Sanctions and Anti-Money Laundering Bill

Written evidence submitted by the Solicitors Regulation Authority (SAMLB09)

Introduction

1 The SRA is the regulator of solicitors and law firms in England and Wales. We work to protect consumers and support the rule of law and the administration of justice. We do this by overseeing all education and training requirements necessary to practise as a solicitor, licensing individuals and firms to practise, setting the standards of the profession and regulating and enforcing compliance against these standards. Further information is available at www.sra.org.uk .

2 We are the largest regulator in legal services in England and Wales, covering around 80% of the regulated market. We oversee around 1 84 ,00 0 solicitors and more tha n 10, 4 00 law firms.

3 It should be noted that the SRA is part of the Law Society Group. Under AML legislation it is the Law Society that is listed as the named supervisor, with responsibility then delegated to ourselves as the regulator.

4 We recognise that the current arrangement can be confusing. Our long- standing position is that fully independent regulation would improve public confidence and reduce the need for additional layers of oversight. 

5 W e welcome the invitation to feed our views on the Anti-Money Laundering legislation into the Public Bill Committee .

Background

6 The legal sector is one of a number of areas of work that is at a high risk of attracting criminals seeking to launder the proceeds of crime. Solicitors have an obligation to help stamp out money laundering, through the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and the Proceeds of Crime Act 2002.

7 We expect solicitors to make sure they are not helping anyone with dubious funding streams - being 'professional enablers'. This risk exists for every single solicitor and law firm, whether conveyancing on the high street or handling global transactions, and they should all be thinking about their responsibilities for tackling these issues.

8 Concerns were raised by the National Crime Agency (NCA) about the quality of suspicious activity reports (SARs) submitted by the profession and the reduction in numbers submitted over recent years to the central reporting body the UK Financial Investigation Unit (UKFIU).

9 We launched an anti-money laundering (AML) campaign ( thematic review ) in September 2014 to ensure solicitors firms do not become embroiled in money laundering activity and are compliant with the various regulations and legislation associated with anti-money laundering compliance. This included:

· visits to more than 250 firms - from sole practitioners to large firms - to look at what processes they had in place to guard against money laundering and whether staff were able to use these processes, from which a thematic report was published which identified both good and poor practice

· a number of areas identified for attention including: for firms to ensure training was properly embedded, having appropriate cover for the Money Laundering Reporting Officer (MLRO), and making sure AML systems and controls are both tested and updated.

10 In 2017 we undertook a further review , visit ing 50 firms (25 large and 25 small/medium) to check how firms were implementing the new money laundering regulations introduced in June 2017. The results [1] , published on 2 March this year, are generally positive, however there are some areas for improvement and we have referred six firms for disciplinary action as a result .

11 In early 2016 HM Treasury published a call for evidence on the supervision of money laundering, including the role of professional bodies in Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) supervision [2] .     There were a number of further consultations on money laundering by HM Treasury in 2017 with a view to being implemented by the end of 2017 and ahead of the visit this year by the Fina ncial Action Task Force ( FATF).

12 In August 2017 HM Treasury updated the list of organisations that would be captured by its European Union Financial Sanctions Regulations 2017 to include "independent legal professionals" [3] . The existing regulations already placed an obligation on businesses to report to the Treasury if they were acting for anyone subject to financial sanctions, but enforcement action could only be taken against financial services firms.

13 These new financial sanctions regulations mean legal firms are obliged to comply with the reporting regime. These regulations, and the approaching Financial Action Task Force inspection, are further reminders of the importance the UK and global community places on tackling terrorist financing.

14 In addition, the HM Treasury frozen assets review is underway: any professional who discovers they are holding assets belonging to someone listed in the review should report this to the Treasury before 13 October 2017, with reports sent to the Treasury’s Office of Financial Sanctions Implementation (OFSI). The Treasury has provided an example of what the Annual Review involves [4] .

SRA activities

15 As part of our current Business P lan [5] we have stated that we are, as a priority, continuing to focus on our responsibilities to apply the latest Anti Money Laundering regulations. This will include preparing for and contributing to the FATF review in 2018, discharging our responsibility to the new oversight regulator ( the office for professional body AML supervision - OPBAS) set up under the FCA and ensuring that we have appropriately trained and qualified staff to effectively regulate in this area. Further we will ensure that the SRA supervises firms in an appropriate manner and helps solicitors comply with their obligations to prevent money laundering.

16 As referenced in p aragraph eight above , l ast week (2 March 2018) we launched the findings of our mo st recent thematic review of firms [6] – large and small – to explore the profession’s compliance with the more stringent demands of the Money Laundering Regulations 2017, introduced in June 2017 .

17 The review found most were taking appropriate steps to understand and reduce the risk of money laundering. This included doing appropriate customer due diligence, using a variety of ways to establish the source of a client’s funds and wealth, and good training processes.

18 Yet there were areas of concern. Not all firms were keeping records of their decisions and only 69 % of files reviewed had written evidence that the level of risk was assessed. Despite being a requirement, only a third - 17 firms - had a firm wide-risk assessment in place or were in the process of implementing one. At the time of the review firms had only had limited time to implement the new regulations, but the SRA expects firms to move towards compliance as a matter of urgency.

19 The SRA had serious concerns about the processes and practices of six firms it reviewed. They are now in ongoing disciplinary processes.

20 More broadly, in the last three years in cases linked to potential improper money movements 2 , the SRA has closed-down eight firms, with another 14 closing down voluntarily, and has referred 49 solicitors and two other firms to the Solicitors Disciplinary Tribunal. This has resulted in 12 strike offs, 13 suspensions and fines of more than £800,000.

21 As a result of the findings, we have issued a fresh warning notice [7] further highlighting potential indicators of money laundering or criminal activity. It warns firms to remain vigilant and look out for signs such as overly secretive clients, high value cash transactions and clients acting through third parties. Firms should report suspicious activity.

22 To help firms better protect themselves, at the same time we also issued ethics guidance [8] highlighting key changes in the regulations. These include the need to have records of all staff training, a Money Laundering Compliance Officer (MLCO) on the board of directors, and to identify domestic, as well as foreign, politically exposed persons.

23 This guidance is complemented by our sectoral risk assessment [9] , which identifies the five main risk areas, such as types of clients, legal services and transaction.

6 March 2018


[1] https://www.sra.org.uk/sra/how-we-work/reports/preventing-money-laundering-financing-terrorism.page

[2] HM Treasury (April 2016) Call for information: anti-money laundering supervisory regime https://www.gov.uk/government/consultations/call-for-information-anti-money-laundering-supervisory-regime

[3] http://www.sra.org.uk/sra/news/press/financial-sanctions-reporting-enforcement.page

[4] http://www.gov.uk/government/publications/annual-frozen-asset-review-and-reporting-form

[5] http://www.sra.org.uk/sra/strategy/business-plan/sra-business-plan-2017-2018.page

[6] https://www.sra.org.uk/sra/how-we-work/reports/preventing-money-laundering-financing-terrorism.page

[7] https://www.sra.org.uk/solicitors/code-of-conduct/guidance/warning-notices/Money-laundering-and-terrorist-financing--Warning-notice.page

[8] https://www.sra.org.uk/solicitors/code-of-conduct/guidance/guidance/The-Money-Laundering,-Terrorist-Financing-and-Transfer-of-Funds-(Information-on-the-Payer)-Regulations-2017.page

[9] https://www.sra.org.uk/sra/how-we-work/reports/aml-risk-assessment.page

 

Prepared 7th March 2018