The Money Laundering and Terrorist Financing (Amendment) Regulations 2026 took effect on the 30th June. The changes that are relevant to law firms are not great in number or in substance, but at the increasingly common SRA Monitoring Inspections it will be important to show that the firm is aware of them and has made the few substantive changes that are now required.
The first such amendment to note arises in relation to the need for more checking of clients by way of enhanced due diligence where a transaction has been judged to be ‘complex or unusually large’. This has always needed to be judged by the profile of each firm’s work but this is now stated to be in greater detail ‘unusually complex or unusually large in each case given the nature of the transaction’ (r.19(4)(a)(i)(aa)). This revised wording will therefore now need to be brought into play if any fee earner brings any such concerns to the attention of their supervisor or the firm’s MLCO/MLRO.
Another situation where the need for EDD arises is where a high risk foreign territory might be relevant to the instructions received where the client or any of the other parties to a transaction is established in a high risk third country under r.33(1)(b). The list of all such suspect territories has now been extended by the Financial Action Task Force (FATF) to include an additional ‘call for action’, and so in effect, warned list. In the very unlikely circumstances for most firms of ever encountering any such territory in any matters that they are handling the matter file should show what further appropriate checking has been undertaken.
There are changed references from euros to sterling at r.27 harking back to the pre-Brexit days of 2017, and then at r.29 there is a change of greater note in relation to the management and control of law firms’ client accounts. It was suggested some time ago that the banks should be entitled to know whose money was being handled by them through it sitting in the ‘pooled accounts’ maintained by law firms. Not long after the MLR 2017 first took effect a couple of banks in particular required their law firm customers to agree that they would disclose their clients’ details on receiving a request to do so as a condition of maintaining that account. We encountered at the time a number of firms who had reluctantly agreed to do so although this would have been a clear breach of their duty of client confidentiality. The Codes of Conduct provide in this regard that confidential client information may only be released with the client’s consent or if permitted by law.
This problem has now been resolved with some additional provisions to r.29 at (11) to (17) to the effect that the bank, when providing such facilities to the firm, must understand ‘the purpose of the pooled account and how the customer intends to use it’. The bank will also need to take proper steps to ensure that the use of any such account is consistent with their knowledge of that law firm customer and then take reasonable steps to manage the risks that will arise for each firm concerned. Critically, however, at r.29(14) it is provided that the firm must make available to the bank at their request ‘information on the identity of the persons on whose behalf monies are held’.
On this point paragraph 19 now also provides that any disclosure duly made under these provisions will not now be taken to breach the firm’s duty of confidentiality which in the case of law firms will be found in both the SRA Codes of Conduct for Solicitors and Firms at sections 6(3) to 6(4).
Finally, private client lawyers should take note of the new r.45ZA which removes some trusts from the need to be registered with the Trusts Registration Service but adds in other non-UK trusts that hold UK land.
We will in due course be making any amendments to our AML policy in part 3 of our Office Procedures Manuals for both firms and sole principals to enable you to show that you are up to date with these changes.
