Risk Update

UK Risk Reports — AML Costing Law Firms Money, SRA Facing Fallout Focusing on Investigations

EU anti-money laundering directive costing UK law firms nearly £1m each” —

  • “Implementation of the Fifth Anti-Money Laundering Directive (5MLD) is costing the UK legal sector on average 12% more than for other regulated industries with a majority of compliance professionals unconvinced on the directive’s value in detecting and preventing financial crime, according to new research.
  • “The research by LexisNexis Risk Solutions revealed the implementation of 5MLD costs £940,200 per law firm, compared to an average of just over £836,000 across other sectors.”
  • “Kerkez added the results foreshadow a ‘difficult future’ for law firms trying to keep up with changing compliance requirements should they not adopt the right technology to streamline compliance checks and create a more flexible, risk-based approach to compliance matters.”
  • “Kerkez said the results point to a ‘perennial conflict’ within firms between fee earners who want to onboard clients quickly and compliance teams who try to minimise the firm’s exposure to risk. ‘This is an area that 5MLD and the requirement to demonstrate a risk-based approach to compliance are putting additional pressure on,’ she said. ‘The reality is, firms can have the best of both worlds; fast, frictionless and safe onboarding, alongside robust and ongoing assessment of client risk that protects the firm from exposure to financial crime, and therefore the reputational and financial damage that could come from dealing with the wrong client.'”

The SRA just posted: “Reflections on our September Board” —

  • “The SRA Board held a quarterly monitoring meeting this week. Here we explored operational and financial performance, delivery against our business plan and looked at the strategic risk register. Perhaps that doesn’t sound like the most exciting meeting, but I think it is critical that the Board spend time on these matters to assure ourselves that the organisation is delivering as it should be for all our stakeholders.”
  • “We noted good performance in most areas and anticipate closing the year in good shape. But we spent some time exploring the data on investigations. We are pleased that we continue to hit the target of concluding at least 93% of investigations within 12 months, but we would like to know more about the 7% of investigations that extend beyond 12 months. More information and further analysis will help us to understand what can be done to reduce delays going forward.”
  • “More generally we are awaiting the results of an internal audit of our performance reporting data. This will give the Board assurance that the material we get is robust, but we have also asked the auditors to suggest areas for improvement based on good practice in similar organisations. We will then review the information we receive.”

Which sparked sharp comment on LinkedIn. Risk advisor/solicitor Frank Maher posted:

  • “As I commented earlier on a previous posting of this, the delays in progressing even minor conduct issues are a serious problem and need close scrutiny. I cited the example of a minor employment dispute which was dismissed by an adjudicator after 15 months and should never have gone that far But it would have threatened the entire career of my client.”
  • “Targets for disposing of investigations can have unintended consequences. I have one case where a response was requested in 14 days, as is usual, the allegations by a third party were nonsense and demonstrated a woeful misunderstanding of money laundering legislation but were nonetheless put to the solicitor by the SRA who should have seen the flaws in it. A 5 page response was provided in 7 days and the SRA say they ‘aim’ to respond in just under 14 weeks. How it can take that long defies belief. But it might just be that the 12 month target for responding to 93% of investigations is in fact perceived as an ‘allowance.'”
  • “It is no good publishing sound bites about stress in the profession while simultaneously causing it. Those conducting the investigations appear to have absolutely zero understanding of the way in which they can ruin people’s lives and careers.”

And Jayne Willetts, solicitor advocate, echoed:

  • “I echo the comments made by Frank Maher about delay. As an example I have just been instructed on a case where the SRA did not contact my client until over two years after the initial complaint had been made to the SRA. The explanation for the delay was that the SRA had been liaising with the complainant during the intervening two years. Is that a fair and balanced approach?”