Mark, Author at Teal Compliance

What is an AML false positive for law firm compliance

What is a false positive when it comes to AML Compliance?

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance, Risk Management / Mark

You know those ‘false positives’ we get in our AML checks? They’re a real pain, right? They basically grind things to a halt, and suddenly everyone’s chasing down leads that go nowhere. It’s not just annoying, it’s a huge drain on time and resources that should be spent on, you know, real compliance.

Plus, here’s the annoying bit, all that noise from the false alarms. It actually makes it harder to spot the actual dodgy stuff. We’re so busy dealing with the fake alerts, we might miss the genuine threats. And that’s the last thing we need, isn’t it? #stopthebaddies

This can happen for various reasons, and we’ll detail some below so you can keep your ears to the ground:

FACT: Regulators can ask to see your risk assessment if there is compliance failure at your practice.

Common and Generic Names

Clients with common names might be mistakenly flagged if their name matches someone on a sanctions list or a Politically Exposed Person (PEP) list.

The data from the Office of National Statistics of 2023 shows that Muhammad was the most popular boys’ name in four out of nine regions in England and 63rd most popular in Wales (followed by Noah and Oliver).

Now, in 2023 there were 4,661 Muhammads born across England and Wales; Mohammed came in 28th with 1,601, and Mohammad came 68th with 835. You can see how easily a misspelling could occur.

You’re a firm in rural Wales, and you have a potential new corporate client dialling in from abroad whose name is Owen Jones. A very lovely Welsh name that’s also extremely common.

While sanction checks are a mandatory compliance measure, they are susceptible to inaccuracies during the screening process. These inaccuracies can manifest as both false positives and false negatives, which ultimately undermine the efficacy of both sanction and PEP checks.

Several factors contribute to these inaccuracies. Outdated sanction lists, name variations – for instance the names above, ‘Muhammed Ahmed’ being recorded as ‘Mohammed Ahmad’, or “Owen Jones” being recorded as “Ewan Jones” could lead to inaccurate matches or failures to correctly identify an individual.

The really scary part? If these checks aren’t spot-on, someone who’s actually sanctioned could slip through the cracks. And that puts us, and you, at serious risk of getting tangled up in some seriously dodgy financial activities. Trust me, it’s not worth the gamble.

Outdated Data

Using old or incomplete data is a big issue for causing false positives. Here are some examples that law firms really have to think about and communicate consistently because of:

Say you have an outdated sanctions list and then run a client check against it? The client might have actually been on that naughty list previously, but no longer is. Can you imagine the sensitive conversations with your client around this as well as the delays?

I’d ask you questions to protect against this scenario including where your data is stored and is it in real-time?

FACT: The MLR 2017 imposes a five-year limit on keeping clients’ personal data contained in CDD documents…unless you need to retain the CDD documents and records about the transaction under an enactment or for legal proceedings.

In the above example I’d say there is a need for advanced technology. If you can invest in sophisticated tech matching algorithms and data verification tools it will give your AML processes a boost.

Sticking with the data causes, simple but catastrophic for management, could be typos, formatting errors, and inconsistencies that may well be human error led. Are your staff literate, savvy and excellent at proofing before the data is saved?

Address Discrepancies

This comes up with residual balances a lot – the address of the client and any discrepancies you hold. However in this instance, old address data can trigger a false positive too. Say a client has moved house, but the previous addresses you hold for them could now actually be linked to a high-risk individual. I talk more about human error further down in this blog.

Another embarrassing conversation with your client and an unnecessary investigation.

Do you rely on outdated client databases? Are your CRM within your CMS up to date?

Irrelevant Data from Public Records

You know, when we’re running these AML checks, especially with public records, we’ve got to be super careful. Those databases can be a real minefield of old and useless info. Imagine, we get a hit because someone was linked to a company that doesn’t even exist anymore. Boom, false positive. We’re chasing our tails for hours over something completely irrelevant.

And trust me, there are plenty of firms that have learned this the hard way, it’s a balancing act between competent compliance and common sense. Say a law firm has relied on public records without really checking if the data’s current or even relevant to the client? It’s a classic case of ‘garbage in, garbage out,’ and it just ends up wasting everyone’s time and resources.

