More regulatory responses to COVID-19

Following on from last month’s newsletter, we’ve put together the following list to examine different regulator responses to the COVID-19 pandemic. Here it is interesting to note the development and changes, as regulators begin to get a grasp on the crisis and develop innovative responses to meet the changing environment. If you have any questions or best practice for the rest of the ICLR community, please do get in touch, and we will be happy to include any of these in the next newsletter.

Illinois has introduced executive order 2020-14, this satisfies notarial requirements that a person must “appear before” a notary public if a two-way audio-video connection is used. It also allows documents to be witnessed through the same technology.


The Law Society of New South Wales has decided to run it’s annual Law Careers Fair as an online event, rather than cancelling it. The event will use zoom to create virtual presentations, with individual video booths and company landing pages replacing exhibitor booths. More information about the event is available here. The Society has also decided to reduce its $410 membership fee to $10, for the 2020-2021 period, allowing members to redirect funds to priority areas during the crisis.


The Law Society of Hong Kong has announced that civil hearing will take place remotely, with all other non-essential court hearings currently adjourned.


The Legal Sector Affinity Group which is made up of all the legal supervisory authorities in the UK, including the Law Society, Bar Council, CILEx, and the Law Society of Scotland, has released an advisory note on preventing money laundering during the crisis. The note discussed the increased risk of money laundering at the current time and what checks can be put in place to mitigate this.


The Council for Licensed Conveyancers in England and Wales is to allow members to defer fee payments, following the near-complete standstill in the UK property market. Members will be given the option to defer paying their practice fee and compensation fund contributions for April, May and June, which can be paid off over the following 4-12 months.


The California State Bar Board of Trustees has written to the California Supreme Court offering options and recommendations for the June First-Year Law Students’ Exam and the July Bar Exam. Full letter available here. Whilst the State Bar of Califonia has put in place emergency measures waiving late payment fees, as well as extending payment deadlines for membership fees and compliance deadlines.


The Law Society of Ontario has cancelled the lawyer licensing examinations and the call to the bar ceremonies due to take place in June. The society has said that alternative summer/autumn examination dates are being explored and that the administrative aspect of the call to the bar process is being undertaken remotely, allowing students to progress with their careers, with a celebration planned later in the year.


The Law Society of Saskatchewan and the Law Society of Alberta have temporarily reduced the articling requirements to a minimum of 8 months, instead of the previous minimum of 12 months, preventing a backlog of articling students due to limits created by coronavirus. Full statements available here and here. The Law Society of Alberta has also introduced changes allowing articling students to work remotely, as well as giving instructions on the supervision students doing this.


The American Bar Association has created a “Task Force on Legal Needs Arising Out of the 2020 Pandemic”, which launched a website on the 3rd of April to provide resources and information on the ongoing crisis and how this relates to the law. Statement available here, website available here. The ABA has also backed calls to adopt emergency rules that would allow recent and upcoming law school graduates who cannot take a bar exam because of the COVID-19 pandemic to engage in the limited practice of law, under the supervision of a licensed attorney, these individuals would have until the end of 2021 to practice without passing the bar exam. They hope this would limit the disruption to students careers, and help prevent the widening of the access to justice gap.  Full statement available here.

FLSC launches anti-money laundering and terrorist financing risk advisory for the legal profession

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.

 

Law Society of Ontario approves AML amendments

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.

SRA to increase AML checks on law firms

The Solicitors Regulation Authority (SRA) has announced that they will be increasing checks on law firms after it found that 21 percent of the 400 firms consulted were not complying with anti-money laundering regulations.  The majority of firms were using templates and these firms’ risk assessments were generally of lower quality as firms appeared to take a ‘copy and paste’ approach without thinking through the specific risks and issues faced by their firm.

In light of these findings the SRA has updated its warning notice, provided additional support and guidance and plans to carry out an extensive programme of firm visits.

Read more about this story…

FATF guidance for legal professionals

The Financial Action Task Force (FATF) has produced risk-based approach (RBA) guidance to help legal professionals design effective measures to manage money laundering and terrorist financing risks.  The guidance is also aimed at supervisors of legal professionals, highlighting the importance of supervising the RBA.

The FATF developed this non-binding guidance with input from the legal profession, including through a public consultation in March 2019. This guidance replaces the 2008 version.

