Financial crime is on the rise, as a result solicitors are under pressure to identify and prevent money laundering whilst maintaining a smooth client experience.
Combatting financial crime is certainly high on the agenda of the Solicitors Regulation Authority (SRA). It is increasingly investigating and penalising firms that fail to meet Anti-Money Laundering (AML) and financial crime regulations.
In its latest report the SRA details that it took action against 78 cases in 2023/2024. It’s important to note that in more than half of these cases, the most common breaches related to firms having inadequate risk and AML processes with a total of 44 fines totalling almost £600,000. This is a significant increase from the 47 investigations and 23 fines totalling £60,000 in 2022/2023, demonstrating the SRA’s proactive approach and increased fining powers.
Why are solicitors struggling?
Regulatory complexity is obviously a huge challenge, but so too is keeping pace with evolving client expectations, especially at onboarding stage. It’s harder than ever for firms – both small boutique practices and large firms - to balance compliance and experience whilst preventing money laundering and mitigating wider financial crime exposure.
Just like the SRA, it’s time for the legal services industry to take a more proactive approach to AML compliance.
Why AML checks are critical for solicitors
In the legal world AML duties stem primarily from:
- The UK Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017
- Proceeds of Crime Act 2002 (POCA)
- SRA Standards and Regulations
- For firms operating across the EU, the 6th Anti-Money Laundering Directive
- For solicitors conducting multi-jurisdictional work in the US, they must comply with the Money Laundering Act of 2020.
All of these frameworks require solicitors and TCSPs to exercise a “risk-based” approach to AML compliance, i.e. the level of customer due diligence should be matched to the client’s risk profile.
For small clients, this might involve straightforward ID checks and basic screening. Whilst for larger more complex cases it could beneficial ownership (UBO), PEP’s, sanctions and adverse media screening, and enhanced due diligence (EDD) ongoing monitoring processes.
In additional to meeting compliance obligations, the benefits of strong AML measures include:
- Preventing financial crime: legal services are high-risk money laundering routes.
- Protecting the firm’s reputation: failures lead to significant fines and reputational damage.
- Safeguarding the legal system’s integrity: upholding the highest ethical and professional standards. Important for winning and retaining business.
What does a risk-based approach to AML look like in practice?
There are essentially three types of AML compliance firms need to be conducting:
1. Simplified Due Diligence (SDD): For low-risk client’s firms must conduct basic identity verification activities
2. Standard Client Due Diligence (CDD): This involves the standard range of ID&V and KYC verification checks
3. Enhanced due diligence (EDD): For high-risk clients, and complex multi-jurisdictional cases its vital firms also conduct advanced checks including corporate structure and UBO, PEP’s and sanctions, adverse media monitoring, financial and credit data, CCJ checks, and fraud prevention processes.
Solicitors must perform AML risk assessments at three levels – firm wide, to evaluate total client portfolio exposure to financial crime; at client level, to identify those that present elevated risks; and at case level, to assess each case against the firm’s individual risk tolerance.
The SRA has a range of information and guidance to help law firms and solicitors to understand their obligations, stay compliant and prevent money laundering. But, knowing what you need to do and having the capability to implement AML processes in a way that balances client expectations, limits compliance costs, and mitigates risk is very different. For smaller, boutique law firms without huge budgets these requirements can seem overwhelming.
The role of technology in AML
The Law Society advises that it’s essential for firms know what documents can be accepted as evidence of identity and recommends using a third-party verification solution to fulfil this part of the process. Likewise, when legal obligations involve ongoing monitoring of clients as they progress through a case, therefore, third-party verification systems can prove vital in terms of freeing up fee-earner time and staying alive to evolving risks in real time.
Financial crime networks grow more sophisticated daily, while regulatory frameworks shift globally. Static compliance frameworks simply cannot keep up. Solicitors need dynamic, data-driven AML systems that:
- Manage risk with confidence via unified PEPs, sanctions and adverse media screening
- Streamline onboarding while maintaining professional standards via remote client verification and data intelligence
- Keep firms ahead of the compliance curve at every stage of the client lifecycle – acquire, onboard, originate, verify, grow – via ongoing monitoring, data-driven case management, reporting dashboards and real-time alerts.
In an era of rising regulatory scrutiny, AML is not just a compliance exercise, it’s a cornerstone of firm integrity. With nCino Identity Solutions' expansive datasets, deep subject matter expertise, and comprehensive capabilities in corporate compliance and risk we keep solicitors compliant, efficient, and one step ahead of financial crime.
Want to explore how nCino Identity Solutions can support more effective AML compliance? Book a demo here.
