Risk Assessments and AML: An SRA Priority

Risk runs through every part of the solicitors' workload. But risk, whatever its nature, rarely remains static.

A key risk – greater in some practice areas than others – is money laundering and the financing of terrorism. Solicitors must keep abreast of the increasingly sophisticated means utilised by criminals to target law firms for financial crime.

Practitioners have an ongoing regulatory duty to protect their clients and the wider public interest, so it should not come as a surprise that the Solicitors Regulation Authority (SRA) regularly emphasises the urgency of undertaking regular risk assessments.

The SRA’s succinct descriptor, ‘weak controls’, exposes law firms to financial criminals. Among the questions you need to consider are – is my firm exposed? And if so, to what extent?

SRA warnings

In March 2024, the SRA released a document, Sectoral Risk Assessment - Anti-money laundering and terrorist financing. It emphasises that law firms are required to take a risk-based approach, which “means that firms should assess their risks and target their resources to the areas or products that are most likely to be used to launder money”.

The SRA has identified new risks – namely vendor fraud; pooled client funds; third-party managed accounts; and irregular methods of transferring funds.

In addition to firm-wide risk assessments, firms in certain areas of practice have further obligations, reflecting the reality that they are at greater risk of being the target of money launderers. These include conveyancing firms, financial tech and trust and company service.

The SRA has been reviewing firm compliance and found smaller firms in particular are “potentially taking an overly simplistic approach to risks associated with [politically exposed persons) and higher risk jurisdictions”. Still, it says policies should be realistic and not overly restrictive.

In a separate publication in May 2024, Anti-money laundering: Get the basics right, the SRA reinforces the basics of AML compliance. In particular, it focuses on what firm-wide risk assessments and client/matter risk assessments are and how to conduct and record them, as well as customer due diligence, policies, controls and procedures and (SARs) suspicious activity reporting.

Warning Notice

Last September, the SRA updated its guidance for firms undertaking firm-wide risk assessments in compliance with regulation 18.

In October 2023, the SRA published a Warning Notice about the importance of client and matter risk assessments. It also published its Thematic Review, setting out the matters a law firm must get right in its practice-wide risk assessment.

The nature and frequency of risk-related publications from the SRA indicate the extent to which the SRA considers that the risk of financial crime is a real and present danger. Don’t ignore them!

For further detail on client and matter risk assessment, you can access our up coming online webinar on AML and the warning notice - available individually and as part of our SRA 4 x 1 hour webinar bundle.


Posted on 10.06.24