny from The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) and increasing pressure from HMRC and Parliament.
Firms will face regulatory action for breaching their own policies. This may even be so where they were complying with the general standards of the profession.
We know that the SRA will be continuing to audit firms, as it will be under scrutiny from OPBAS. A surprising number of firms have not done their risk assessments, over a year after The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) came into force.
Expect a particular SRA focus on high end residential property, with a focus on reviewing transactions over £1 million. Firms doing high value West End property work in London are particularly exposed here, but those who think they only do commercial property work should be alert to the occasional residential transaction: as we have seen, it happens.
There will also be particular interest where the firm has acted for Politically Exposed Persons (PEPs). The judgment in National Crime Agency v Mrs A EWHC 2534 (Admin) will be of particular interest to AML compliance practitioners for its analysis of the definition of “state-owned enterprises” in relation to PEPs.
There is a focus at present on firms which are Trust and Company Service Providers (TCSPs), but we believe there is a large element of mistaken identity here, due to lack of clarity on SRA forms. There will doubtless be some firms which are TCSPs and should have registered with HMRC, but most are only providing services incidental to mainstream legal advice within regulation 12 (1) of MLR.
Some firms are employing accountants to carry out their independent audit under Regulation 21 of the MLR 2017. This is perhaps surprising, as an audit is almost bound to find fault, and if it is conducted by accountants it will not be protected by legal professional privilege, so the SRA can, and doubtless will, ask to see the report. This is one of the reasons why Legal Risk LLP practises as an SRA-regulated law firm.