Recent reviews reveal significant non-compliance in law firms regarding anti-money laundering (AML) regulations.
- Only 22% of firms achieved full compliance in recent checks by the Solicitors Regulation Authority (SRA).
- Non-compliance largely stems from insufficient emphasis on AML controls by senior executives.
- The SRA has doubled its enforcement actions as a response to these findings.
- Despite some improvements, significant gaps remain, particularly in client risk assessments.
In a comprehensive assessment conducted by the Solicitors Regulation Authority (SRA), it was found that only 22% of law firms were fully compliant with anti-money laundering (AML) regulations. This assessment covered 5,683 firms, out of which 512 underwent detailed inspections or reviews, revealing substantial deficiencies in many areas.
The root causes of non-compliance were identified as a lack of prioritisation of AML controls by senior executives, inadequate supervision or training for fee-earners, and ineffective systems for monitoring transactions. The SRA noted that many firms lack automated processes to halt transactions when due diligence is incomplete.
The review highlighted that while there has been some improvement in client and matter risk assessments, with a reduction in ineffective assessments from 51% to 12%, deficiencies persist. A significant number of files still did not include required source of funds checks, impacting a quarter of the files inspected.
Enforcement actions have nearly doubled since the previous year, with the SRA attributing this increase to enhanced investigation capabilities and streamlined case management. This resulted in numerous fines and advisory letters, though tribunal cases have decreased due to the revised approach towards fines.
The SRA’s proactive inspections around financial sanctions, particularly under the Russia sanctions regime, found that of 55 firms inspected, a good portion were compliant, yet nine still failed to meet the required standards. This continues to be an area of focus for regulators.
The SRA’s findings underscore a critical need for law firms to strengthen their AML compliance efforts.
