The 4th Anti-Money Laundering Directive came into force on Monday 26 June – even though the ink was barely dry on the rules. On Tuesday 27 June, Solicitors Journal welcomed a small but engaged audience to discuss the impact of the new rules for law firms, and how they can prepare for compliance.
Moderated by Jean-Yves Gilg, Editor-in-Chief of Solicitors Journal, the panel comprised Tracey Calvert of compliance consultancy Oakalls, Sean Hankin from the Solicitors Regulation and Authority, and Graeme Port from Encompass. The panellists shared their thoughts on the key aspects and challenges of compliance with 4MLD before audience members pitched their own concerns and questions to our expert panel.
A key message from the panel is that firms don’t need to panic – yet. With some aspects of the regulation yet to be ironed out – and the SRA yet to confirm its approach – the important thing is that firms are reviewing their policies and processes to identify what may need to change.
Firms should consider their risk profile in terms of type of work and relevant expertise, client base (including PEPs), jurisdictions and potential over-reliance on one source of work. Terms of business may need to be updated to inform clients about data protection and record-keeping policies. Tracey Calvert advocated screening and training as a boost for the firm’s compliance culture – for all relevant staff, not just fee earners.
What does the regulator expect?
Sean Hankin reassured the audience that it’s ok for firms still to be digesting the new rules. He also advised firms that they do not yet need to inform the SRA of their ‘responsible officer’ as the SRA is not yet set up to record this information.
He went on to explain what the regulator expects from firms: written procedures which are properly applied (and for the MLRO to be checking this), effective assessment of the firm’s risk profile, a suitably senior MLRO, and records of internal reports.
The SRA will be conducting a further series of thematic visits later this year and anticipates reporting on these in December 2017. The SRA has also worked with the Law Society and others on guidance, for which they intend to seek Treasury approval shortly.
How are firms already adapting their approach?
Graeme Port observed that many firms are moving towards a more centralised approach, which makes it easier to keep an eye on what’s happening and to disseminate any updates or changes to policy or process.
While the majority of firms have a very manual process, some are using automation tools that bring together information from different data providers and services. The new regulations (section 28.7) require firms to ‘exhaust all possible means’ to undercover beneficial ownership, and it’s clear that using a platform that searches data from a number of sources would help firms to show that they have met this rather onerous requirement. It can also help firms to be ‘auditor ready’ with an easily produced paper trail and evidence of processes being followed.
The SRA will shortly submit their guidance for Treasury approval. In the meantime, the official line is that they are “urging law firms to familiarise themselves with the new regulations as soon as possible, and take action to comply”. Any SRA intervention in relation to the new rules will take a “proportionate and pragmatic approach”.