Managing AML in 2023 – Top 5 Takeaways

Last month, we were happy to support the annual Legal Eye conference in Manchester. We have been working with the team at Legal Eye more closely over the last twelve months; most notably creating a comprehensive fit for purpose Source of Funds questionnaire for busy law firms.

The day was jam packed and both Tom Lyes, Head of Legal and Sheryl Hodgson, Head of Customer Success, enjoyed their time gaining a real insight and understanding into what the regulators are looking for and the pitfalls many firms appear to fall into.

These key takeaways provide a snapshot of the important discussions and insights shared during the Legal Eye Conference, specifically focused on AML-related topics.

1. Focus on the fundamentals

With both the SRA and CLC in attendance and talks from key specialists, a clear theme is that regulators are emphasising the enforcement of AML regulations; this of course has led to an increase in AML fines, which the sector is all too aware of.

Both talks from Taranjeet Singh Babra Forensic Investigation Manager at the SRA, and Sebastian Harrison Deputy Director of AML and Sanctions, at Council for Licensed Conveyancers placed an importance on the fundamentals and how they had provided a wealth of guidance and support on helping firms adhere to their regulatory obligations.

When preparing for an inspection, having a file ready report as to your findings and reasoning when it comes to assessing source of funds is vital. This month on 29^th June we have a webinar with Tracy Thompson of Thomson Associates, that will provide further insights into this trend of ensuring your files are in tip top shape for an inspection.

2. Client/matter risk assessments

There was a clear desire from the regulators that the aim for 2023 is to move firms away from a mere box-ticking approach. The encouragement for comprehensive assessments of client and matter-related risks was strong.

This neatly aligns with our new risk insights with the requirements of both the SRA and the CLC. Our risk insight tools allow firms to create their own risk parameters which can be set according to each firm’s risk appetite. These should aim to mirror the firms Practice Wide Risk Assessment.
The support from us takes shape in two elements:

1. Income Insights allows firms to pinpoint transactional data that reflects their client’s salary and other income streams. This income is then presented to the firms in simple to understand visuals, underpinned by the relevant data.
2. Risk Insights allows firms to set their own risk parameters that will automatically flag any risky matters early. These parameters can be set according to each firm’s risk appetite. These risks will be flagged to the firm in a single checklist, saving them valuable time and resource and provide them with a clear, digital audit trail, available for review internally or by regulators.

3. Common Issues

.The CLC talk in particular underlined some common issues that are found in visits and inspections carried out by them:

• Lack of matter-based risk assessments.
• Incomplete or inadequate source of funds documentation.
• Delayed timing of source of funds requests causing client friction.
• Reliance on proof of funds alone, without sufficient additional verification.
• Inadequate follow-up on source of funds information.
• Failure to set client expectations in the terms of business (TOB).
• Importance of comprehensive record-keeping: Norman Denton stressed the importance of recording the reasoning and logic behind decisions made, with the matter risk assessment acting as a glue to connect all relevant information.

4. SAR reporting and sector performance:

The AML panel discussed how SAR (Suspicious Activity Report) reporting can potentially serve as a metric to evaluate the sector’s effectiveness in tackling money laundering. Understanding when and how to file a SAR when a suspicion relates to the proceeds of unlawful activity, or money laundering activity or a contravention of prohibitions under S26B of the FIC Act is clearly key and the sector has seen an increase in recent years, so is this reflective of our getting better at spotting the right things or is it more about the industry not knowing what they should in fact be looking for?

5. Use of International list of Swift Codes

A member of the AML panel commented on how firms can leverage the International list of Swift Codes when reviewing statements that involve money transfers from overseas.

SWIFT Codes and BIC Codes are integral components of the ISO 9362 standards designed for international money transfers. SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, and BIC, an abbreviation for Bank Identifier Code, are widely utilised across the globe to identify specific bank branches during international payment transactions. Their implementation guarantees that your funds are directed accurately to the intended recipient.

The team at Armalytix are dedicated to helping law firms create an unrivalled experience in remaining compliant and secure for all. Should you wish to find out more about how the team can help, book a demo with our Head of Legal Tom Lyes.