More SRA Checking of AML Compliance Requirements

sra aml compliance questionnaire

As an anti-money laundering supervisor under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“the MLR 2017”), the SRA is required to monitor the extent to which solicitors are complying with the legal and professional requirements in relation to anti-money laundering controls. As many firms will recently have discovered, their latest exercise involves a request to respond to a questionnaire covering the levels of current activity within the firm and the specific controls that the firm has adopted to manage this particular aspect of its operations.

Those who have received the questionnaire will find that a number of the questions are specific to their firm’s experiences – although it should be noted that there is not necessarily any suggestion that the responses provided will be viewed as being right or wrong.

It is important to bear in mind that not all services provided by solicitors are subject to the MLR 2017. This is covered at questions 1 and 2 which ask what percentage of matters opened (ie new matters) were in scope of AML last year  and what percentage of the firm’s fee earners do any work in scope of AML. For many firms, the response to these questions will be unclear for two reasons. The first is that many firms ignore this distinction and operate on a “one size fits all” basis of treating the entire range of work undertaken by the firm as being regulated, even if technically this is not the case. The second relates to services now falling within the definition of being within the scope of the regulations as a result of the recent changed definition of what it means to be a “tax adviser” and so subject to the MLR 2017. This applies to areas of work such as family law and employment matters in particular, since these will often embrace issues of potential tax liabilities, even if the firm does not provide tax advice as such and might even exclude liability for such advice in their terms of business. It should be borne in mind that the revised definition of what it means to be a “tax adviser” includes those who provide advice on such issues “through a third party”.  For more information on this see our article from February 2021 “Changed “Tax Adviser” Status to be Notified to the SRA“.

Questions 3 and 4 deal with payments in and out of client account. So far as question 4 is concerned, again there is no right or wrong answer but you may want to bear in mind that cash handling limits of £500 or £1000 do seem to be the norm for many firms, although AML policies could contain an override provision to be exercised at the discretion of the MLRO or MLCO if circumstances dictate.  This is something that is dealt with in the draft Office Procedures Manual to which Infolegal member firms have access.

Reports, specifically internal reports and Suspicious Activity Reports, are dealt with at questions 5 and 6.  Firms should try and resist the inference that reporting is inherently good since this is not necessarily the case.  Whilst clearly there will be issues that should be reported to the MLRO and then on to the NCA, this should not be the firm’s default position. Disclosures to the NCA on the basis of client information that is subject to that client’s legal professional privilege would be wrong in law, and could result in a claim against the firm if it were then to come to light.

Questions 7 and 8 address enhanced due diligence and dealings with those in high risk third countries for the purposes of customer due diligence.  Whilst this is unlikely to be an issue for many firms, it is something that all firms should address in their AML policy and again, this is something that is addressed in Infolegal’s draft Office Procedures Manual.   Question 11 is also relevant here in that it addresses the number of clients for whom you have acted that are Politically Exposed Persons – for which see Legal Sector Affinity Group AML Guidance paragraph 6.19.3 – as is question 13 dealing with work undertaken for “sanctioned” people.  Again, this is unlikely to be relevant for many.  There is however an Infolegal Factsheet to which members have access entitled “Sanctions in Legal Practice” if any further explanation is required.

Finally, questions 9 and 10 deal with mergers/amalgamations and the largest percentage of fees earned from just one client, respectively, whilst question 12 looks at the number of occasions sums in excess of £5,000 have been returned to clients from client account.  Clearly in the case of question 12, this is to ascertain whether your firm is being used to clean up money that is not genuinely part of an active transaction.

If you need further guidance on what work comes within the scope of the AML regulations then the SRA’s guidance note of 24 December 2021 “The scope of the money laundering regulations” will assist you.

Infolegal members can access our most recent guide “Responding to the SRA Enquiry Form on AML Compliance” which will be found in the AML section of the Infolegal InfoHub.

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