PEP (Politically Exposed Person) Matches

I’ve alluded to PEP matches above, but think about it, you get a new client, and their name pops up as a potential PEP. But here’s the thing, it’s just a common name, and they’re completely unrelated to any politically exposed person. The problem? Your system is pulling up outdated data. Maybe years ago, someone with the same name held a public position and you’ve flagged that. However, in this regard, that’s ancient history now and yet your system has still triggered a false positive.

And that’s the real danger. If you’re relying on old, stale data for PEP checks, you’re basically setting yourself up for a ton of these false alarms. It’s not just a time-waster; it’s a real compliance risk. You’ve got to have current, accurate information to avoid getting bogged down in these pointless investigations.

Last but not least, it’s good old human error.

Human Error

It’s not just dodgy data that causes those annoying false positives in AML checks. We’ve got to remember, humans are involved too, and we’re not perfect. We all know that time is often not our friend working in a law firm. Say a legal cashier is under pressure and has typed in ‘£1,000,000’ instead of ‘£100,000’, or they misread a transaction description and suddenly, you’re chasing a phantom money launderer. It’s easy enough to do when you’re dealing with tons of documents and tight deadlines, especially in conveyancing.

And it’s not just typos. I’ve seen cases where someone ignores the context – like a big cash deposit that’s actually from a legitimate sale – or they’re using old data because they’re in a hurry. It’s a real reminder that even with all the fancy systems, human error can still throw a massive spanner in the works.

FACT: Ongoing monitoring involves scrutinising transactions to ensure they are consistent with known client information

Strategies to reduce false positives

False positives can create significant challenges for any law firm, including wasted time and resources, delays for legitimate clients, and potential bottlenecks in compliance processes…..

To me, it’s about managing your compliance and risk management processes efficiently because it’s crucial to strike a balance between minimising false positives and avoiding false negatives (where genuine suspicious activities go undetected). The cost to a business for both small firms and larger firms if their systems flag up wrong information can be devastating. AML is complex, I know, but being on guard for any vulnerability your firm has is key and although “when in doubt might” come to mind, it’s really about working correctly to mitigate any inaccurate red flags too. No-one wants a false positive error that impacts your legal practice which is why I can’t emphasise enough how important training is and also having a team like Teal being there to support you and your colleagues (and clients of course).

FACT: Training for employees must ensure understanding of firm policies and AML compliance procedures under Regulation 24.

The good thing is that there are a wealth of strategies you can use to reduce false positives.

To begin, it is imperative to address data quality. Implementing robust data hygiene practices is super important; this entails ensuring your client data is accurate and subject to regular updates. That’s the important bit, you have to consistently check on updates. My advice would be to provide comprehensive training to all your staff regarding the correct capture of information during the onboarding phase. This training can seriously mitigate the risk of future data mismatches.

Secondly, I’d strongly recommend enhancing Know Your Customer (KYC) and due diligence procedures beyond the minimum requirements. Employing independent verification tools to cross-reference data and address any potential gaps will definitely reduce potential false positive results.

Finally, the centralisation of data across your firm is critical. The establishment of a centralised data management system for compliance purposes will help with all departments.

In conclusion, what is the impact of a false negative in our AML controls?

Look, we all know false positives are a pain, but we can’t just throw our hands up and accept them. We need to get smarter about how we track and manage them. First off, I’d say look at your false positive ratio – what percentage of those alerts are actually worth your time? You should be aiming to see that number go down, consistently.

Then, there’s the alert handling time. How long are you spending on each case? If it’s taking forever, you definitely need to think about streamlining your workflows to cut out the unnecessary steps.

You know I’m an advocate for effectively leveraging tech? Let’s be real in this scenario, we all need to look at our own resource allocation when it comes to compliance and risk management. By this I mean, are you throwing bodies at this problem, or could you be using tech to automate some of the grunt work?

LawCare data shows that staff are already anxious and stressed at work, so if they are already swamped, plus busy dealing with fake alerts, they then can’t focus on actual risks or, you know, doing their actual jobs and bringing in fees. False positives are a pain in resources.

