Technology is rapidly changing the way we live, work, and interact with each other. Spurred by the global pandemic, increasingly costly instances of non-compliance, and fraud, most law firms are looking to adopt digital solutions to deal with Anti-Money laundering (AML) regulations. For law firms, the adoption of Regulation Technology (Regtech) for its own compliance and business operations could give a firm the ability to increase both its efficiency and scalability, whilst meeting ongoing regulations.
A Thomson Reuters report on the UK legal market 2021 shows 74% of senior partners believe their law firm should be investing more in technology. This arises from increased competition and pressure to adopt service models that provide greater flexibility and value.
Advances in technology can now help legal professionals (lawyers, solicitors, notaries, and other independent legal professionals) to better serve clients and meet regulatory requirements. The adoption of technology will be necessary for law firms to remain competitive and compliant in the future, lowering the cost of due diligence, reducing risk, and the ability to demonstrate compliance to regulators.
Regulators in Ireland, the UK, and the EU are strengthening AML compliance and requirements to identify ultimate beneficial owners (UBO). Law firms need to up their game to meet these responsibilities. Maintaining the independence of lawyers is a necessary element of the rule of law. However, as Addison Mizner said, “Ignorance of the law excuses no man from practicing it”.
Law firms have gone through a transformation over the past year, lawyers and solicitors collaborate more online with colleagues and clients. On top of knowledge of legal matters in order to practice law, regulatory requirements for legal compliance continue to mount and so too does the level of risk for law firms.
Recent changes in the EU’s 6th AML Directive include increased penalties on single individuals committing money laundering offenses. There is a greater liability for legal company owners who fail to implement measures to mitigate AML risk within their organisations by increased fines, prison terms, and suspension from operating as a business.
Adopting a digital solution can automate and speed up work, reducing onboarding costs by 70%. Regtech companies like UBO Service can support emerging compliance needs and legacy requirements. Solicitors and lawyers can automate their Know Your Customer (KYC) controls and reduce the time per case spent on unbillable hours speeding up client onboarding.
Legal self-regulatory and external bodies are challenging law firms and in-house lawyers to have better UBO identification programs, customer due diligence (CDD), and ongoing monitoring. The legal sector is under increasing pressure to comply with ongoing regulations.
The Financial Action Task Force (FATF), the global AML/CFT standard-setting independent body, gives lawyers a basis to develop a balanced approach to CDD. In the UK, The Legal Sector Affinity Group (LSAG) has reviewed the AML guidance for the legal sector in 2021 following the EU’s Money Laundering Directives implementation. The Law Society of Ireland guidance notes for "relevant independent legal professionals", designated persons under AML/CFT laws, support them in meeting statutory obligations.
The legal industry is key in the AML fight, law firms should expect more requests for information, following the introduction of new regulation on Ultimate Beneficial Ownership (UBO). All UBOs must go through the appropriate AML/KYC requirements efficiently and consistently.
The FATF Guidance provides a “risk-based approach for legal professionals”. The UK’s Solicitors Regulation Authority (SRA) and the Law Society of Ireland (LSI) recommend applying a risk-based approach (RBA approach). This requires evaluating the risks inherent to the practice and/or particular client/ matter.
Law firms and legal professionals must examine their existing AML processes rigorously to ensure they meet their compliance requirements. Failure to do so can see serious consequences from the regulator on both the firm and the individual.
Regulatory and supervisory activity continues focusing on detection and prevention of financial crime throughout the pandemic, with a focus on inadequate AML controls, even when no evidence exists of firms actually handling laundered proceeds.
International law firm Taylor Vinters was fined almost £20,000 for failing to carry out appropriate due diligence on a number of clients. There are valuable lessons from these cases; all customers must be fully identified, and AML / KYC control measures must be consistently applied across law firms. Improving transparency and UBO verification from accurate and reliable sources will make it easier to manage risk.
Financial crime is increasing, costing the EU, UK, and Ireland billions every year. According to the Financial Action Task Force (FATF), globally this is a trillion-dollar industry annually and increasing.
The work required to meet AML/KYC regulations is vital but can be a strain on a law firms’ scarce resources. Those that cannot evolve with AML regulation risk severe consequences from regulators. Many solicitors are now looking at how they can improve their due diligence processes while also offering a more customer-friendly due diligence process.
Adopting a digital solution like UBO Service will reduce regulatory risk and operational costs. We provide detailed AML reports on individuals, businesses, and beneficial owners, ensuring you know whom you are doing business with and meet your regulatory requirements. We only use current primary sourced data.
Our audit-ready reports will ensure your workflow is captured and ready for review from regulatory bodies like The Law Society of Ireland and The Solicitors Regulation Authority UK.