What Happens During an SRA Visit?

26 September 2024

A visit from the Solicitors Regulation Authority (SRA) can be a daunting prospect for many law firms, potentially causing a great deal of stress for those involved. These visits, usually referred to as “inspections”, often occur through desktop-based means, although they can involve actual visits. It is important to understand what happens during an SRA visit; this article will walk you through the process step by step, from initial notification, through to the final report, providing insights into what law firms can expect and how best to navigate this event.

Why Do Inspection Visits From the SRA Occur?

Inspections from the SRA are deemed necessary to ensure that law firms comply with legal requirements. These visits are designed to protect the public interest, maintain the integrity of the legal profession, and make sure that firms are following the best practices. One of the primary things which SRA staff assess is a firm’s compliance with anti-money laundering (AML) regulations, inspecting client due diligence procedures, risk assessments and suspicious activity monitoring.

According to the Office of Professional Body Anti-Money Laundering Supervision (OPBAS) sourcebook, firms are typically selected for an SRA inspection based on two primary reasons:

The SRA uses a risk-based approach to target firms that present a higher risk of non-compliance with AML regulations. Factors influencing this decision include the size and complexity of the firm's operations, the nature of its client base, the services it offers (especially if they are more vulnerable to money laundering), and the geographical regions in which the firm operates. High-risk firms are more likely to face an inspection to determine if they have robust systems in place to manage these risks.
Firms may be selected for an inspection based on specific intelligence or reports indicating potential weaknesses in their AML compliance. This could result from whistleblower reports, suspicious activity reports (SARs), or other credible sources which suggest that a firm is not adhering to its AML obligations. The SRA may act upon such intelligence to ensure that the firm is meeting regulatory standards and safeguarding against money laundering risks.

Investigating a Typical Process - What to Expect

To help you gain a better understanding of what happens during an inspection from the SRA, we’ll talk you through the typical process from start to finish. It is important to note that not every inspection is the same. If your firm is inspected, you must cooperate fully and transparently to evidence your level of compliance and to seek to avoid potential penalties. Consulting with an AML compliance expert before and during the visit can also help navigate the process effectively.

Here’s what usually occurs during an SRA inspection:

1. Notification

In most cases, firms receive a letter describing what the inspection will entail, when it will be, and whether it will be onsite or not. This letter will often provide a brief statement explaining the reason for the inspection, highlighting the transparency and fairness of the process. However, in some cases, notice before the inspection will not be given, for example, if this letter could cause a firm to influence witnesses, destroy evidence, or cause harm to an investigation being committed by another body.

2. Preparation

Usually, the letter will request copies of a firm’s key controls for scrutiny, such as their AML policies and procedures under Regulations 19 to 21 of Money Laundering Regulations (MLR) 2017, and their Firm-Wide Risk Assessment (FWRA). There are several other documents which might need to be provided within 10 days of the notification, such as:

Client due diligence (CDD) records
AML-related staff training records
Relevant employee screening records
A client AML risk assessment template
Source of funds and wealth procedures
A list of fee earners whose work relates to MLR 2017
Any documents referencing the Criminal Finances Act 2017
Internal reports of suspicious activities
A questionnaire describing the firm’s services

3. Initial Meeting

On the arranged day of the inspection, the SRA officers will start with an initial meeting to explain the purpose and scope of the visit. They may also ask for an overview of the firm’s AML procedures and controls.

4. Review of Documentation

The officers will review the firm's AML documentation in order to assess compliance with AML regulations. This includes examining CDD records to ensure that clients have been appropriately vetted. These documents should already have been provided to the officers, but they may request further information, such as more recent Suspicious Activity Reports (SARs) or Defence against Money Laundering (DAMLs) submitted to the National Crime Agency (NCA); therefore, relevant documents must be accessible on the day to avoid delays.

