The SRA, acting in conjunction with all of the other legal regulatory bodies in the UK as part of the “Affinity Group”, has now published its updated professional guidance on how those affected by the Money Laundering Regulations must ensure compliance with them. Noticeably longer and more detailed than the previous guidance, the clear message is that compliance is not optional, and that ignorance of what is now required of firms will not stand in the way of regulatory, and quite possibly, criminal sanctions.
There is an important cautionary note here if you are one of those many sole practitioners who regard themselves as being outside the scope of those that need to comply with the Regulations. The position here changed some 12 months ago when the Amendment Regulations took effect, mostly in order to give effect to the Fifth EU Directive. One of the more significant changes made then was to the definition of who would be regarded as being a “tax adviser”, and as explained by the SRA in their guidance note from late last year.[1] The revised definition is now described by the regulator as being “broad” and extending “beyond providing advice and includes assistance and material aid”.
The net effect of this is that even if the firm excludes liability for questions of taxation in the work that it undertakes it will still now be regarded as being a tax adviser if, for example, it advises a client that there are possible tax implications to what is being planned and suggests that the client should seek specialist help on the issue from elsewhere. This may well mean that sole practitioners in such areas as family or employment work may now be seen to be regulated firms, and so will need to ensure that the regulatory requirements are now being met.
For the most part the revised guidance does not change the regime that those who have been regulated for some time will be familiar with. Rather, it provides more guidance on some of the more troublesome elements that have been part of the regime for many years. Still, however, the main practical problem is that there is no one standard approach that will guarantee that all firms are compliant with what is now expected of them. The levels of funds that might seem standard in large commercial departments are quite likely to seem anything but for a specialist commercial law adviser more used to lower value transactions. For this reason the importance of the firmwide risk analysis exercise that is required by r.18 of the Money Laundering Regulations and its importance in shaping each firm’s individual AML policy and procedures is again stressed.
The risk assessment process is explained in more detail at section 5 of the new note and should probably now be seen as the first very clear “to do” item for those firms subject to the regulations. You should set out to undertake the review of your “Policies Controls and Procedures” as now required by section 5. This is also likely to be a timely step since it is now just over a year since the SRA demanded of firms that they should certify to them that they had undertaken such a risk assessment, and since the need to keep this under constant review is stressed the review should be seen as the first step to take now in a review of each firm’s policy and procedures.
Throughout the revised guidance there is a greater degree of explanation on the various aspects that have long formed part of the overall AML regime, such as the attempt made to clarify the operation of the law of privilege in the reporting of suspicions to the National Crime Agency. Elsewhere there are also updates covering other provisions which have taken effect since the last edition of the guidance note appeared in 2019. Amongst such content see those dealing the requirements of BOOMs (beneficial owners, officers and managers) at 4.2.1-3 and the new section 7 on technology. It is recognised that checking the identity and address details of individual clients without having met them in person has now become more commonplace, but that technological advances can serve to reduce the increased risk of not being able to do so. Finally, private client lawyers in particular should note the relatively new provisions on the registration of taxable trusts at section 12.4.
In summary, the challenge now is to ensure that the necessary systems are not just in place, but that they are also proving to be effective. In the meantime law firms large and small can expect greater regulatory attention in this regard, and a less sympathetic response when problems arise.
Matthew Moore is a solicitor and one of the directors of Infolegal Ltd which provides compliance support on this and other regulatory topics: mattmoore@infolegal.co.uk.
[1] “Tax adviser guidance”: 23rd November 2020