Insufficient customer due diligence identified as key AML issue
In the Solicitors Regulation Authority’s (SRA) 2020/21 anti-money laundering (AML) report, 83% of its 29 enforcement outcomes featured insufficient customer due diligence (CDD).
A further 17% of firms failed to carry out enhanced due diligence and 69% to establish the source of funds when required.
Over 2020/21, the SRA has continued to crack down on its AML supervision and enforcement. This year, the SRA:
- visited 85 firms
- carried out 168 desk-based reviews
- made 39 suspicious activity reports
- achieved 29 enforcement outcomes
- prosecuted 13 money laundering cases at the Solicitors Disciplinary Tribunal
The SRA’s findings
In its firm visits, the SRA identified “some deficiencies in CDD” and firms “struggling with independent audit and screening requirements”.
Most firms were carrying out the appropriate identification and verification checks, documenting the process in client files.
However, 33% of files reviewed either did not contain a risk assessment or the assessment was incomplete. The SRA gave feedback to 37% of firms visited on client and matter risk assessments.
The SRA also identified issues with source of funds: 43% of files reviewed did not have appropriate source of funds checks, information or evidence.
It’s “biggest concern” was where file reviews did not reflect firms’ own policies, controls and procedures (PCPs): steps needed to be taken for 55% of policies the SRA reviewed.
How we can help
We have a range of resources that can help you and your firm to detect and prevent money laundering, including guidance on:
- carrying out customer due diligence
- practice-wide, client and matter risk assessments
- your source of funds obligations
The Legal Sector Affinity Group anti-money laundering guidance for the legal sector, updated in January 2021, also contains expanded guidance on:
- understanding and evidencing source of funds and source of wealth
- risk assessments – firm-wide, client and matter
- governance and internal controls