A review of 2021
Meeting the regulator's expectations has continued to prove a challenge for even some of the biggest firms in 2021. David Green, Managing Director and Compliance Consultant from The Strategic Partner, reviews some of the most prominent announcements that affected the legal industry and how this will continue to set the pace for 2022 and beyond.
Meeting the regulator's expectations has continued to prove a challenge for even some of the biggest firms, with stringent action being taken against those who do not fully comply with the regulations. The SRA has made it explicitly clear through a series of reports and announcements that compliance with the AML regime remains a paramount focus, making up a key part of its 2021-2022 Business Plan.
Regulator fines more than a dozen firms in early 2021
Following its pledge to test a sample of firms’ policies each month, the regulator issued several sanctions and fines in the early part of 2021 to firms failing to meet anti-money laundering requirements. The regulator urged firms to check the source of client funds, particularly in conveyancing and trust management. The SRA continued with its AML visits and reported on various findings and recommendations throughout the year.
Insufficient customer due diligence identified as key AML issue
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
Consequently, the regulator recently released its first report as in response to visits made to firms over the year, following up concerns about a lack of anti-money laundering policies. Failure to have proper risk assessments in place, poor client due diligence and insufficient checks on source of funds, were some of the most common reasons for non-compliance.
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.
The SRA published its 2021-22 business plan, outlining its key areas of work for the coming year
The SRA 2021-2022 business plan highlighted several key areas of work, which included further increasing proactive monitoring and regulating of anti-money laundering arrangements within the profession. Amongst the critical focus for the SRA was a pledge to review the regulators rolling programme of Anti-Money Laundering visits to firms, stating that this will be expanded further in 2022. The SRA also highlighted its support for the adoption of technology and innovation in the legal sector, including building new partnerships in the Lawtech arena.
COVID-19
There is no doubt that one of the most significant impacts to the legal industry was caused by the coronavirus pandemic. Whilst the SRA stated that they appreciated the challenges faced by law firms and the difficult business conditions because of the virus, the regulator also highlighted their expectation that solicitors continue to maintain the high standards expected by members of the public.
Parallel to this was the increased risk posed by criminals who continue to take advantage of the pandemic, finding ways to exploit any vulnerabilities in anti-money laundering systems due to focus being elsewhere or weaknesses from remote working. The SRA stressed that despite the pandemic, law firms must still comply with their anti-money laundering obligations and conduct client due diligence (CDD).
The current climate might also warrant a requirement to conduct enhanced due diligence (EDD) on a more frequent basis because of solicitors working remotely and are not able to meet their clients face to face.
Challenges for law firms in 2022
Whist the legal industry fared better than most service sectors through the various lockdowns, 2022 is likely to cause continued challenges. Firms are encouraged to refocus their compliance efforts to ensure they keep up with compliance expectations, regulatory scrutiny, and the increasing financial threat from fraud. It is vital that firms take their responsibility seriously and look for solutions that enhance their current efforts and protect their firm.
How Mirror can help firms with AML and KYC requirements
Mirror appreciates the complexities faced by firms trying to keep pace with the changing compliance landscape. We have designed a solution that resolves the issues around fraud and security risk, offering a more technologically driven client onboarding process. Mirror enhances client due diligence, increasing the certainty surrounding client identity verification, and removes unnecessary processes which don’t provide additional security.
Mirror provides a regulated business with the technology to know their clients (KYC) and perform the required AML checks in a simple and non-intrusive way that is quick and efficient for both the business and its customers.
Mirror conducts biometric verification for id verification, including a liveness check and (usually) an NFC chip scan. Most identity documents contain a biometric chip, which is incredibly difficult to forge convincingly. This greatly elevates the barrier to fraud and ensures a document is genuine and has not been tampered with. Combining chip scans with traditional biometric verification in this way, ensures the document is in your client’s possession and pertains to them.
This is done through all one simple app, ensuring your client can complete end-to-end ID and address verification in under five minutes.
If you have any questions about Mirror or want to learn more about how it works, you can get in touch with the team, who will be happy to chat you through the product.