Fifth AML Directive means firms must review anti-money laundering processes

The fifth Anti-Money Laundering Directive comes into force today, which means that law firms have to make changes to the way in which they work to help keep the proceeds of crime out of legal services. Around 7,000 firms regulated by the Solicitors Regulation Authority (SRA) are captured by the Government’s changes to the regulations and will need to re-assess their processes, subsequently making any necessary changes immediately.

The Legal Sector Affinity Group (LSAG) – which includes the SRA and all of the legal sector supervisors named in the regulations – is publishing a summary of changes to the regulations to help firms comply with the new requirements.

This includes a duty to collect proof of registration for entities (eg trusts and companies), a duty to inform the registry of any discrepancies in their information and changes to client due diligence and enhanced due diligence.

The LSAG is currently drafting updated guidance on the regulations. This will require the approval of Her Majesty’s Treasury and will be made available in the coming months.

There has been a short lead-in time between the regulations being laid in Parliament on 20 December and the legislation coming into force. However, the legislation requires firms to be compliant from Friday 10 January.

It should be noted that the SRA will take the limited time that firms have had to prepare for the new requirements into account in their enforcement work.

Paul Philip, CEO at the SRA, explained: “Money laundering supports criminal activity such as people trafficking, drug smuggling and terrorism. The damage money laundering does to society means that every solicitor must be fully committed to preventing it. The majority would never intend to become involved in criminal activities, but the reality is that poor processes can open the door to money launderers.”

Philip added: “This new legislation aims to further reduce the risk of law firms being used to launder money. Working with the Legal Sector Affinity Group, we will be providing a range of support to firms to help them comply.”

The legislation also means that the SRA is changing some of its processes. For example, new applications for Beneficial Owners, Officers and Managers (known as BOOMs) will now need to provide a Basic Disclosure and Barring Service check which shows applicants don’t have any of the criminal convictions that would prevent approval. The SRA wrote to law firms in December setting this out. Information on applications can be found at: www.sra.org.uk/solicitors/firm-based-authorisation/disclosure-barring-service-checks/

Susannah Cogman, who works within Herbert Smith Freehills’ corporate crime and investigations practice, opined: “While some of the changes under the new AML regulations seem quite technical in nature, there are a number of important changes to firms’ due diligence obligations, and an all-new requirement for firms to report to Companies House on customers if they find discrepancies between information collected during customer due diligence checks and information on the Persons with Significant Control (PSC) Register.”

Cogman added: “One way of looking at this is that responsibility for ‘policing’ the PSC Register has been outsourced to the regulated sector. Disappointingly, these regulations have been rushed out at the last minute – partly as a result of the purdah period during the election – and firms will be scrambling to catch up with the changes needed. The regulations will also see a number of crypto-asset businesses brought within the scope of the regulated sector. This is an important step in the continued fight against money laundering.”

The fifth Anti-Money Laundering Directive can be found online at: http://www.legislation.gov.uk/uksi/2019/1511/made/data.pdf

About the Author
Brian Sims BA (Hons) Hon FSyI, Editor, Risk UK (Pro-Activ Publications) Beginning his career in professional journalism at The Builder Group in March 1992, Brian was appointed Editor of Security Management Today in November 2000 having spent eight years in engineering journalism across two titles: Building Services Journal and Light & Lighting. In 2005, Brian received the BSIA Chairman’s Award for Promoting The Security Industry and, a year later, the Skills for Security Special Award for an Outstanding Contribution to the Security Business Sector. In 2008, Brian was The Security Institute’s nomination for the Association of Security Consultants’ highly prestigious Imbert Prize and, in 2013, was a nominated finalist for the Institute's George van Schalkwyk Award. An Honorary Fellow of The Security Institute, Brian serves as a Judge for the BSIA’s Security Personnel of the Year Awards and the Securitas Good Customer Award. Between 2008 and 2014, Brian pioneered the use of digital media across the security sector, including webinars and Audio Shows. Brian’s actively involved in 50-plus security groups on LinkedIn and hosts the popular Risk UK Twitter site. Brian is a frequent speaker on the conference circuit. He has organised and chaired conference programmes for both IFSEC International and ASIS International and has been published in the national media. Brian was appointed Editor of Risk UK at Pro-Activ Publications in July 2014 and as Editor of The Paper (Pro-Activ Publications' dedicated business newspaper for security professionals) in September 2015. Brian was appointed Editor of Risk Xtra at Pro-Activ Publications in May 2018.

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