“Significant weaknesses” in legal regulators’ approach to money laundering

FCA: Continued improvements needed

There are “differing levels of achievement and some significant weaknesses” among the UK’s legal regulators in their approach to anti-money laundering (AML), their oversight body has reported.

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) also indicated support for the Solicitors Regulation Authority (SRA) to have the power to fine solicitors and firms more than £2,000 without having to refer them to a disciplinary tribunal.

Overall, it found that the vast majority (just over 80%) of professional body supervisors (PBSs) across the legal and accountancy sectors had not implemented an effective risk-based approach.

At the same time, it said the legal sector has “more effective supervision” than the accountancy sector.

OPBAS was created in 2018 to oversee nine legal and 13 accountancy AML supervisors – the law societies and bar councils of the three UK jurisdictions (including also the SRA and Bar Standards Board), the Chartered Institute of Legal Executives/CILEx Regulation, the Council for Licensed Conveyancers, and the Faculty Office of the Archbishop of Canterbury, which supervises notaries.

Each body pays a levy to cover the cost of OPBAS, which has two key objectives: to ensure a consistently high standard of AML supervision by the ‘professional body supervisors’ (PBSs); and to facilitate information and intelligence sharing between them and law enforcement bodies.

As in previous years, its progress report did not identify which particular PBSs were doing well or badly.

Overall, it said, they have improved in recent years to achieve a level of compliance with the technical requirements of the Money Laundering Regulations (MLRs).

But OPBAS continues to find “differing levels of achievement and some significant weaknesses”.

Many PBSs have not implemented a risk-based approach that effectively prioritised their AML supervisory and enforcement work, based on a robust assessment of the AML risks posed by their regulated population.

“We observed gaps in PBSs being able to evidence their understanding of AML risks and how they used it to determine the frequency and intensity of supervisory visits…

“Just over 60% of legal sector PBSs were judged effective in using their powers to support the adoption of a risk-based approach by their members. This compared to less than 40% of accountancy sector PBSs.

“We will be looking for significant improvements in all these areas as we follow up our assessments.”

There were gaps and inconsistencies in many PBSs’ approaches – including unclear governance arrangements – which limited their overall effectiveness, it continued.

“A third of PBSs did not have an effective separation of their advocacy and regulatory functions, presenting a clear risk of conflict of interest. PBSs in the accountancy sector were more effective in handling conflicts of interest appropriately than those in the legal sector.”

All PBSs had sufficient information gathering and investigative powers but only half of the legal PBSs (and 62% of the accountancy sector’s) were effective in using them.

Around two-thirds of PBSs did not have effective enforcement frameworks either and OPBAS was clearly referring to the SRA when it said “some legal sector PBSs continue to face statutory limitations to the exercise of their powers, requiring them to refer matters to the independent Solicitors Disciplinary Tribunal for larger fines”.

The SRA has long been calling for the power to levy fines of more than £2,000 without having to refer matters to the tribunal; only in relation to alternative business structures, covered by a separate legislative regime, the SRA has the power to fine firms up to £250m and individuals up to £50m.

More positively, PBSs generally shared information and intelligence and provided information and guidance.

OPBAS sits within the Financial Conduct Authority, and Sarah Pritchard, the authority’s executive director of markets, said: “Ensuring the effectiveness of financial crime controls and reducing financial crime risk is a key priority for the FCA.

“As this report finds, professional body supervisors of the accountancy and legal sectors have made welcome improvements in compliance with the Money Laundering Regulations in the three years since OPBAS has been in operation, and we need to see continued improvements in the effectiveness of their supervision.”

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