Best: Sensible guidance on its face
Proposed new guidance on how the legal regulators should meet their new statutory duty to deal with economic crime could lead to inconsistencies of approach, an expert has cautioned.
The Economic Crime and Corporate Transparency Act 2023 added a new regulatory objective in section 1 of the Legal Services Act 2007, namely to “promote the prevention and detection of economic crime”.
The oversight regulator, the Legal Services Board, has published draft statutory guidance for consultation that would “ensure regulators understand how to meet this new duty”.
It set out four outcomes for the regulators: they need to understand and act to address risks that may lead to those they regulate “knowingly or unknowingly facilitating economic crime”, ensure lawyers understand how to identify and avoid economic crime risks, monitor compliance, and “regularly” evaluate own standards and procedures.
The consultation hinted at even more scrutiny of lawyers’ compliance. “Based on supervision of existing regulatory arrangements, there is evidence that some regulated persons fail to comply with requirements and standards intended to prevent economic crime,” it said.
“It will be important for regulators to monitor that any regulatory arrangements they put in place are complied with, to ensure that there is consistent safeguarding against economic crime across their respective regulated communities’ activities.
“This should help raise standards across the sector and reduce the potential for those engaging in economic crime to choose services from alternative providers where compliance may be less assiduous.”
The LSB said all eight of the frontline regulators told it that they were already taking action to meet the new duty, primarily focused on anti-money laundering (AML), financial sanctions and fraud.
LSB chief executive Craig Westwood said: “Our goal is to bring about a step change in efforts from legal services regulators to tackle economic crime. This is essential to securing a legal sector that benefits the public and is built on strong foundations that uphold the rule of law…
“By providing clear and practical guidance, we aim to help regulators develop effective processes and resources.”
The LSB said the guidance “should facilitate a harmonised approach”, but Colette Best, who recently left her post as director of AML at the Solicitors Regulation Authority to join City law firm Kingsley Napley, questioned whether it would achieve this.
“On the face of it this seems like sensible guidance to flesh out the new regulatory objective in the Economic Crime and Corporate Transparency Act,” she said.
“Interestingly, the LSB has left it to regulators to decide which of the economic crime offences to prioritise, rather than providing any specific guidance. Given the very wide definition of economic crimes in the act, this could lead to inconsistencies between supervisors [what regulators overseeing AML are officially called] in England and Wales.
“And that’s before you get into possible inconsistencies with supervisors in Scotland and Northern Ireland not covered by the proposed LSB guidance.”
In her new role as a director at Kingsley Napley, Ms Best is providing AML and financial crime advice to regulated professionals and entities.
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