Anti-Money Laundering Compliance: Your PII underwriter is watching…
Compliance with Anti-Money Laundering (AML) is a regulatory issue, but non-compliance can impact your Professional Indemnity Insurance (PII) if it leads to claims. Your PII insurer wants reassurance that your firm is on top of the requirements.
Remember Dreamvar? PII insurers certainly do. The case changed the liabilities and responsibilities for legal professionals engaged in conveyancing. But PII insurers also remember that this was a case where the solicitors acting for the fraudulent vendor had not taken sufficient steps to verify their client’s identity under the relevant AML Regulations at the time. If they had done so then events might have unfolded differently.
This case put the importance of compliance with AML requirements firmly on the radar for PII insurers, if it was not there already. As a result you will find questions that reference AML Regulations in most PII proposal forms – and they are frequently found in the conveyancing section. The identification of clients is of particular importance and we have recently seen a quotation subjectivity from one underwriter promoting the use of biometric verification as part of the client on-boarding process.
The SRA has recently published the Annual Review[1] of their AML work and the results of a Thematic Review they have undertaken on Client and Matter Risk Assessments[2]. It does not make for good reading from a risk management perspective and the results have prompted the SRA to issue a Warning Notice that is available here. You should expect that your PII insurers will have seen this in the legal press.
There were 177 firms that were the subject of on-site and thematic inspections and 73 desk-based reviews. Some of the “lowlights” reported were as follows:
- 51% of AML risk assessments were either non-compliant or only partially compliant.
- 51% of client/matter risk assessments were ineffective
- 22% of policies, controls and procedures were non-compliant.
In addition to issuing the Warning Notice, the SRA has also indicated that it will consult next year on the introduction of fixed financial penalties for failings in an effort to improve compliance.
We encourage firms to take this opportunity to review and re-assess their approach to AML, including policies, procedures and compliance across the firm. There is an abundance of material and guidance to assist with this exercise on both the SRA and Law Society websites.
Here are the links for each: