What an annual report – and five fined firms – tells us about SRA AML enforcement trends
15 Nov 2024
In a blog, Head of Regulatory Law Andrew Katzen examines what the SRA’s recent report on Anti-Money Laundering, and five recent regulatory decisions, tell us about the regulator’s attitude to AML enforcement.
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In November last year the Solicitors Regulation Authority (SRA) made a clear pledge to the solicitors it regulates and the political authorities which oversee it.
Over the three years to 2026 “money laundering […] involving SRA regulated firms would be reduced”, the regulator stated in a corporate strategy document.
Twelve months later, two recent developments show how the SRA is attempting to fulfil this promise.
The first is the publication, at the end of October, of the SRA’s Anti-Money Laundering report for 2023-24. The second is the reporting, this week, of a flurry of financial sanctions totalling £57,000 on five law firms for breach of anti-money laundering requirement.
The timing of these may or may not be deliberate. But the fact they occurred so close to one another should send an unmistakable message to the profession. Both developments merit analysis.
A surge in AML enforcement
The SRA’s Anti-Money Laundering Report for 2023-24 contains many data points, of which surely the most striking relates to a surge in enforcement activity,
The report reveals while the SRA received a broadly steady number of reports of potential AML breaches over the seven years to 2023/24 (it got 235 reports in 2017/18 and 227 reports in 2023/24); the number of AML-related matters determined by the Authority over the same period increased seven-fold, from ten cases in 2017/18 to 74 in 2023/24.
The SRA explains this increase as being due to “several factors”, including “an increase in the number of Investigation Officers working within the team” and “amendments in our case management processes”.
Notably absent is any claim that solicitors are behaving much worse than they did seven years ago. However, we may note that previous government introduced a new regulatory objective for legal regulators of “promoting the prevention and detection of economic crime”. It also enabled regulators to impose unlimited fines for professional misconduct concerning economic crimes.
The AML report also reveals how the consequences for firms found in breach of AML regulations are getting more serious.
In June 2022 the SRA gained the ability to impose fines of up to £25,000 (up from £2,000) on lawyers and traditional law firms found in breach of its financial rules. The report shows what happened next.
Over the financial year 2023/24 the SRA issued 44 fines for AML breaches, together totalling £556,832.
While one of these (Ashfords LLP for which, as an Alternative Business Structure, the SRA has greater fining powers) was for £101,357; the median average sum fined was between £10,001 and £20,000.
At the same time, the number of cases being referred to the Solicitors Disciplinary Tribunal dropped from eight in each of the financial years 2020/21 and 2021/22 to four the year in 2022/23. As the SRA explains: “the reduction in the number [of SDT referrals] is partly due to the increase in our internal fining powers.”
£57,000 fines on five firms
Even by the SRA’s standards, it has been particularly busy recently on AML enforcement. An analysis of the five cases publicised this week shows similarities which reflect broad trends in the regulator’s AML report.
All five penalised firms admitted the breaches and entered into Regulatory Settlement Agreements (RSAs) with the regulator.
Taken together these RSAs show failings in:
- Firm-wide risk assessments (FWRAs)
- AML policies, controls and procedures (PCPs)
- Client matter risk assessments (CMRAs)
These are exactly the issues highlighted in the SRA’s report which stated that these were the most common area of breaches in AML requirements (insufficient staff training was another).
According to the AML report, in total, in 2023/24 there were 78 enforcement outcomes in relation to money laundering: an increase from 47 in the previous year. In over half of the cases, the most common area for breaches related to firms having inadequate AML systems and controls.
Three key themes that the SRA believe contributed to these breaches are:
- At a senior level in firms, there is not enough importance on having robust and compliant AML controls in place.
- Inadequate supervision or training of fee earners, particularly on the regulations and the firm’s PCPs.
- Having systems and processes that allow events to happen unchecked, such as receipt of funds or moving to the next stage in the transaction.
What next?
The SRA’s consultation on its proposals on how to implement its new unlimited fining powers in relation to economic crime (which includes money laundering) has recently closed.
These proposals have been criticised by the Law Society, the City of London Law Society and the Solicitors Disciplinary Tribunal. We shall have to wait and see whether the SRA’s plans change as a result.
Nevertheless, the SRA’s powers to internally fine firms and individuals without limit are already in place. However they are applied, the indications are that they are only going to result in more – and higher – financial penalties.
