As we edge closer to 2025, The Solicitors Regulation Authority (SRA) is sharpening its oversight of key compliance areas. Firms are being urged to prepare for intensified scrutiny across anti-money laundering (AML), sanctions compliance, and adherence to the Accounts Rules. With the likelihood of increased inspections, including spot checks, now is the time to ensure your firm is audit-ready.
The SRA ‘s renewed focus on compliance is expected to continue as they clamp down on firms that fail to meet the requirements set. They have demonstrated throughout 2024 that they are not afraid to punish firms and individuals who are putting their business at risk, handing out fines that have exceeded £10,000, and even more severe cases have surpassed £40,000. However, the Legal Services Board (LSB) has argued that the SRA hasn’t done enough. While education is available, there’s a feeling that the SRA needs to elevate its levels further to ensure firms understand the importance of meeting their AML and compliance obligations.
The SRA’s Renewed Focus On Compliance
The SRA’s annual report has highlighted persistent challenges firms face in meeting AML compliance obligations. A critical focus is on the adequacy and responsiveness of Firm-Wide Risk Assessments (FWRAs). Many firms fall short of updating these assessments in key situations, such as:
– Changes in legislation or sectoral risk assessments: Firms must remain alert to evolving AML requirements and update their FWRAs accordingly.
– New services or legal areas: Expanding into new practice areas necessitates revisiting risk assessments to account for unique challenges.
– Operational changes: Transitioning to new systems, such as client verification tools, requires re-evaluating existing risks and controls.
Another recurring issue is the gap in AML training programs, as revealed in the SRA’s thematic review. Many firms fail to provide comprehensive and regular training to their teams, leaving them vulnerable to regulatory scrutiny. With the SRA likely to prioritise training deficiencies in upcoming inspections, addressing this gap is essential.
Sanctions Compliance: Navigating a Dynamic Landscape
The constantly evolving sanctions regime presents unique challenges for legal professionals. The SRA’s recent sanctions data collection survey uncovered widespread issues, including:
– Lack of written sanctions-specific FWRAs: Many firms lack a formalised framework for assessing risks associated with sanctions compliance.
– Inadequate controls for client verification: Effective procedures for identifying individuals and ultimate beneficial owners are often missing.
– Failure to screen against designated persons lists: Routine client screening remains a critical area of concern.
Robust systems and transparent processes are non-negotiable in maintaining compliance. Firms must proactively establish written policies and ensure consistent screening practices.
Accounts Rules: Spot Checks on the Horizon
The SRA has announced it will initiate spot checks on firms in the new year. These inspections aim to confirm that firms have obtained up-to-date accountants’ reports, an essential aspect of adhering to the Accounts Rules. Firms should review their procedures to ensure they meet the SRA’s standards before these inspections begin.
How to Stay Ahead
To prepare for the increased oversight, firms should take the following steps:
– Review and update FWRAs regularly to reflect changes in legislation, services, or operations.
– Enhance AML training by providing frequent, tailored sessions for all staff.
– Implement robust sanctions compliance measures, including written policies and consistent client screening.
– Audit internal processes to ensure all accounts are compliant and reports are current.
By addressing these areas now, firms can minimise risks and ensure they remain compliant in the face of heightened regulatory scrutiny. The SRA’s focus for 2025 is clear – be proactive and prepared to avoid falling behind.
The Legal Services Board are Demanding More
While there are clear plans in place for 2025, there is a belief from The Legal Services Board that regulators like the SRA should be doing even more and further intensify their efforts when it comes to money laundering and offer further compliance guidance.
With new requirements to come, the LSB will consult frontline regulators on how they deal with the firms under their regulations. They want to encourage bodies like the SRA to do more and put the impetus on them to educate, regulate effectively and support firms in their efforts to remain compliant with the guidelines.
The LSB is proposing a guidance platform that they believe regulators should focus on, which includes understanding the risks surrounding economic crime, ensuring lawyers know their legal obligations and duties, monitoring compliance efforts as well as consistently evaluating any legislation implemented.
Furthermore, the LSB is keen for regulators to be more active and protect firms and businesses that follow the regulations set by bodies like the SRA. Education is very much on the agenda, and regulators will likely need to consult and educate further so businesses fully understand their AML and compliance obligations.
Further Changes and Elevations as 2025 Approaches
2025 will likely see the SRA further elevate its efforts to ensure firms meet their AML and compliance obligations. They have the plans in place; now it’s about educating the firms and solicitors they look after so they understand precisely what needs to be done.
With bodies like the LSB watching from afar, the SRA’s plans should benefit firms moving forward, which means the number of fines should be reduced. With the legal landscape elevating, 2025 looks to be another year where the SRA continue to clamp down on regulation failings and ensure the framework they’ve built is adhered to.
