Webinar – Source of Funds and Wealth Checks for Commercial Property and Corporate Lawyers

For commercial property and corporate lawyers, understanding and evidencing how a business funds its transactions is critical for satisfying regulation, reputation and financial crime risks.

In these legal areas, the movement of monies is complicated, with different company entities, director’s loans and more all involved as part of the process. Despite this, anti-money laundering and other compliance checks such as Source of Funds are necessary and starting to see greater regulatory focus.

Why then are they needed and what can you do about them?

Understanding Source of Funds and Source of Wealth Requirements

In our recent webinar, Tom Lyes, Head of Legal at Armalytix spoke with Norman about the key importance of source of wealth requirements in the funding part of ongoing risk assessment processes.

We sat with Norman Denton, Senior Compliance and Regulatory Specialist at Legal Eye, to get some hands-on insight into how Commercial Property and Corporate departments can satisfy the complex regulatory requirements that they need to meet.

In accordance with the Legal Sector Affinity Group guidance, understanding the client’s financial position is a fundamental element of client due diligence.

Effective risk assessments and ongoing monitoring under Regulation 28 are challenging unless there is a thorough understanding of the source of funds from clients and associated third parties.

There are 4 key things needed to do this:

1. Client Due Diligence:
   • Scrutiny of transactions throughout the course of the relationship.
   • Ensuring consistency with the client’s known financial background and risk profile.
2. Regulation 28 Obligations:
   • Investigation of the source of funds for transactions to that they align with the client’s business and risk profile.
3. Enhanced Due Diligence:
   • Implementation of more stringent requirements for higher-risk clients or matters.
4. Recording and Evidencing:
   • Documentation of the reasons and evidence for being satisfied with the source of funds and wealth, even for existing assets.

And 3 pieces of practical advice to avoid common pitfalls:

5. Incomplete Records:
   • To ensure source of wealth explanations are documented thoroughly, ensure that notes on client files explain how any funds were obtained legitimately.
6. Risk Profile Assessments:
   • Make initial risk assessments detailed and revisit them if new information arises.
   • Conduct additional checks for clients from high-risk industries or jurisdictions.
7. Digital Transformation:
   • Move from manual to digital processes to improve the accuracy and efficiency of checks.
   • Use digital tools (such as Armalytix) for data collection and analysis, ensuring comprehensive evidence gathering.

Recent Regulatory Actions

The SRA has been taking an increasingly stringent stance on these checks, issuing fines for failures in complying with AML regulations and internal processes. Many firms were penalised despite there being no evidence of actual money laundering – reinforcing the importance of strict adherence to AML guidelines. Self-reporting serious breaches to the SRA is important, as is reporting minor breaches when they accumulate.

Conclusion

Whilst Commercial Property and Corporate Lawyers have deeper and long-standing relationships with clients, it’s still vital for them to understand and document Source of Funds and Source of Wealth on a transaction by transaction basis. Fortunately, there are digital tools and processes available that are already successfully being used to enhance due diligence processes, provide the necessary records and save time and money.

For further details and to watch the full webinar – please follow this link.