For law firms, understanding the difference between an AML Risk Assessment and a Fraud Prevention Risk Assessment can mean the difference between compliance confidence and costly exposure.
As financial crime grows more sophisticated, law firms and professional services organisations face rising regulatory and reputational risks. Two essential tools in your compliance arsenal are:
- Anti-Money Laundering (AML) Risk Assessment
- Fraud Prevention Risk Assessment
Although these may seem similar, and both aim to protect your firm and its clients, they serve distinct purposes and sit within different legal and operational frameworks.
Recognising the difference isn’t just a technical exercise; it’s how firms allocate resources effectively, strengthen governance, and safeguard both reputation and professional indemnity standing.
Recent SRA expectations you should note
The Solicitors Regulation Authority (SRA) has reaffirmed that firms supervised under the Money Laundering Regulations must maintain a firm-wide risk assessment reflecting the nature and volume of regulated work undertaken – SRA | Firm-wide risk assessments | Solicitors Regulation Authority
Firms are required to:
- Have a robust policy, control, and procedure (PCP) framework, informed by a risk assessment, which identifies AML risks in their work.
- Maintain a clear audit trail showing how risk ratings are determined, how controls mitigate those risks, and how they are reviewed and updated.
- Conduct an independent audit function (as required by Regulation 21 of the MLRs) where appropriate to the firm’s size and nature, to assess the effectiveness of AML policies and controls.
- Review and update their firm-wide risk assessment whenever there are significant regulatory or operational changes, such as updates to the legal sector’s national risk assessment.
The key message?
Your AML risk assessment is not a tick-box exercise. It must form part of an actively managed framework, understood by leadership, regularly reviewed, and clearly evidenced.
What an AML Risk Assessment Covers
An AML Risk Assessment identifies how your firm’s services could be used to launder the proceeds of crime or finance terrorism.
Key areas include:
- Client risk e.g. high-risk clients such as politically exposed persons (PEPs), trusts, or complex corporate structures.
- Matter risk such as conveyancing, company formation, trust work, or other activities within scope of the MLRs.
- Delivery channels and geography, for instance, cross-border transactions or electronic onboarding may carry higher risk.
- Monitoring controls e.g. how high-risk transactions are monitored, including client account oversight, source of funds/wealth checks, and ongoing relationship reviews.
- Documentation, recording why a client or matter was rated high risk, which controls apply, and how ongoing monitoring will occur.
If you are SRA-regulated and subject to the MLRs, your AML risk assessment must be firm-wide, up to date, and aligned with your policies, controls, and procedures.
What a Fraud Prevention Risk Assessment Looks At
A Fraud Prevention Risk Assessment takes a broader view. It considers risks of any false representations for personal or financial gain, whether from internal or external sources.
This is about protecting your firm’s assets, reputation, and integrity, not just meeting a regulatory requirement.
Typical fraud risks include:
- False invoicing or expense claims by employees or intermediaries
- Property or identity fraud by clients or vendors (e.g. forged ID, false ownership claims)
- Misuse of client account funds or payment diversion
- Cyber-enabled fraud such as email interception (business email compromise), manipulated payment instructions, or social engineering attacks
While fraud risk assessments aren’t always a specific regulatory requirement, professional indemnity insurers increasingly expect firms to demonstrate how they assess and manage fraud risks.
Where AML and Fraud Risk Assessments Overlap
AML and fraud risks often intersect.
For instance, a client committing property fraud (misrepresenting ownership or source of funds) may also be laundering the proceeds of that fraud through your firm.
This crossover is exactly where collaboration between Compliance, Risk, and Audit functions is critical. Treating AML and fraud risks in isolation can lead to blind spots—financial crime rarely fits into neat regulatory boxes.
By recognising the overlap, you can design a risk framework that mirrors real-world criminal behaviour rather than compliance silos.
Practical Guidance for Law Firms
Here’s how to align and strengthen both assessments:
- Integrate insights. Feed findings from your AML risk assessment into your fraud prevention framework (and vice versa). For example, high-risk AML clients should trigger enhanced fraud monitoring.
- Review regularly. Reassess both AML and fraud risks at least annually, or when there are major regulatory or operational changes (e.g. mergers, new service lines, or updates to the national risk assessment).
- Train holistically. AML and fraud training should complement each other. Real-world examples often straddle both areas.
- Document decisions. Record your rationale for all risk ratings and mitigations. Regulators and insurers increasingly expect clear evidence of your decision-making.
- Tailor controls. Match controls to risk levels. Low-risk work might involve standard checks; high-risk work may require enhanced due diligence, transaction monitoring, or independent review.
- Elevate oversight. Ensure both frameworks are visible to senior management, with clear reporting on key risks, control gaps, and remediation plans.
Law Firm Risk Assessments - Key Takeaways
- AML Risk Assessment = Regulatory compliance obligation
- Fraud Prevention Risk Assessment = business protection and integrity strategy
Both are essential. AML compliance keeps you on the right side of the regulator; fraud prevention keeps you on the right side of your clients, your reputation, and your insurer.
By aligning both, firms can foster a resilient culture of compliance, one that protects clients, reputation, and the bottom line.
How Teal Compliance Can Help
At Teal Compliance, we often see firms assume their AML risk assessment covers fraud. In reality, it rarely does so in sufficient depth.
Our Fraud Prevention Risk Assessment, and full Fraud Prevention Service (Fraud Prevention Services | Teal Compliance), work alongside your AML framework to give you a clearer picture of vulnerabilities and to evidence strong governance for both regulators and insurers.
If you’re unsure whether your current risk assessments cover AML and fraud effectively, drop us an email at hello@tealcompliance.com
We’ll help identify any gaps and strengthen your firm’s financial crime resilience.
Thanks for reading.
Saba Janjua and Mark Heffer
