Accuity, the leading global provider of risk and compliance solutions, has today published the first survey of its kind exploring the legal profession’s understanding and use of Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance controls to help meet new regulation.
The results reveal that some of the main challenges include: identifying Ultimate Beneficial Ownership (UBO), establishing clients’ source of wealth and asking fee earners to take responsibility for due diligence.
Over the past 10 years, the legal industry has faced increased regulation, from the implementation of the EU Third Anti-Money Laundering Directive to the proposal of the Fourth Directive which is due to be implemented by member states in 2017. These policies, when coupled with major media scandals such as the Panama Papers, have made AML and KYC a priority for many legal organisations.
The survey results show that 49% of those questioned stated educating staff on how to report a compliance breach is extremely challenging. This raises the concern that internal red flags may be missed by those working with clients if they have not received adequate training to know how and when to report breaches, potentially leaving the firm vulnerable.
In addition to internal challenges, the onboarding process for clients and the compliance obligations involved can also pose potential difficulties. Fee earners can find it challenging to place enough focus on AML due diligence processes whilst being incentivised to attract new business at speed.
Commenting on the survey’s findings, Pat Hinchin, Senior Director, Product Management at Accuity said: “We can see the legal profession is under a great deal of pressure from regulators to manage their due diligence obligations. This reflects the way the financial services sector has shifted in recent years as a consequence of increasing regulation and a series of high profile fines.”
“It is surprising that only 8% of firms are currently screening their entire client base on an ongoing basis, given that sanctions lists are updated regularly, and the risk profile of clients can change at any time.” continued Hinchin. “Firms are increasingly reliant on their compliance teams to ensure they always understand the risk of doing business with their clients.”
Amasis Saba, Compliance Manager and Deputy MLRO at Berwin Leighton Paisner LLP commented, “As Compliance Manager and Deputy MLRO, my priority is to ensure the firm takes a business enabling risk based approach and that the correct internal processes are in place to support it. We need to know exactly who our clients are, who is behind them and any risks associated, so that no threat is posed to the firm’s reputation.”
Scott Devine, AML Policy Advisor at the Law Society, commented: “Compliance with money laundering obligations is one of the greatest challenges for solicitors in the UK today and this survey report serves to highlight some of the reasons why that is the case. The Law Society is committed to assisting solicitors to meet their obligations and provide a robust defence against money launderers attempting to abuse our professional services.”
The survey questioned 100 compliance officers at law firms from the UK and Europe specialising in a wide range of legal practices. Both small firms (under 100 people) and large firms (over 100 people) were included in the comprehensive research.