The Solicitors Regulatory Authority’s Chief Executive issued a warning last week that the demands placed on legal firms to stop money laundering will not abate.
At the Law Society’s Risk and Compliance Annual Conference, Paul Philip, Chief Executive of the Solicitors Regulation Authority (SRA), said that the regulator has found itself to be “piggy in the middle” between the profession and the government. He insisted that law firms shouldn’t be afraid of their commitments and stated that the regulator would assist in any manner it could, but he speculated that the present drive may be the result of government pressure.
To combat money laundering, solicitors’ firms are already obligated to undertake risk assessments, and more than a dozen practices have received fines in the previous year for not performing them properly. The SRA has also brought legal action against companies who falsely claimed to have a compliance risk assessment.
Since last December, sanctions imposed by the UK government have also barred legal firms from offering trust services to anybody associated with Russia, unless a pre-existing agreement was in place.
When asked how the SRA might assist, Philip said the most frequent request from law firms was to “cease adding to the burden of AML regulations”. But, currently, that is not going to be doable.
The truth is that we are stuck in the middle, he declared. “Do we believe there to be an issue [for firms]? Absolutely. Most law firms in England and Wales are modest businesses, so I suspect—and I do know that most individuals are just trying to keep up and understand their responsibilities. You shouldn’t be concerned about the SRA. We’ll try our best to offer direction.”
Law firms are compelled to comply with an overwhelming number of regulatory obligations that result from direct legislation, but there is little the SRA can change this.
“We may say that we are catching up since this is something that we ought to have been doing a long time ago,” said Philip.
In June 2023, six thousand law firms were required to furnish information on the scope and possible risk of their activities. Law firms were requested to fill out and return a form detailing their exposure, including details on how much higher risk business they perform, and the value of the job done for their largest client.
Checks for sources of money are proving to be a significant burden for solicitors. According to the SRA, companies should “go back as far as is necessary” to create a clear picture of how clients accrued their funds for the transaction.
According to Rudi Kesic, CEO of Verify 365 AML Checks, said, “It seems that the Solicitors Regulation Authority is warning that there will be an increase in Anti-Money Laundering (AML) obligations for law firms soon. We know that the UK government is considering new measures to strengthen AML rules, and the SRA believes this could result in additional burdens for law firms. It appears that the SRA is concerned about the potential impact of increased AML requirements on the legal industry, particularly in terms of compliance costs and administrative burdens.”
The legal industry will face additional challenges related to AML compliance in the future, which could have significant implications for law firms of all sizes. It will be interesting to see how law firms adapt to these challenges and whether they adopt AML technology to manage the increased regulatory burden.