AML requirements – five steps to keeping up

The SRA Standards and Regulations and the 5^th AML Directive (5AMLD), which came into effect on 10 January 2020 in the UK, both discourage law firms from ’blanket screening’ their clients and instead advocate a risk-based approach.

However, keeping up with anti-money laundering (AML) regulations and requirements can be challenging due to the unprecedented rate of updates which legal businesses are required to implement. This can be particularly difficult for firms that have operational teams juggling other tasks such as processing client legal documents, transactions, and invoices. We recommend the following.

1. Establish a dedicated compliance team

Whether your firm is small or large, having a dedicated team or compliance specialist in place will give you confidence that you have the required expertise to configure your AML processes and mitigate financial crime risks. It provides two key advantages:

• · Accountability—having a job role or team that is dedicated to compliance, with responsibility for ensuring the firm is consistently and continuously mitigating financial crime risk, will provide accountability and reduce the possibility of compliance tasks falling through the cracks.
• · Time—while having the time to keep ahead of potential changes to regulation or requirements is difficult for employees who are juggling multiple responsibilities, this dedicated person or team will have this included in their remit. By keeping abreast of changes, law firms can ensure they have the strategy and knowledge required to meet all guidelines and compulsory changes.

2. Embed compliance into your firms’ culture

It’s not enough to just train one team in the intricacies of AML regulation; to be truly successful, you need to embed a culture of compliance throughout the firm. Making compliance part of every employee’s work-life will ensure they are well equipped to identify and report suspicious activities when they occur.

It is essential to keep staff regularly informed of the importance of risk management, and ensure they are accountable for their decisions. When new regulations or requirements come into force, flag them early and make everyone aware of the changes. This will also ensure employees are prepared for any changes the compliance team needs to implement.

Compliance requires the understanding and participation of every single employee and support from senior management is essential in instilling this in the company culture.

3. Provide compliance training to employees

All employees who deal with customers or transactions must be able to identify the techniques used by money-launderers, and how and when to file a suspicious activity report (SAR).

A recent Accuity survey revealed that at most law firms across the UK, Money Laundering Reporting Officers (MLROs) are provided with consistent compliance training. However, training should be on-going to ensure employees are always up to date with ever changing money laundering threats and are well equipped to stay vigilant. It enables them to uphold a risk-based approach and provides a baseline understanding of AML, making it easier for them to adapt to new developments.

4. Utilise reliable information sources

Law firm employees can keep on top of industry news around AML/CTF processes, regulation and requirements by utilising reliable resources such as the SRA Standards and Regulations, the Law Society’s AML resources, and guidelines provided by the Financial Action Task Force (FATF). Third party data and software providers can also be used to ensure you always have up to date and comprehensive information on sanctions and PEPs.

5. Streamline the process

Having a system in place for documenting a clear audit trail throughout the entire client relationship life cycle, from client intake to matter opening as well as billing and matter conclusion, is essential in streamlining your process. It provides industry bodies or regulators with evidence of your compliance processes and the decisions you have made. Screening software is available that automatically records an electronic audit trail. 

The Legal Sector Affinity Group (LSAG), which includes the Law Society and all the legal sector supervisors has published anti-money laundering guidance that outlines which records need to be kept. These records include customer due diligence, disclosures of suspicious activity, decisions on risk assessment processes and more.

Are you prepared for what’s next?

What is obvious from the points above is that ensuring your internal procedures are robust is just as important as keeping up-to-date with information and guidance about AML. Without the right infrastructure in place, firms may struggle to react quickly and effectively in making changes that will satisfy industry bodies and regulators.

UK firms are already preparing for the 6th AML Directive, which was discussed by European Parliament and is expected to come into effect in December 2020. This is a great example of the pace of change in AML regulation that we can expect to continue, making it more important than ever for law firms to be confident in their processes and approach.

How can Accuity help?

Having a robust screening process to check all clients and associated parties for sanctions and AML-related risks is crucial, both during onboarding and throughout every stage of the business engagement. Find out how Accuity helps law firms to be compliant, through automated screening processes that mitigate financial crime risks and reduce the manual burden for compliance teams. Contact us today.