Risk Update

Law Firm Anti-Money Laundering Rules and Monitoring & Commentary on Professional Responsibility Approaches

Posted Dan Bressler

“SRA to beef up AML monitoring of law firms” —

  • “The Solicitors Regulation Authority (SRA) is to beef up its monitoring of firms’ anti-money laundering (AML) efforts and begin a review of continuing competence, its draft 2020/21 business plan has revealed.”
  • “This is the first time the SRA has consulted on its annual business plan, for the year from 1 November, and follows the recent publication of its corporate strategy for 2020-23.”
  • “To meet its legal obligations to prevent money laundering, the SRA said it would expand its AML visits so as to visit all high-risk firms on a three-year rolling basis, along with visiting a sample of lower-risk firms – the SRA will also review the methodology it uses to risk rate firms.”
  • “Further, every month it will call in and analyse a sample of firms’ AML policies, procedures and controls, or their risk assessments, ‘and we are planning to undertake a thematic review into tax advice.’ This means the 2.5% of the SRA’s £70m budget that is currently spent on AML activities will increase to 3%.”
  • “The oversight regulator, the Legal Services Board, has begun work on a review of continuing competence that could lead to periodic checks on lawyers’ fitness to practise. The SRA is following suit: ‘We recognise the importance of not only high standards at point of entry into the profession, but also throughout a solicitor’s practice over many years, so we will also undertake a strategic review of our approach to regulating solicitors’ continuing competence.'”
  • “It said: ‘As we start to consider our longer-term forward budget, we are acutely aware of the current political and economic context. The impact of Covid-19 on the profession, consumers and, indeed, the wider economy is likely to be significant and long lasting. There is potential need for greater regulatory activity at a time of this significant financial uncertainty for the profession and law firms, at the same time as the economy is adapting to a post-Brexit transition environment.”

And Malcom Mercer shares: “Thoughts about self-regulation in the public interest” —

  • “It is no secret that that self-regulation can be compromised by the tension between the public interest and the interest of the regulated profession[i]. This tension leads some to say that self-regulation is inherently flawed and should come to an end.”
  • “In this column, I suggest that:
    • it may be useful to recognize that conflicting professional interests are more in tension in some areas than in others and accordingly to look for ways to mitigate that tension where it is potentially problematic
    • there may be limited measures that can be used to mitigate such tension without having to take more transformative measure that may or may not end up achieving what is sought to be achieved and to avoid the costs that come with transformations.”
  • “Professional regulators have other responsibilities where the public interest and the interests of regulated professionals are less well aligned. Scope of practice is an area of particular tension where there is more than one profession that may be suited in the public interest to perform a function.”
  • “There is a clearly tension between the public interest and the interest of professions where two or more professions would compete for work if permitted to do so.”
  • “There is no perfect approach to professional regulation. Professional self-regulation has advantages. It is a challenge without professional expertise to truly address the fundamental aspects of professional regulation; namely professional competence and conduct. It is good to have regulation of lawyers be independent of government both in criminal law defence and generally. In the early days of the Trump administration, lawyers gathered at airports seeking to defend the interests of those seeking to enter the United States. It is not difficult to imagine that regulation of lawyers by the US government might have cast a pall. Whether a government is on the right or the left, independence from government is desirable. We know that autocratic countries around the world use state ‘tools’ to silence lawyers.”
  • “In my view, it is particularly important that the question of what is required to become a lawyer and requisite professional conduct and competence of lawyers be independently regulated. Self-regulation is one approach to independent regulation. A difficulty with other approaches to independent regulation is that true independence from the state is both hard to achieve and hard to maintain.”
  • “It seems to me that the tension is greatest for self-regulation of lawyers in determining the permitted scope of licensed non-lawyer practice, determining the scope of reservation to licensees (i.e. what is unauthorized practice) and regulating of business activities.”
  • “There is talk of the end of self-regulation in Canada. Experts in professional regulation argue that there is growing governmental and public impatience with self-regulation and that self-regulation is inherently fundamentally flawed given conflicting interests.”
  • “Perhaps the better choice is evolutionary rather than transformative. Approaches in other jurisdictions always look better than our own and better than they are. And transformative change is difficult to effect and to manage. Results of transformative change are inherently unpredictable.”
  • “An alternative that appeals to me comes in part from the Legal Services Board in England & Wales where a Consumer Panel has been established to advocate for consumer interests and in part from the existence of government appointed benchers in Canadian Law Societies.”