You know the SRA isn’t getting any easier on you as a law firm, which means you can’t afford to be wasting time and money on false alarms. I’d recommend building a solid strategy – a mix of good tech, smart processes, exceptional consistent training, and human judgement. It’s about getting your AML accuracy up without sacrificing safety.

And our clients? They’re the ones who suffer the most. Imagine being delayed or questioned for no reason – that’s going to damage relationships, right?

From my perspective, all these false alerts mean you could miss crucial reporting deadlines or just get so bogged down with checks that you can’t make quick decisions. My biggest concern for you would be that with all this noise, you might actually miss the real money laundering risks staring you right in the face.

Amy

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online safety act and implications for law firms. Picture of courtesy of Tudum and is of Adolesence from Netflix.

Online Safety Act implications for Law Firm Compliance

Blogs, Data Protection, Legal Compliance, Regulatory Compliance, Risk Management / Mark

Let’s talk about the Online Safety Act (the Act) – it’s a big deal for everyone operating in the UK’s digital space, and that includes law firms. Think of it as a landmark piece of legislation designed to create a safer online environment.

Netflix’s Adolescence starkly portrays the vulnerability of young people to online manipulation and the erosion of their sense of self through excessive social media engagement, highlighting the very issues the Online Safety Act aims to address. The story is based around the family of a 13 year old boy and the fall out of a crime against a classmate that he commits. It’s just made viewing history with the stats of views still climbing.

Ofcom’s “Enforcing the Online Safety Act” can be read HERE. The ICO has some guidance on this topic around online safety and GDPR too, which you can read HERE (10 step guide to sharing information to safeguard children), and another piece of guidance HERE (Children’s Code Strategy).

Our blog here will go over the UK’s Online Safety Act and its implications for law firms. The Act places responsibility on businesses, including law firms, to protect users from harmful and illegal content, especially children.

Did you know that the Act lists over 130 ‘priority offences’, and tech firms “must assess and mitigate the risk of these occurring on their platforms”?

The priority offences can be split into 17 categories including fraud and financial offices, together with proceeds of crime.

Essentially, the Act puts the onus on businesses, and that includes the business of running a law firm, to protect users from harmful and illegal content, with a particularly strong emphasis on safeguarding children.

Of course the Act is inherently targeted at larger tech platforms.

Platforms must now act quickly to come into compliance with their legal duties, and our codes are designed to help them do that. But, make no mistake, any provider who fails to introduce the necessary protections can expect to face the full force of our enforcement action.

Suzanne Cater, Enforcement Director at Ofcom

The Act introduces a whole raft of legal requirements, especially for those services that allow users to interact or offer search functions. We’ll go into that in more detail later in the blog.

As you will no doubt be aware, the Act received Royal Assent back in October 2023, and various provisions are already in effect. So, this isn’t something on the horizon; it’s happening now. For us in the legal profession, we know non-compliance can lead to hefty fines. So, it’s absolutely crucial that you, as a law firm, understand the Act inside and out, and get to grips with your specific responsibilities under the new law.

You’ll know that this Act is primarily to protect children online, but there has been a new Category 1 that’s been added since 2023, to protect adults too (self harm and suicide).

The definition of ‘appropriate measures’ for removing illegal content will really depend on the online service in question – what’s right for a social media platform with millions of users, won’t be the same for a small community forum.

Ali Hall, Online Safety Supervision Principal at Ofcom speaking to publisher Startups

We’d say to all readers of this article that their websites and social media platforms might need a look at, which we’ll highlight further down.

In the meantime, we suggest you look at your law firm for data protection, privacy, and risk management in any event. When was the last time you did this? Further to SRA’s ever evolving fining powers, and latest highlights such as this from Legal Futures “Director and law firm fined £50,000 for multiple compliance failures” it’s more important than ever to protect your clients and your reputation.

Data Protection and Privacy

The Act interacts with existing data protection laws, such as the UK GDPR. Law firms, which handle sensitive client data, must ensure their online practices comply with both sets of regulations.

What does this mean for you? Time now to review and update privacy policies to reflect the Act’s requirements.