5. Interviews

The officers may conduct interviews with key personnel, such as the firm's Money Laundering Reporting Officer (MLRO), fee earners whose work relates to MLR 2017, Money Laundering Compliance Officer (MLCO), and other relevant staff, to understand how AML procedures are implemented and adhered to in practice. If certain members are unavailable, then substitutes must be provided in their absence. Interviewees may be quizzed on several things, such as:

Role-Specific Questions: The MLRO might be asked about their processes for handling SARs, while compliance officers may be quizzed on the firm’s procedures for conducting risk assessments and CDD.
Understanding of AML Policies: Staff will be questioned on their knowledge of the firm’s AML policies and procedures. The officers will want to ensure that these procedures are not only in place but are being actively followed by all relevant staff.
Training and Awareness: The SRA may inquire about the firm’s AML training programs to ensure that staff are appropriately trained and updated on regulatory changes. Interviewees might be asked when they last received AML training and how confident they feel in recognising potential red flags for money laundering.
Implementation of Procedures: Officers will ask how specific AML measures are implemented in daily operations. This may involve questions about how new clients are vetted, how ongoing monitoring of clients is conducted, and how risks are identified and managed.
Case Studies or Scenarios: Sometimes, officers might present hypothetical scenarios to interviewees to see how they would handle certain AML risks in practice. This helps gauge the staff’s ability to apply their knowledge to real-world situations.

6. Discussion and Clarification

If the officers have any questions or concerns about the information they have reviewed, they will discuss these with you. You may need to provide further explanations or additional documentation.

7. Concluding the Visit

At the end of the visit, the officers will summarise their findings and provide feedback on the firm’s compliance with regulations. Typically, they will conclude by doing the following:

Exit Meeting: The visit will usually end with an exit meeting where the officers provide an overview of their observations. This is an opportunity for the firm to ask questions and clarify any concerns raised during the inspection.
Preliminary Findings: Officers will inform the firm of their initial findings, including any identified non-compliance, weaknesses in procedures, or lapses in following regulations. These findings are subject to further review before a formal report is issued.
Next Steps: The SRA will outline whether a follow-up visit is necessary (for example, if significant issues are found), and will highlight whether any immediate action should be taken to address compliance gaps.

8. Follow-up & Resolution

After the visit, the firm will receive a formal report from the SRA detailing their findings. If there are any issues or areas of non-compliance, the SRA will outline these and provide instructions on how to address them, such as implementing new procedures, enhancing staff training, or addressing specific compliance gaps. The firm must comply with any instructions or requirements set out by the SRA, following the visit, in an agreed timeframe. Otherwise, penalties may be issued, such as heavy fines or suspension.

What Fines or Sanctions Might Be Imposed for Non-Compliance?

Fines or sanctions for non-compliance following an SRA visit can vary, depending on the severity and nature of the breach. Non-compliance with regulations can have significant legal, financial, and reputational consequences, emphasising the importance of strict adherence to regulatory standards.

The SRA has a range of disciplinary measures at its disposal to address failures in adhering to regulatory and AML obligations, including:

Financial Penalties

The SRA can impose fines on firms or individuals for regulatory breaches. Fines may be significant, particularly for serious offences, and are calculated based on the nature of the non-compliance and its impact. Smaller fines may be issued for less severe or technical breaches, but larger fines may be levied for significant regulatory failures. In a recent case, a Manchester-based legal firm was hit with a £21,843 fine from the SRA for failing to have the right documents in place, as required by MLR 2017.

Sanctions

For less severe breaches, the SRA may issue a formal reprimand or warning. This is a public record of the breach but may not involve a financial penalty. However, for more severe cases, the SRA has the authority to suspend a solicitor's or firm's licence to practise law. Suspension can be temporary, with conditions imposed for reinstatement, such as the completion of additional compliance measures. In extreme cases, and particularly where there is evidence of serious misconduct or repeated non-compliance, the SRA can revoke a solicitor's or firm’s licence to practise, effectively ending their ability to operate.

How Can PDA Legal Help You Monitor or Improve Your Compliance?

Our team at PDA Legal are experienced in supporting firms ahead of inspections. Our AML audit service is as in-depth as a formal inspection from the SRA, but with the benefit of supporting you without fear of judgement or penalties, and providing you with an opportunity to resolve any shortcomings in advance.

Our consultants have over two decades of experience and have assisted over 500 law firms, through methods such as desktop reviews, written Gap Analysis Reports and onsite audits. We will review your FWRA, supervision procedures, MLRO reports and more, to determine your current levels of compliance. After the desktop review has been completed, we can follow up with a visit to your offices to discuss the findings with senior partners, board members, MLROs and/or others in responsible roles as necessary.

Our AML Consultancy Services Support You In Preparing For An SRA Inspection

Much like the previously mentioned audit service, our AML Consultancy Service provides invaluable assistance ahead of a visit from the SRA. For a friendly, informal discussion to learn more, please contact us today on 01372 879343.