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Resources Annual Report 2021

Anti-money laundering

Money laundering is a significant enabler of serious and organised crime which, according to the National Crime Agency, generates more than £12bn annually in the UK. The National Risk Assessment of Money Laundering and Terrorist Financing (NRA) has identified legal services, and in particular conveyancing, both residential and commercial, as one of the services most at risk of exploitation by money launderers.

Common Risk Factors

High Risk Factors
  • No AML Policy or Procedure
  • No practice-wide risk assessment
  • MLRO not completed enhanced AML training
  • No evidence of CDD/EDD on files
  • No source of funds/wealth checks on files
  • Overseas clients
  • High % of clients outside local area
Medium Risk Factors
  • Nationwide client base
  • Less than 75% of clients met in person
  • Minor amendements required to PCPs
  • Only one type of ID verification
  • Self-assessed risk level as medium
Low Risk Factors
  • Compliant and robust PCPs
  • 100% of Clients met in person
  • Dual verification of client ID
  • Local client base
  • Regular AML training for MLRO and relevant staff
  • Consistent application of source of funds/wealth checks on clients
  • Documented evidence of CDD/EDD and source of funds & wealth on file
  • Matter based risk assessments

Each year we inspect approximately 25-30% of our supervised population.

Risk Mitigation

Practices mitigate risks by:

  • Having robust AML policies, controls, and procedures (PCPs) in place which are tailored to their business needs.
  • Appropriate and regular AML training for staff.
  • Appropriate CDD/EDD on clients and donors.
  • A practice-wide risk assessment that is reviewed regularly.
  • Source of funds/wealth checks where necessary.
  • Matter and client-based risk assessments.
  • Ongoing transaction monitoring.
  • A high ratio of authorised to non-authorised fee earners.

Practice Risk Ratings

At the start of the reporting period (6 April 2020 – 5 April 2021), 24 practices were considered high risk, 29 were considered medium risk and 172 practices were considered low risk.

By the end of the reporting period the number of high-risk practices reduced to 7, the number of medium risk practices decreased slightly to 27 and the number of low-risk practices increased to 183. Of those within the high-risk category at the start of the reporting period (24):

  • 8
    were inspected just before the reporting period commenced.
  • 7
    were inspected during the reporting period.
  • 5
    received an AML survey so that PCPs and practice-wide risk assessments could be reviewed.
  • 3
    closed during the reporting period.
  • 1
    practice could not be inspected during the reporting period due to COVID-19.
High Risk
Medium Risk
Low Risk
Start of Reporting Period
End of Reporting Period

Inspections

We have revised our inspection process to request policies, controls and procedures (PCPs) from practices in advance of an inspection rather than review the documentation on the day of the inspection. Inspectors interview key members of staff, usually owners, directors and MLROs. During the reporting period:

  • 51
    inspections were carried out.
  • 47
    were required informal corrective actions.
  • 2
    were considered non-compliant.

We are working with the two practices to achieve compliance.

Of practices rates as non-compliant:

  • 60%
    could not provide an AML training record for relevant staff.
  • 55%
    had not updated their practice-wide risk assessment to account for changes imposed by covid-19 restrictions.
  • 50%
    had not updated their AML Policy/Procedures following the introduction of the 5th Money Laundering Directive in January 2020.
  • 45%
    did not demonstrate that adequate source of funds/wealth enquires were undertaken in relation to a transaction.
  • 40%
    could not provide a sufficient matter risk assessment.

Breach Reporting and Monitoring

The CLC’s Whistleblowing Policy enables the regulated community to make anonymous reports of suspected illegality, including money laundering concerns. There is a range of guidance and resources on breach reporting and making suspicious activity reports (SARs) in the AML Toolkit.

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