The Legal Sector Affinity Group (LSAG) which is made up of representatives from the different regulatory and representative bodies in the legal profession, releases information and guidance for legal services professionals. The LSAG 2020 guidance provides a detailed commentary on recently amended UK regulations on money laundering (as well as the 2017 regulations).
The LSAG guidance provides an update to material previously published in 2018, updating the content to match the new regulatory environment. Key changes in the new publication include:
- Expanded guidance on understanding source of funds and source of wealth
- A new section addressing the need for firms to understand the technology they are using
- Clarifications on high-risk sectors, accepting cash into the client account, customer due diligence (CDD) on referrals from another legal practice, timing of CDD/exceptions
- Discrepancy reporting to Companies House, and other relevant registries from new duty/obligations introduced from January 2020
As well as this the SRA have produced further guidance, in light of a UK Government risk assessment, published in December, producing a legal sector-specific money laundering risk assessment, focused on the specific challenges of the sector.
Juliet Oliver, SRA General Counsel, said: ‘Tackling money laundering is a priority for all of us and we know the vast majority of firms are committed to keeping the proceeds of crime out of the profession. These documents offer comprehensive information on some of the better ways to achieve this. Our sectoral risk assessment identifies and discusses the biggest issues and emerging threats currently facing providers of legal services as they look to combat money launderers. It is complemented by the LSAG guidance, which covers all the bases of the 2017 regulations, plus a thorough review of how regulations and expectations on firms have evolved since then.’
Read the LSAG guidance here, or the SRA’s risk assessment here.
The UK Treasury has published an updated UK National Risk Assessment of Money Laundering and Terrorist Financing. This follows the previous update from October 2017 and sets out the key money laundering and terrorist financing risks for the UK, and how these have developed since the first publication in 2015.
Specifically, chapter 10 documents the UK Government’s view of the key money laundering risks associated with legal services.
- Legal services is at high risk of being abused by criminals seeking to launder money
- These risks increase when legal professionals fail to carry out their obligations under the money laundering regulations (MLRs) or take a tick box approach to compliance
- Specific services provided which may be most vulnerable to abuse remain conveyancing, Trust and Company Service Provision (TCSP) and the provision of client account facilities. Other areas of risk include sham litigation, notarial services, cryptocurrencies and crowdfunding
- The risk of legal services being used for terrorist financing purposes remains low
- The assessment notes that most legal firms comply with their AML obligations and there has been an improvement in technical compliance. However, it further states “there are a significant minority of Legal Service Providers which do not focus on AML compliance and some still lack an understanding of the risks they face”.
Graham MacKenzie, Head of AML at the Law Society of Scotland has said “The legal sector risks, findings and trends noted in the new UK National Risk Assessment are generally consistent with the findings of our AML supervisory assurance work, and we welcome the more nuanced tone taken by the government in recognising not all conveyancing or TCSP work warrants a higher money laundering risk rating. I’d advise firms to now review, and (where necessary) refresh their firm-level risk assessments under r.18 of the Money Laundering Regulations. There is a wealth of information available on our website to support firms in this process, and lookout for new, fully revised UK legal sector AML guidance which will also be released later this month. We ourselves are obliged to review and refresh our supervisory Scottish legal sectoral risk assessment, previously published in March 2018 following the publication of the UK national assessment. This process will start shortly, and the document will be made publicly available on our website.”
Read the full updates here.
The Law Society of Hong Kong has released its responses to questions arising from an online consultation on anti-money laundering (AML) and counter-terrorist financing (CTF) regulation. The consultation was launched on the 3rd November 2020 by the Financial Services and Treasury Bureau. The consultation gave members of the public, as well as private companies the opportunity to ask questions about the future of AML and CTF regulation.
Amongst the questions, the Law Society provided responses on topics such as increased penalties, reserved legal activities and licensing agreements.
Read the Law Society’s full response.
The Solicitors Regulation Authority of England and Wales (SRA), has published recordings of their recent compliance officers (COLP) conference on their website. Due to the content of the conference, looking at regulatory and compliance developments, ICLR members may well find the content interesting and relevant to their own regulatory work.
- Discussions around rule changes that allowed for third party management of client accounts and why there hasn’t been more uptake
- Anti-money laundering
- Changes to the legal education system with the new solicitors qualifying exam, and
- The cybercrime risks associated with working from home.
All the sessions are available to watch on the SRA website.
In the Financial Secretary’s 2020 – 2021 budget speech, the Hong Kong government announced that it will consider extending the anti-money laundering/counter-terrorist financing requirements to cover cryptocurrency service providers. Cryptocurrencies are currently classified as virtual assets in the city and are regulated by the Securities and Futures Commission.
By including cryptocurrencies under AML regulations, the government would attempt to curb the use of platforms such as bitcoin in money laundering. This is an issue that has arisen for many global regulators, as by their nature crypto assets are often designed to obscure the identity of the user, as well as to hide the purpose of the transaction, making them extremely attractive to those with nefarious purposes. However, they also hold many attractive benefits to users including transactional security, low transfer costs and decentralisation, meaning that many regulators are facing an environment where they are already widely used. By bringing service providers into the existing AML regime Hong Kong is hoping to address some of these ongoing issues.
Read the full article from the Law Society of Hong Kong.
FTI Consulting has released a report outlining some of the dangers present in the regulation of cryptocurrencies in relation to AML. The report looks at various examples of cryptocurrencies being used for money laundering purposes, as well as looking at some of the regulatory responses that have been put in place.
The full report is available here.
The Federation of Law Societies of Canda (FLSC) has launched a series of risk advisories and risk assessment case studies, designed to help legal professionals adapt to the new anti-money laundering rules. The rule changes are based on an FLSC model rule and have been adopted by Nova Scotia, Alberta, Saskatchewan and British Columbia. The new rules particularly focus on client identification and verification.
In November 2019 the Convocation (Board of Directors) of the Law Society of Ontario approved in principle amendments to by-laws designed to combat money laundering and terrorist financing. The amendments which build on existing regulation include:
- a requirement that licensees identify and record the source of client funds for a transaction
- clarification with respect to the amount of cash that a legal professional can receive in respect of any one client matter
- changes to the requirements and processes for identifying and verifying the identity of individual and organizational clients
- new requirements to engage in ongoing monitoring of the business relationship with the client, including assessing whether there is a risk that the legal professional may be encouraging fraud or illegal conduct
- introduction of a new Trust Accounting Model Rule to explicitly prohibit the use of a trust account for a purpose unrelated to the practice of law.
The law society has issued a guidance document, available here, to assist licencees on their obligations.
For further information about the changes click here.