The long-promised update to the Legal Sector Affinity Group AML Guidance was published on Wednesday 20th January. At 212 pages, it is weightier than previous versions and those wishing to get to grips with its provisions are in for a long read and need to think about setting aside at least five hours in which to do so. Although the first “pilot” guidance note on AML compliance, which was issued in 2004, ran to over 220 pages, successive updates have become shorter and more outline in their format, but consequently much less confident in the practical advice provided by them.
Looking back to the March 2018 version, which has now been replaced by the new guidance, it is noticeable how often it highlighted issues for further consideration, rather than expressing more detailed practical suggestions. The new guidance, by contrast, is very much harder hitting and states more confidently what the AML regime now in force will mean for all firms and all of their relevant personnel. In doing so it reflects the much-increased significance attached to the whole topic of Money Laundering Compliance by the authorities, and the personal responsibility now imposed on all within the regulated sector to keep under control all aspects of this dangerous criminal activity.
For those who want a shorter, although probably not particularly easier, read there is a 5 page summary guidance of changes to the regulations which has also been produced to help firms comply with the new requirements.
For the most part the revised guidance does not change the regime that those with responsibility for these areas within their firms will be familiar with. Rather, it provides more guidance on some of the more troublesome elements that have been part of the regime for many years and which is likely to prove helpful. A good example is the increased guidance now provided on the important distinction between source of funds as opposed to source of wealth, now to be found at section 6.17. Rather typically of the style of the new advice it describes this issue as a “key protection for your practice” which should be “approached as an opportunity to protect your practice from being used for money laundering”.
Still, however, the problem remains that such issues cannot be addressed by blanket provisions to be applied to all eventualities and so firms will continue to need to decide for themselves when the facts of the case, and the extent of the moneys involved, require more detailed client enquiries. The problem remains that what might be seen as exceptional funds for the commercial departments in more general firms dealing with smaller client concerns may seem unexceptional in other larger and more institutional practices. It is, therefore, no surprise that the importance of the firmwide risk analysis exercise and the role that it needs to play in shaping each firm’s AML policy and procedures is again stressed.
The risk assessment process is explained in more detail at section 5 of the new note and the first very clear “to do” item for firms now will be to bring this up to date so as to be able to undertake the review of each firm’s “Policies Controls and Procedures” as also required by section 4.8. Infolegal members can access a draft of a risk assessment on the Infolegal Compliance Hub which can serve as a precursor to a review and update of your firm’s AML policies since they are required to be based on this exercise.
It is probably worth noting that it is now a year since the SRA demanded that firms certify to them that they had undertaken such a risk assessment, and so for most firms this will be a timely step to take as that assessment is unlikely to have been reviewed since then. The Infolegal risk assessment form has been further amended since it was first published so as to assist members with this exercise and to make it a more straightforward task than it was this time last year. For further details about this and about how Infolegal can assist, contact Matthew Moore at Infolegal (firstname.lastname@example.org).
Throughout the revised guidance there is more explanation on the various aspects that have long formed part of the overall AML regime. Of these, the attempt to clarify the operation of the law of privilege in the reporting of suspicions to the National Crime Agency is one that stands out. This might be a worthy effort, but the topic is itself both confused and confusing. It grapples with the statutory provisions in the Proceeds of Crime Act 2002 on privilege as well as the ever-changing common law principles that also come into play. There are differences between the two, and unfortunately it will remain unclear as to which code should apply in certain circumstances.
Other than this, the revised note also updates other provisions which have taken effect since the last edition appeared two years ago, and so all that came from the Fifth Directive which took effect in January 2020 in particular. Here the revised guidance reflects on the increase to the regulated sector in relation to the changes made to the interpretation of the term “tax advisers”. This appears briefly at 3.1 of the note (“Introduction and Context”), in contrast to the 2018 version which instead stated with some confidence that certain specialist firms could see themselves as being exempt from the regulatory regime.
Also falling into this category are the sections dealing the requirements of BOOMs (beneficial owners, officers and managers) and the requirement that the SRA as regulator must be informed of any such proposed appointments at 4.2.1 – 3. Note here in particular the clear warning that failure to notify the regulator of any changes to these appointments constitutes a criminal offence, and the implication seems to be that criminal proceedings may well be taken against those who fail to do as they are required.
Another part of the note which is particularly worthy of more detailed consideration is the new section 7 on technology. It is recognised that the onboarding of individual clients without having met them has now become more commonplace, thanks mostly to Covid controls, of course, but that technological advances can serve to reduce the increased risk of not being able to meet clients in person. No particular systems are recommended, but there is a helpful summary of the points that should be borne in mind in evaluating whether any bought in service will help the firm to meet its obligations in this regard.
Amongst other parts of the note that may prove helpful will be those dealing with the relatively new provisions on the registration of taxable trusts at section 12.4 which will be particularly important to those firms that are engaged in higher value private client work. Likewise, much more detailed copy is provided on the distinction between source of funds and source of wealth at 6.17, and how firms need to gauge when further questioning of clients is required as to how they accumulated the funds that they are now seeking to spend or invest with their lawyers’ assistance.
There are obviously many more points that we could highlight in this brief introductory note that will have to await further examination in the fullness of time. There is a great deal to take on board here for Money Laundering Reporting Officers and for Compliance Officers as well where they have also been appointed. Much more is now being made of the Compliance Officer role, in line perhaps with the sub-text of most of the revised note – the need for willing involvement with anti-money laundering compliance measures which now has to be taken seriously with all firms where required, and that a reluctant “tick-box” approach by fee earners will no longer suffice. Effective systems and controls must be in place and partners will have to lead by example or accept the increased risks of regulatory action and all of the complications that this may cause to the firm’s indemnity insurance profile if they do not do so.
Infolegal members will be assisted in meeting these increased challenges through the updating our model AML policies and procedures and through the revisions to our online AML training presentations for lawyers and support staff. This is likely to take place during February and will let all members know when these are available for use within their firms. Again, anyone who would like further information about the resources available should contact Matthew Moore at Infolegal (email@example.com).