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Changing the way we think about KYC (Know Your Client)
September 28, 2021

The Problem

It is well reported that fraud is increasing as the world continues to move online to undertake transactions.

This is a concern for law firms and their insurers as they continue to deal with and handle matters tainted with fraud that typically arises from ID theft or ID fraud (particularly for property firms).

The continued move away from physically meeting people presents fraudsters and other criminals, such as Money Launderers, with increased opportunity to bypass a firm’s defences to access the services to further their criminal activity.

All law firms know only too well that if a fraudster gets through the firm’s Client Due Diligence (CDD) process, then the consequences for the firm are significant: –

  • Professional Indemnity – A claim will arise which will be presented to the Insurers, this will, in turn, result in the insurer asking questions and testing the firms’ systems and approach to risk management to find out how the claim occurred. It will also inevitably lead to an increase in premium and worse for some firms as they may find themselves uninsurable.
  • The Regulator – Added to this that a serious negligence claim will be reportable to the Solicitors Regulation Authority (SRA) the firm also risks regulatory sanctions as a result of allowing a fraudster through their CDD systems.
  • The Client and/or Other Parties – We also have to consider the innocent client who is on the receiving end of the fraudulent activity. Although a firm will have insurance, being caught up in a fraud or scam will be stressful for the other parties involved.
  • The Firm – Alongside the consequences already referred to the firm will also face potential damage to its reputation due to being caught up in criminal activity, particularly where the regulator takes action and deems the firm to have breached the code of conduct and SRA Principles.
  • The Lawyer – The reality is that the lawyer who let the fraudster through and handled the matter faces their own issues, which can have devasting consequences on their career, particularly if they are deemed to have not followed the appropriate protocols.

All in all, allowing a fraudster through your CDD systems does not end well!

The Question

As the world changes and criminals continue to evolve their activity and take advantage of this changing world, how can a Law Firm keep pace and defend themselves and their Insurers from being involved in such activity.

The Solutions

The reality is that for a fraudster to use a law firm’s services, it has to pass through its Due Diligence process. If they cannot pass this, they will not use the firm, and the fraud will be averted, and the firm protected.

How does a firm ensure its CDD process is robust enough to stop the fraudster at the door?

  • EID&V – Electronic ID & Verification has to now be at the forefront of a firm’s KYC solution. It is a simple reality that a fraudster is only too happy to provide stolen, tampered with or fake documents to a law firm and may even turn up in person with such documents.

A manual check of documents, even if a person is standing in front of you, is unlikely to reveal that the document provided has been tampered with, a fake, stolen, etc. Failure at this stage lets the fraudster through, and the rest of what you now do will be on the wrong person as you will be checking the non-fraudster (the genuine person), whose documents have been tampered with or stolen. This is what the criminal wants!

Our Services

The Strategic Partner has developed effective solutions to firms to establish bespoke and relevant PCP’s, we train the staff, we help the firm with their AML regulation 18 risk assessment, we provide the independent audit function and can work with the firm to guide and advise their staff on an ongoing basis as an outsourced compliance function (If needed)

Our solutions start from as little as £250 a month. Links to our brochures are as follows:-

 

 

 

These are comprehensive packages set at affordable prices for all firms.

For more information about our Risk, Regulation & Compliance Services, you can call us on 0203 911 9710 or you can email us at info@thestrategicpartner.co.uk.

 

Download the PDF of this article here.

 

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