Just published today an update from the LSB with this decision notice affecting COLP and COFA reporting download decision
SRA Discipline 26 Firms Following Severe Money Laundering Failings
26 Solicitors Regulatory Authority (SRA) regulated firms out of a sample size of just 59 law firms providing trust and company services (TCSP) have been placed into the SRA’s disciplinary process for inadequate money laundering procedures.
The review focused on the creation and administration of trusts and companies on behalf of clients, an area of law the government deemed to be at most significant risk of money laundering as criminals look to exploit the system and launder their ill-gotten gains.
The SRA speculate that two thirds of its regulated firms need to comply with Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR 2017).
The regulator will therefore be extremely disappointed to learn that almost 44% of firms legally required to comply with MLR 2017 are failing in their obligatory requirements to some extent.
The report found that too many risk assessments, which are considered as vitally important to MLR 2017, were viewed as inadequate. In total over a third of firms (24) had failed to create robust risk assessments with many areas of the regulatory strands missing completely. Worryingly, 4 law firms had failed to create any risk assessments at all.
Firms were accused of failing to complete the necessary customer due diligence (CDD), especially concerning Politically Exposed Persons (PEPs) and Suspicious Activity Reports (SAR).
Only a sixth of the sample (10 firms) had completed a SAR in the past two years, confirming the National Crime Agency data that the legal sector is struggling to comply with its AML regulatory obligations.
The recently published ‘Economic Crime – Anti-Money Laundering Supervision and Sanctions Implementation’ report found that legal service providers were particularly poor at completing Suspicious Activity Reports (SAR) that form part of a solicitors’ regulatory requirements when it comes to money laundering compliance. Of the 634,113 reports submitted between October 2015 and March 2017, 525,361 (82.85%) SARs were completed by credit institutions and banks.
In stark contrast, reports made by estate agents were a mere 0.12% (766) of the total, with independent legal professionals deeming it necessary to make 4,878 (0.77%) SARs reports. Overall, this means that the property sector completed less than 1% of all SARs reports.
In the past year, the 2,660 reports made by the legal sector represent only 0.57% of the total and a considerable decrease when compared to previous years.
The SRA will now write to 400 firms reminding them of their AML obligations and asking them to demonstrate their compliance with the MLR 2017.
Paul Philip, SRA Chief Executive, said: “Money laundering damages society, supporting terrorists, drug dealers and people traffickers. The stakes are too high for solicitors to be anything but fully committed to preventing money laundering and the crime its supports.
“Most solicitors take their responsibilities seriously, but too many firms are falling short. Those firms should be on notice that compliance is not optional. They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action.”
SARs and SRA disciplining firms
a great article appeared in Legal Futures summarising the recent changes
Updated CQS Core Practice Management Standards Enforced From May 2019
All accredited Conveyancing Quality Scheme (CQS) firms must adhere to the new Core Practice Management Standards (CPMS) from 1st May 2019.
All CPMS regulations are now enforceable to all legal practices that have already gained CQS accreditation, as well as those working towards achieving CQS for the first time.
Following the Solicitor’s Regulation Authority’s (SRA) recent Residential Conveyancing Thematic Review which highlighted the fact that a handful of conveyancing firms were failing to provide adequate information to their clients concerning the different types of property ownership and potential buyer implications, CPMS standard 1.5 now asserts that all accredited practices must have a policy in relation to acting in a purchase of a leasehold property.
According to the report, 23% of the firms that were targeted and formally observed, did not explain the difference between freehold and leasehold titles.
Over a fifth of leasehold owners believe that they either do not remember or were not provided with information on the length of the lease and the myriad of additional charges like ground rent or service charges.
Many felt rushed in the final completion process with 26% of respondents not being provided with an advanced draft copy of their leasehold contract before they were asked to sign on the day of completion.
Furthermore, 17% also believe that their chosen solicitor had failed to clearly explain the features of their leasehold agreement. Over a third of first-time buyers were also frustrated with the information provided by their conveyancer.
Under the new rules, all conveyancers from May 1st, must clearly explain the length remaining on a leasehold lease, highlight the costs attached to the property like ground rent and service charges and review provisions and method of calculation.
The updated requirements also emphasise the increased importance that should be attributed to cyber hygiene. According to section 6.2, ‘practices must have an information management and security policy, which should be accredited against Cyber Essentials.’
If Cyber Essentials certification is not gained, accredited firms must be able to evidence that they have considered the following in their information management and security policy:
- a register of relevant information assets of both the practice and clients
- procedures for the protection and security of the information assets
- procedures for the retention and disposal of information
- the use of firewalls
- procedures for the secure configuration of network devices
- procedures to manage user accounts
- procedures to detect and remove malicious software
- a register of all software used by the practice
- training for personnel on information security
- a plan for the updating and monitoring of software
- a procedure for the secure transmission of the practice’s bank information to clients and receipt of banking information from clients
- a procedure for verifying the banking details of other conveyancers and third parties to whom money is sent
- a procedure for communications with the practice’s bankers
Regulations 1.3 and 1.4 are also related to the prevention of money laundering and mortgage fraud. From today, all CQS practices should have a clear policy on ways to mitigate and manage money laundering and terrorist financing. This includes the appointment of a Money Laundering Reporting Officer (MLRO) who will be responsible for when to make disclosures to the authorities as well as providing clear procedures for checking the source of funds.
Friday fraudsters, property fraud and authorised push payment (APP) fraud have been increasing threats to law firms in recent years. Last year alone in the UK, £364 million was lost to APP fraud according to UK Finance, marking a significant increase on 2017’s figures.
Now, all practices must increase their due diligence on this issue by creating detailed policies which document procedures for dealing with high risk transactions as well as creating clear procedures for enhanced checking of client identity. Additionally, it is now mandatory to document and show how the practice will proceed when acting for a buyer where there is a significant risk of a fraudulent seller.
Is your firm ready for the CQS and CPMS updated standards? Do you feel confident that these new rules will create more rigorous safeguards for your law firm?