The Solicitors Regulation Authority (SRA) has imposed fines totalling £57,000 on eight UK law firms for significant shortcomings in their anti-money laundering (AML) controls. The eight law firms fined have failed to meet the criteria and regulations in place.

These firms were cited for failing to implement required client and matter risk assessments (CMRAs) and firm-wide risk assessments (FWRAs), both critical components in maintaining effective AML practices. This move underlines the SRA’s commitment to enforcing regulatory standards within the legal sector, especially concerning AML compliance.

Growing Concerns Over AML Compliance as Eight Law Firms Fined

The SRA’s latest annual AML report, published earlier this month, revealed that a significant portion of law firms still fall short in meeting AML compliance requirements. Of the 3,048 files examined in the past year, 19% lacked a CMRA, and 12% of the existing assessments were deemed ineffective due to unclear rationales behind client or matter risk ratings. However, the report notes an improvement in compliance rates; last year, 51% of reviewed CMRAs were found to be inadequate. This improvement followed the issuance of a warning notice on CMRAs by the SRA last year, highlighting the importance of diligent risk assessment practices.

Largest Fine Issued to Hill Johnson & Leo

Surrey-based law firm Hill Johnson & Leo received the highest fine in this regulatory sweep. Between June 2017 and July 2023, the firm failed to maintain a FWRA or conduct individual CMRAs, both required by the 2017 Money Laundering Regulations. The SRA found that the firm’s lack of compliance stretched back even further, noting that it had not followed the 2007 regulations for six years prior.

Given that the firm’s primary practice area is conveyancing—a field highly susceptible to money laundering risks—this oversight was considered particularly serious. However, the SRA acknowledged that there was no direct harm to clients. Hill Johnson & Leo was fined 2% of its annual turnover, amounting to £18,094, with an additional £600 in costs. The penalty was reduced by 15% to account for the firm’s cooperative response and its steps toward compliance.

Tedstone George & Tedstone: Failure to Document Compliance Measures

Stafford-based Tedstone George & Tedstone was similarly penalised after an SRA inspection in 2023 revealed that the firm had not documented any CMRAs across 11 client files. Although the firm claimed to conduct risk assessments informally, the lack of formal documentation was deemed a significant regulatory breach. Tedstone George & Tedstone has since implemented a compliance plan, completing CMRAs for all active files. The SRA set the firm’s fine at 2% of its turnover, amounting to £13,030, with an additional £1,350 in costs.

In its ruling, the SRA emphasised that undocumented assessments are inadequate, stating that compliance must be formally recorded to meet regulatory standards. The firm’s efforts to rectify the situation after the inspection were acknowledged, resulting in a slight reduction in the penalty.

Bull & Co, Margetts & Ritchie, and Edridges & Drummonds: Varied Degrees of Non-Compliance

The SRA’s findings also highlighted similar compliance gaps at Bull & Co, Margetts & Ritchie, and Edridges & Drummonds. Bull & Co in Andover failed to have CMRAs in place from 2017 onward, as well as during the two preceding years under the 2007 regulations. Although the firm demonstrated remorse and has since implemented compliant practices, it was fined £7,577, with £600 in costs.

Birmingham firm Margetts & Ritchie faced scrutiny for failing to conduct both FWRAs and CMRAs over an extensive period, particularly problematic given that over half of the firm’s work involved high-risk conveyancing transactions. A notable oversight involved a client from Yemen, a high-risk jurisdiction, for whom the firm failed to conduct enhanced due diligence. Margetts & Ritchie was fined £3,828 and incurred £1,500 in costs, with the penalty reduced due to its recent compliance efforts and cooperation.

Edridges & Drummonds, a Croydon firm primarily handling conveyancing, received a fine of £3,395 plus £600 in costs for failing to implement an FWRA between 2017 and 2021. Despite affirming to the SRA in 2020 that it had a compliant FWRA, the firm only brought its policies up to standard in January 2024.

Additional Fines for Persistent Non-Compliance

Other firms cited by the SRA include Kent’s Ratcliffes, West Yorkshire-based Redfearns Solicitors, and Rochdale’s Hartley Thomas & Wright, each penalised for failing to meet basic AML requirements. Ratcliffes, a recognised sole practice, did not conduct CMRAs on client files through March 2024, affecting a substantial portion of its practice that fell under the 2017 regulations. The firm was fined £6,727 after a 20% reduction for its cooperative stance.

Redfearns Solicitors was similarly fined for failing to maintain a FWRA from 2017 until early 2023, with partners reportedly conducting informal risk assessments without proper documentation. Following the SRA’s notice, the firm formalised its FWRA process, leading to a reduced penalty of £2,435.

Hartley Thomas & Wright’s failings included inadequate CMRAs over five years and a lack of due diligence on certain cash transactions. Despite having AML policies in place, the firm’s lack of documented CMRAs led to a fine of £2,398 plus £600 in costs.

The News of Further Fines no Surprise Given the SRA’s Recent AML Report

Law firms are finding it difficult to be fully compliant with the SRA guidelines, as highlighted in their annual AML report, with only 22% of firms meeting all the regulations in place. It’s a concerning note for the SRA, given only one in five meet the requirements, and this will likely lead to more fines being handed out.

Alarmingly, 23% of firms are not compliant with the guidelines in place, which puts not only their reputation on the line but at significant risk of enabling financial crime and other criminal activity. The SRA’s annual AML report also highlighted that nearly twice as many firms and individuals faced some form of repercussion action whether that be a fine or further punishments.

The report also details the factors behind the spike in action against firms and solicitors, with factors such as senior executives not placing enough importance on having robust, effective AML procedures in place, inadequate supervision or training as well as having systems in place that enable things to slip undetected.

It’s a concern for the SRA that law firms are struggling to meet the standards. Ultimately, law firms need to find the right solution to meet the regulations in place and improve their overall AML procedures, but the overall stats right now aren’t great.

SRA’s Message to Law Firms: Documented Compliance is Essential

The SRA’s enforcement action underscores its commitment to robust AML practices within the legal industry. The regulator’s findings reveal a common issue: firms conducting AML measures informally but failing to document them adequately. The SRA’s report stresses that proper documentation and risk assessment protocols are essential to avoid money laundering vulnerabilities, especially in high-risk areas like conveyancing.

The fines imposed, although scaled based on firm turnover and mitigating factors, reflect the SRA’s stance that AML compliance is not optional. Firms are urged to take proactive measures to ensure that their AML practices are documented and fully compliant with the latest regulations. The SRA has signalled its intent to continue monitoring compliance closely, with non-compliant firms facing strict penalties and reputational damage.