Anti-Money Laundering Compliance: Your PII underwriter is watching…

Posted on17 November 2023

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:

Burges Salmon has been an enthusiastic supporter of BLS for many years. BLS provides a valuable role in uniting and promoting the whole of the legal sector across Bristol to benefit both its members and the city. It facilitates collaboration across the sector to ensure that we can all make a difference. Whether that is driving important initiatives in, for example, Equality, Diversity and Inclusion and the use of new technologies, liaising with stakeholders and charities in our wider community or providing training to generations of lawyers, the service and support provided by BLS is invaluable. More recently BLS has taken a lead on promoting Bristol’s legal brand, encouraging legal and business services talent to come to the city, which in turn attracts clients and inward investment to our thriving and vibrant commercial community. BLS breaks down barriers and brings those in the profession together for the greater good. We are proud of our long-standing association with BLS.
Roger Bull - Managing Partner, Burges Salmon
Three things to say about my experience of working with Bristol Law Society. Their central team, council members and general hangers-on are just about the nicest, most generous group of people working in the legal sector today. The numerous events, awards, socials and conferences I’ve had the pleasure to attend over the years have been, without exception, top quality and supremely organised. And, thirdly, they consistently exceed and challenge the boundaries of what lawyers might assume a regional Law Society will restrict activities to – from a hugely successful charitable school meals drive to corporate social responsibility and diversity campaigns to being joint architects and coordinators of the region’s unique Bristol+BathLegalTech group, which it has been my privilege to co-chair for the last five years.
Chris Bull - Principal, Edge International
As one of the leading Insurance brokers for law firms in the UK and with a large presence in Bristol it seemed only natural for us to support the Bristol Law Society. Bristol Law Society is one of the oldest and most vibrant of the Law Societies in England and Wales. We are pleased to be working with them on important matters relating to law firms’ liability insurances and Risk Management. From Sole Practitioner to Top 20 law firms we are sure our two organisations can provide excellent support and assistance for the challenges faced by the legal profession.
Matthew Baker - Financial Lines Group, Howden Insurance Brokers Ltd
Joining BLS in 2013 and becoming President in 2018/19 has created many longstanding friendships and business relationships, whilst also unlocking doors to other opportunities in the City. BLS enabled a perfect balance of professional development and also opportunities to give back to the legal and wider community. I am pleased that my Firm has supported BLS in many capacities since 2013 and continues to do so.
Nicholas Lee- Managing Director of Paragon Costs Solutions and Past President of BLS