0203 911 9710

info@thestrategicpartner.co.uk

Latest News

Regulation 21: The Importance of Independent Audits in Ensuring Compliance and Transparency
May 26, 2023

 1. Introduction

The Solicitors Regulation Authority (SRA) continues to intensify its efforts to ensure that legal professionals adhere to anti-money laundering (AML) policies. In the most recent assessment, the SRA, acting as the AML supervisor, pinpointed the absence of independent audits as the primary issue facing law firms in England and Wales. – read our previous article:

Lack Of An Independent Audit Is The Top Area Of Concern For Law Firms

This increased focus on compliance highlights the regulator’s commitment to upholding stringent AML standards within the legal industry. Law firms must address this concern and implement comprehensive and independent audits of their AML procedures. By doing so, they can not only comply with the existing regulations but also mitigate potential risks associated with money laundering and other financial crimes.

Through rigorous enforcement of AML standards, the SRA aims to maintain the integrity and reputation of the legal industry while safeguarding against illicit activities. Therefore, law firms in England and Wales must prioritise AML compliance and continually strive to improve their systems and processes.

Legal professionals should take this opportunity to review their AML policies and practices, ensuring that they are thorough, effective, and in line with the requirements set forth by the SRA. Moreover, engaging a reputable third-party auditor can provide valuable insights and recommendations for enhancing these processes.

 2. What is an Independent AML Audit?

Most firms must adhere to the regulatory requirement of conducting an ‘Independent Audit of AML Policies, Controls, and Procedures’ to comply with Regulation 21 of the Anti-Money Laundering Regulations. Non-compliance with these regulations directly results from not undertaking the required audit, and it remains the firm’s responsibility to the SRA to guarantee the audit is executed effectively. This function is vital for examining and evaluating the sufficiency and efficacy of a firm’s anti-money laundering (AML) and counter-terrorist financing policies, controls, and procedures.

Failure to conduct this audit can result in non-compliance with the regulations, and it is the firm’s responsibility to ensure that this is done effectively. The SRA has previously highlighted independent audits as an area where firms struggle and have issued further guidance on this.

 3. Who can conduct the independent audit?

The challenge many firms face is adhering to the ‘independence’ requirement outlined in Regulation 21 (1) (c) of the MLR 2017. While it is possible to conduct an audit internally, it should not be performed by the Money Laundering Reporting Officer (MLRO), Money Laundering Compliance Officer (MLCO), or anyone else responsible for maintaining the AML function within the firm. Typically, employees who possess the expertise needed for this type of audit are also responsible for designing, implementing, and monitoring the firm’s AML policies and procedures daily. As a result, achieving the ‘independent’ requirement under Regulation 21 of the MLR 2017 can be complicated, especially for smaller firms that may not have employees independent of these areas. Devoting the time and resources necessary to accomplish this internally can prove ineffective and costly.

 4. What are the Benefits of outsourced AML audit services?

While external audits are not explicitly required by Regulation 21, they offer several benefits. Primarily, as highlighted above, the audit must remain independent from the work areas being audited and often, firms may lack the necessary AML expertise in other areas of their practice.

Furthermore, an external auditor brings valuable experience from working with a firm’s peers and a broader cross-section of the profession. This knowledge is essential for benchmarking and identifying opportunities to streamline processes or improve their effectiveness.

Has your firm recently conducted an independent Anti-Money Laundering (AML) Regulation 21 Audit? If not, hiring an external specialist for a fresh examination and an updated strategy can be highly advantageous. This course of action can provide numerous benefits to you and your firm. For instance, it can help identify potential areas of non-compliance, assess and strengthen existing AML controls, and mitigate the risk of regulatory penalties. Additionally, bringing in an external perspective can deliver valuable insights and expert recommendations, ultimately enhancing the effectiveness and efficiency of your company’s AML program. Therefore, if your firm is seeking ways to improve and future-proof its compliance framework, engaging a skilled specialist to perform an in-depth AML audit is a wise investment.

 5. How do you ensure compliance with your Independent Audit requirements?

At The Strategic Partner, we understand the challenges firms face. Our service addresses this issue by providing firms with a thorough and independent audit and reporting that fulfils regulatory requirements and is tailored to comply with the ‘independent’ requirement under Regulation 21 or the MLR 2017. Law firms are advised to conduct such a review every two years, although larger firms may deem an annual review more suitable. By utilising our services, your firm can ensure compliance with the independence requirement and maintain a robust AML framework.

By opting for an external AML audit, firms can ensure a truly independent assessment of their AML and counter-terrorist financing policies, controls, and procedures. As a result, they can better maintain regulatory compliance, identify gaps, and implement improvements where necessary.

 6. Regulation 21 Independent Audit – Our services

The Strategic Partner works with firms of all sizes, from the smaller high street or niche firms and through to the large multi-office and multinational firms.

Our service provides firms with a completely independent audit and ensures the review is completed and reported on in accordance with the regulatory requirements.

Our Independent AML Audit includes:-

  1. Discovery meeting to scope out and agree to the approach and focus of the review.
  2. Policies have been written to document how the firm complies with the MLRO 2017.
  3. A review and analysis of the firm’s High Risk and Suspicious Activity Register
  4. Interviews with staff to consider the practical application of a firm’s AML PCPs and to establish understanding and knowledge.
  5. Optional file reviews to consider the application of a firm’s AML PCP requirements at case/matter level
  6. A formal report detailing the information obtained in the review, the current approach adopted by the firm and identifying any gaps with a series of recommendations and solutions
  7. Presentation of the findings to the partners
  8. A Directors/Partners Report to evidence the requirement of Regulation 21 of the MLR 2017:-
  • PCP Analysis
  • Application
  • Analysis of trends
  • Recommendations

The Regulation 21 independent audit extension will further include a review of the approach adopted by the firm for compliance with AML regulations.

Our goal is to work with the firm to help them build a robust risk management profile that is independently assessed and receives recognition and credibility from the firm’s Professional Indemnity Insurer.

 7. Comprehensive Compliance Support Solutions

To further bolster a firm’s approach to overall risk control, regulation and compliance, The Strategic Partner has developed two services that can be utilised as part of a fully outsourced solution. Full details of each service can be viewed by clicking the links below, but a summary of each service is as follows:-

  • Risk, Regulation and Risk Compliance Services including AML – Our Risk, Regulation and Compliance Service has been designed to provide law firms of all sizes with a compliant environment, using bespoke, documented and implemented procedures that evidences how a firm tackles and manages risk, compliance and regulation. Our experience and focus provide law firms with the required and necessary support and expertise.
  • Risk Compliance & AML Guidance and Administration Service– Our Risk, Compliance & AML Guidance and Administration Service provides law firms with a cost-effective solution to outsource the management of the firm’s registers and to provide day-to-day compliance guidance to the staff. It provides law firms and their staff with direct access to a dedicated Compliance Manager, who will provide case-level guidance and accept receipt of notifications, through which they will also manage and update the various compliance registers.

Find out about our full range of compliance and guidance support services.

Enquiries

For more information about our Auditing services, you can call us on 0203 911 9710 or you can email us at info@thestrategicpartner.co.uk.

 

You can view and download the PDF version of this article here. 

Related Articles