7 Steps To Create A Robust AML Compliance Program
Law firms regulated by the Solicitors Regulation Authority (SRA) have a legal obligation to comply with Anti-Money Laundering (AML) legislation, and a duty to follow additional best practice guidelines. However, some firms still do not have robust AML compliance programs in place, putting the firm at risk of financial or reputational harm.
In this article, we provide you with 7 steps which are intended to inform your development of a robust AML program, leading to greater AML compliance for your firm.
What Is AML Compliance, and Why Is it Important?
Anti-Money Laundering (AML) compliance refers to a set of legal and regulatory obligations designed to prevent financial systems from being used to facilitate or support illicit activities. The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 - or simply MLR 2017 - is a pivotal regulation for SRA-regulated firms in the UK, mandating rigorous checks on the identity of customers and the source of their funds.
These regulated businesses, often referred to as “regulated entities”, are required to implement procedures that identify, monitor, and report any suspicious activities, ensuring their operations are both transparent and compliant with the MLR 2017. This compliance helps businesses maintain their reputation and play their part in the fight against financial crime, supporting the integrity of the global financial system.
What Are the Penalties for Non-Compliance?
Failing to meet AML compliance obligations can result in severe consequences, including:
- Large Fines: Regulatory bodies such as the SRA or the Financial Conduct Authority (FCA) can impose significant fines for serious breaches. For example, Starling Bank was fined £28,959,426 in 2024, due to misconduct relating to financial sanctions screening.
- Criminal Charges: Individuals, including company directors and compliance officers, may face prosecution, possibly leading to imprisonment.
- Operational Disruption: Non-compliance often triggers investigations, audits, and restrictions on trading activities, affecting business continuity.
- Reputational Damage: Public enforcement actions can ruin a firm’s public image, leading to a potential loss of business.
7 Steps towards Creating a Robust AML Compliance Program
The following will assist you in establishing an AML compliance program that addresses the core components of AML compliance in 7 actionable steps:
1. Identify Which Aspects of Your Work Fall Within MLR 2017
Begin by determining which areas of your business activities fall under the scope of the MLR 2017, evaluating your services, clients, and transaction types to pinpoint where money laundering risks may arise. Ensure your operations align with the defined legal obligations, such as customer due diligence (CDD), ongoing monitoring, and reporting suspicious activities.
2. Ensure You Have Appointed a MLRO and MLCO
If you have not already done so, you must designate a Money Laundering Reporting Officer (MLRO) and, where applicable, a Money Laundering Compliance Officer (MLCO).
The MLRO is responsible for receiving and assessing internal reports of suspicious activity and submitting Suspicious Activity Reports (SARs) when necessary, while the MLCO oversees the overall implementation of the AML compliance framework.
In some cases, firms may appoint one person to take on both roles and smaller firms may deem it necessary to only appoint an MLRO, who would conduct the roles of both MLRO and MLCO.
Some firms also choose to appoint deputies to these roles.
3. Ensure You Have And Maintain an Up-to-Date Firm-Wide Risk Assessment (FWRA)
Conduct a comprehensive firm-wide risk assessment to identify and evaluate potential AML threats that your firm faces. This written assessment should be clearly documented, tailored to your firm, and updated regularly to reflect changes in regulations, emerging risks, updates from regulators or changes at your firm. Be very wary of the use of raw templates; they will not accurately reflect the unique risk profile of your firm.
4. Develop an Up-To-Date AML Policy and Associated Procedures
Produce a detailed AML policy outlining your firm’s approach to combating money laundering that includes associated procedures for due diligence, risk mitigation, and reporting. Regularly review and update these documents to ensure they reflect the latest regulations and internal risk assessments.
5. Review Staff Knowledge and Ensure that Training Is Up-To-Date
Assess all employees’ understanding of AML compliance and provide regular training to ensure they can identify red flags and respond to money laundering risks effectively; all staff must know their reporting obligations, and understand who their MLRO is within the firm. Tailor training programs to specific roles within the firm and update them to address evolving risks and changes to regulations, as and when they occur.
6. Ensure That You Are Capturing and Recording Adequate AML KYC Evidence On Matter Files
Ensure your firm gathers and documents sufficient Know Your Customer (KYC) information on matter files for each client. KYC is an umbrella term that encompasses Customer Due Diligence (CDD) in its different forms;
- Regular Due Diligence (RDD),
- Enhanced Due Diligence (EDD) and
- Simplified Due Diligence (SDD).
Whether it be to verify identities, assess the source of funds/wealth, and record risk-based decisions, it is important you keep this evidence on file for the appropriate retention period and review it periodically for accuracy and effectiveness.
To paraphrase 2.2 of the 2019 SRA Code for Firms; if it isn’t written down, it never happened.
7. Regularly Review Controls To Ensure They Are Up To Date
Monitor the effectiveness of your AML controls by conducting regular audits and reviews; these reviews can be performed internally, or with the help of an independent AML audit. Weaknesses or ambiguities in your systems and processes, including staff training and knowledge, should be addressed.
We have supported dozens of firms in response to SRA inspections and can say, with confidence, that paying special attention to any changes in risk levels, regulations, or industry best practice and adopting a proactive approach to staying on-top of your compliance goes a long way to reducing panic / stress which inevitably follows the receipt of a SRA notice of inspection!
Contact Us for an Independent Audit of Your Firm’s AML Compliance
PDA Legal’s AML consultancy or independent audit services will assess your firm’s current AML policies, controls and procedures (PCPs), and support you in achieving and maintaining compliance. Don’t leave your firm exposed to potential penalties or reputational damage - contact us today to book a free initial consultation, and learn more about how we can help through our panoramic approach to firm-wide risk management and compliance.