Download the guidance

The Federation of Law Societies of Canada working with government in the fight against money laundering and terrorist financing

The regulators of the legal profession in Canada and the Canadian government have embarked on a new chapter in the fight against money laundering and the financing of terrorist activities. Late last Spring Canada’s Minister of Finance announced the creation of a joint working group comprised of representatives of the government and the Federation of Law Societies of Canada. The working group, which held its first meeting at the end of June 2019, is intended as forum to explore issues related to money laundering and terrorist financing that may arise in legal practice and to strengthen information sharing between the regulators of the legal profession and the government of Canada. The group, co-chaired by an official of the Department of Finance and the Federation’s Executive Director of Policy and Public Affairs, will meet quarterly.

The creation of the joint working group follows a decade-long legal battle in which the Federation argued that attempts to subject members of the legal profession to the government’s AML regime interfered with solicitor-client privilege and the duties owed by legal counsel to their clients. A February 2015 decision from the Supreme Court of Canada upheld the Federation’s arguments finding that as applied to members of the legal profession, the AML regime was unconstitutional.

Canada’s legal regulators have engaged for many years in regulating the risks of money laundering and terrorism financing in the practice of law. Two model rules, aimed at limiting the handling of cash by members of the legal profession and ensuring legal counsel engage in due diligence in identifying their clients, have been the cornerstone of the regulators’ anti-money laundering and anti-terrorism financing initiatives. The Cash Transactions Rule was adopted in 2004, and the Client Identification and Verification Model Rule was adopted in 2008. Both were implemented by all Canadian law societies. Those rules were updated with amendments adopted by the Federation in late 2018. A new Model Trust Accounting Rule that restricts the use of the trust accounts of members of the legal profession as part of the law society regulations aimed at fighting money laundering and terrorist financing was adopted at the same time.

In the years following the court victory, the Federation encouraged the government to recognize the regulatory initiatives of the Law Societies and to see the regulators as partners in the fight against money laundering in Canada. Faced with criticism from the Financial Action Task Force over the exclusion of legal counsel from the legislative AML regime, the government was initially focused on the suggestion in the Supreme Court’s decision that it might be possible to develop constitutionally-compliant AML regulations governing members of the legal profession. The new joint working group and the discussions leading to its creation mark a significant shift in the government’s approach to this issue. The government has made it clear that it is interested in working closely with the Federation and the law societies on the anti-money laundering file indicating an understanding of the unique position of the legal profession and the duties that members of the profession owe to their clients.

It is expected that officials from Canada’s financial intelligence agency (FINTRAC) and federal law enforcement agencies will join representatives of the Federation and the Canadian departments of Finance and Justice on the joint working group. The next meeting of the working group is scheduled for November 2019.

Author: Frederica Wilson
Executive Director, Policy and Public Affairs and Deputy CEO, Federation of Law Societies of Canada

Anti-Money Laundering and Lawyer Regulation: The Response of the Professions

Abstract

The extension of anti-money laundering (AML) controls to lawyers has been a controversial topic since the early 2000s. The legal professions facing these measures have adopted differentiated strategies of response, three examples of which are examined and contrasted in this paper. In the US, the legal profession vocally objected to the measures and has been able to deflect any legislative action. In the United Kingdom, the profession pragmatically engaged with the new rules, while in France the profession has made maximum use of the levers of self-regulation allowed by the European directives. The paper presents AML lawyer-regulation as an example of the versatility of global regulatory norms, which do not necessarily evict national traditions. It also views the EU as the real bedrock of AML regulatory diffusion and questions US professional (and academic) resistance to these norms.

Citation:

Nougayrède, Delphine, Anti-Money Laundering and Lawyer Regulation: The Response of the Professions (June 15, 2019). Available at SSRN.

The FATF FinTech and RegTech initiative

At the end of February 2018, the Financial Action Task Force (FATF) launched the new FATF FinTech & RegTech initiative platform, to share information about national initiatives and developments relevant to FinTech and RegTech. The FATF policy is to strongly support responsible financial innovation in line with the FATF Standards to tackle money laundering and terrorist financing, and exploration of opportunities that new financial and regulatory technologies present for improving the effective implementation of AML/CFT measures.

Engagement with the FinTech and RegTech Community is one of the priorities for the FATF.  FATF has organised a number of roundtables, meetings and fora involving representatives from this community, to develop a constructive dialogue.  Whilst only in its infancy, it is intended that the FinTech/RegTech platform will become a repository of information relating to the topic, highlight useful innovations and will encourage dialogue between the relevant government departments, regulators and private sector actors.  There may be some interesting approaches and lessons to learn for legal regulators from this initiative.

If you are interested in finding out more contact the team working on FinTech and RegTech at the FATF Secretariat: fintech@fatf-gafi.org