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Understanding the Updated Sectoral Risk Assessment: Safeguarding Law Firms Against Money Laundering and Terrorist Financing
August 2, 2023

 1. Introduction

The Solicitors Regulation Authority (SRA) has recently produced an updated Sectoral Risk Assessment (SRA) on Anti-money laundering (AML) and terrorist financing (24th July 2023). This comprehensive assessment is a critical resource for law firms, providing essential insights into the emerging risks and trends related to money laundering and terrorist financing. You can access the publication here: https://www.sra.org.uk/sra/research-publications/aml-risk-assessment/

All firms are urged to consider the contents carefully, as it highlights specific risks, including the sanctions regime, proliferation financing, introduction of new technology, and economic pressures that might tempt firms to compromise on regulatory compliance.

Where appropriate Firm Wide Risk Assessments as required by Regulation 18 will need to be updated where new areas and introduced.

 2. The National Risk Assessment and Sectoral Risk Assessment

To build a robust AML framework, the UK Government conducts periodic National Risk Assessments (NRAs), collating risk-based data from various sectors subject to AML requirements, law enforcement agencies, and other reliable sources. Building on this information, the SRA produces its own Sectoral Risk Assessment tailored to its role and responsibility for the supervision of authorised firms.

The purpose of this specific risk assessment is to empower law firms with a better understanding of the risks they face in relation to money laundering and terrorist financing. Consequently, the SRA expects firms to consider this Sectoral Risk Assessment as an integral part of their own firm-wide risk assessment, aligning their AML measures accordingly.

 3. Proactive Supervision and Disclosure of Risk Assessments

The SRA has a proactive supervision program to ensure compliance with AML regulations. As part of this program, the SRA requests to review law firms’ written risk assessments, as well as their policies, controls, and procedures. These reviews may occur routinely or in response to specific information received.

Law firms must be cautious about disclosing risk assessments to customers or third parties. Revealing such sensitive information could be detrimental, as it may be exploited by money launderers seeking to exploit vulnerabilities.

 4. Key Emerging Risks and Trends

The recently released Sectoral Risk Assessment (24th July 2023) highlights several key emerging risks that law firms should be particularly vigilant about:

  1. Sanctions Regime: The global political landscape is dynamic, with sanctions being imposed and lifted on a regular basis. Law firms must stay updated on the latest sanctions to avoid inadvertently handling funds linked to sanctioned individuals or entities. Further guidance can be found here: SRA guidance on the sanctions regime or via the Office for Sanctions Implementation (OFSI).
  2. Proliferation Financing: Law firms must exercise utmost due diligence to prevent their services from being used to finance the proliferation of weapons of mass destruction and their means of delivery. The 2023 Legal Sector Affinity Group guidance includes advice on assessing the risk of proliferation finance.
  • Introduction of New Technology: Rapid technological advancements can introduce new risks and vulnerabilities in AML efforts. Law firms should assess the potential risks associated with new technologies like virtual currencies, online payment platforms, and blockchain. Furthermore, an increase in technology adoption underlines the importance of robust cyber security. Read our previous article: Cybercrime Warning – A Must Read.
  1. Economic Pressures Tempting Firms: Economic challenges may lead some law firms to cut back on resources dedicated to regulatory compliance. However, such actions could create opportunities for money launderers to exploit weaknesses. The regulator reminds firms, “Whatever decisions are made about resourcing, firms need to understand that economic conditions do not change the requirement to comply with the regulations.”

 

 5. Robust Risk and Compliance Procedures

Understanding the SRA’s updated Sectoral Risk Assessment is vital in safeguarding law firms against money laundering and terrorist financing risk, protecting its interests and that of its clients. It is imperative for all law firms to stay abreast of the emerging risks and regulatory expectations, working hand in hand with the SRA and other law enforcement agencies, such as the National Crime Agency, police services, and HMRC, as well as other investigatory bodies to combat financial crime effectively.

 6. Robust Support and Guidance from Industry Specialists

If your approach to risk and MLR 2017 compliance needs to be reviewed or you are concerned your Regulation 18 Firm Wide Risk Assessment is out of date or not at the required standard, The Strategic Partner is able to assist you.

At The Strategic Partner, we appreciate that keeping pace with regulatory expectations and meeting the requirements is essential but time consuming and often confusing. Our services are designed to provide firms, employees, and their MLRO, COLP, and COFA with the comfort of knowing that even in the busiest of times, you remain compliant and can evidence that you are. We can offer expert guidance and support, including:

  1. Regulation 21 AML 2017 Independent Audit: An audit to review the firm’s approach to regulation and compliance, including a review of a firm’s AML policies, controls and procedures. The audit meets the requirements of Regulation 21 of the AML 2017. The output of which provides the firm with a written gap analysis and solutions to remedy any issues that arise and ensure the firm is compliant.
  2. Training and Education: We offer customised training programs to educate your staff on AML regulations, source of funds and source of wealth enquiries, risk assessment, and suspicious activity detection. Our training ensures that your team is equipped with the knowledge and skills to fulfil their compliance responsibilities.
  • Risk Management and Compliance Review – A review of the firm’s approach to regulation and compliance to include all regulatory requirements and AML procedures. The output of this provides the firm with a written gap analysis and solutions to remedy any issues.
  1. Ongoing Compliance Support: Our experts provide ongoing support and guidance, keeping you up-to-date with the latest AML regulations and best practices. We offer regular compliance reviews, advice on complex cases, and assistance with regulatory reporting requirements.

Packaged Solutions – Implementation of robust solutions to ensure the firm achieves compliance and then maintains compliance through the provision of ongoing support and assistance:

 

 7. Get in touch with The Strategic Partner

For more information on The Strategic Partner and to discuss how we may be able to assist in accelerating your risk management or compliance and regulation or simply to keep this up to date you can call us on 020 3911 9710 or email us info@thestrategicpartner.co.uk.

 

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

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