The Legal Sector Affinity Group (LSAG), which includes the Society and all legal sector supervisors named in the anti-money laundering regulations, has completed an extensive revision and redraft of the UK AML guidance for the legal sector.
The new guidance, published today 20 January 2021, replaces previous versions of the guidance and has been published in draft form, pending approval by the Treasury.
The updated version builds upon the previous AML guidance released after the implementation of the The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, and incorporates subsequent amendments implemented via :
- The Money Laundering and Terrorist Financing (Amendment) Regulations 2019
(LSAG had previously issued a summary of changes to the regulations to help firms comply with the requirements of these amendments – this has been incorporated into the new full version guidance released today).
- The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020.
Graham MacKenzie, Head of AML at the Law Society of Scotland, said: “AML risks, issues and challenges in the legal sector are becoming ever more prominent and complex. As a responsible supervisor, we are aware of the challenges and costs faced by firms when trying to navigate and comply with regulatory requirements – especially at a time when the sector continues to contend with the current unprecedented economic and social background caused by COVID. I would add that in these turbulent economic times, firms should also mindful of undertaking business which they may not have the requisite experience or expertise in, or of introducing new sources of funding or capital to the business, which may expose the practice unit to new/heightened money laundering risks.
"I hope that the new guidance is helpful in providing further practical information for legal practices in scope of the money laundering regulations - to aid their compliance and effectively protect against money laundering risks as outlined in the recently released UK National AML Risk Assessment published by the government just before Christmas.
"The guidance should also be taken to communicate UK legal sector supervisory expectations to those under AML supervision. Over and above the strict requirements of the Money Laundering Regulations - documented as “musts” within the guidance - firms may be required to justify why they have deviated from the supervisory expectations as set out in the guidance - documented as “shoulds” - upon inspection. Firms should therefore review their own AML governance, policies, controls and procedures in light of the guidance, and update where necessary. We will of course allow firms adequate time to do so, particularly against the extremely challenging business environment we find ourselves in."
The guidance project has been led by the Law Society of Scotland and the Solicitor’s Regulation Authority, with review and input from all UK legal sector professional bodies and supervisors through the LSAG forum. Content has also benefitted from extensive practitioner review and input from the Law Society of England & Wales Money Laundering Taskforce (MLTF). The MLTF consists of legal practitioners from a variety of backgrounds with significant specialist expertise, background and experience in AML/proceeds of crime matters.
Key changes in the guidance
- Revised, more granular contents section with embedded links to sections for ease of navigation
- Introduction of Key AML Compliance Principles
- Revised, updated and expanded AML Governance and Internal Controls sections.
- Fully revised and expanded Risk Assessment section (firm-wide, client and matter)
- Expanded guidance on understanding and evidencing source of funds and source of wealth
- A new section on technology – expanding on the requirement for firms to consider and understand the purposes and basis on which they are using AML-related technology (along with its underlying functionality) in order to use it effectively to mitigate risk
- Updated Training section
- Fully revised and updated Legal Professional Privilege section with new LPP/SAR reporting decision-making template (drafted by an independent expert in this niche area of law).
A series of thematic blogs on key aspects and changes contained in the LSAG guidance will published in the Law Society's fortnightly news bulletin, Lawscot News, throughout February and March, culminating in an extended article in the March issue of the Journal.