It’s also time to implement robust security measures to protect client data online, if you haven’t already.

Risk Management

The Act introduces new risks related to online content and conduct. This means that as a law firm, you’ll need to assess these risks and implement appropriate mitigation strategies.

What might this look like for your firm? Depending on your readership and clientele, you may need to develop policies and procedures for handling online safety issues.

Again, depending on the size of your practice, you might have to provide training to staff on online safety best practices. We think this is a good idea in any event, so that you and your colleagues are aware of the Act in private lives too.

It’s recommended that there is ongoing monitoring of online activity for any potential risks.

It’s worth noting that Ofcom, the regulator in this regard, isn’t suggesting small businesses will be negatively affected, but essentially its regulatory requirements create a broader online safety environment that law firms must be aware of. While you’re not directly regulated by Ofcom, you must still ensure your online activities align with the Act’s goals and principles.

Law firms that offer employment law, contract law, regulatory compliance and criminal law will want to proactively guide and advise their clients with updates.

Our Data Protection Compliance service is designed to make sure law firms can clearly identify the risk to the data they process and put in policies, procedures, and controls to protect it. You can build on the Act to this work thereafter.

Talking of the Act, law firms could do a risk assessment that implements any changes you think your firm need to look into:

Identifying Potential Risks: review the types of content hosted or shared on your website and social media (e.g., user-generated content, comments, videos).
Analyse the likelihood of illegal or harmful content being present or shared on the platform.
Assess existing content moderation practices and their effectiveness.
Review policies for user reporting and complaint handling.
Evaluate any automated tools used for detecting and removing harmful content.
Analyse Potential Gaps: identify areas where current measures may fall short, such as detecting newer forms of harmful content. Consider emerging risks as the online landscape evolves.
Compliance with Ofcom Guidance: ensure that your policies align with Ofcom’s codes of practice and that necessary reporting mechanisms are in place. Verify that terms and conditions are user-friendly and transparent.
Action Plan: develop a strategy to address gaps, such as improving moderation systems, updating user guidelines, or enhancing staff training.
Set measurable goals to regularly review and update the risk assessment.
Regular Review Process: create a process for periodic reassessment of risks, particularly after platform updates or regulatory changes.

Teal Compliance Risk Assessment is the perfect starting block for dovetailing to your firm’s requirements under the Act.

Websites and Social Media Platforms

We live and work in a digital age and your law firm’s website and social media could possibly need tweaking or monitoring.

Does your law firm’s website have interactive features like blog comment sections, forums, or user-generated content, they may need policies written for content moderation? The processes would incorporate removing illegal content (e.g., hate speech). Of course law firm websites won’t be the click of choice for children, but if there is a potential for moderate harmful content on the site, you need to think carefully. Also, do have clear terms of use that outline acceptable and unacceptable content.

It’s worth taking the time to conduct your firm’s risk assessment for AML compliance at this time too.

Our website audit service provides a full and comprehensive review of your website, making sure it adheres to the SRA Regulations, so you could take advantage of aligning your website’s policies for these regulations as well as Ofcom’s.

We all need to look at our own social media channels to monitor any engagement for potentially harmful or illegal content. By this we mean you should:

monitor comments and interactions on any of your posts (and check with the scheduling tool provider of their policies if you use one); and
have processes in place to remove or report inappropriate content;
Add to your terms of use or social media policies an outline about acceptable behaviour on your digital channels. This will back you up as a business and potentially protect you as you’ll be able to manage expectations and provide a basis for removing inappropriate content.

Teal Compliance Recommendations

Reviewing Online Policies: Law firms should review their online policies and procedures to ensure they align with the Act’s requirements.

Staff Training: Providing staff with training on online safety best practices is essential.

Monitoring Online Activity: Law firms should monitor their online activity for potential risks and take appropriate action.

Staying Informed: Staying up-to-date on the Act’s implementation and Ofcom’s guidance is crucial.

In essence, the Online Safety Act reinforces the need for law firms to take their online responsibilities seriously. They must ensure their online activities are conducted in a safe and responsible manner, and that they comply with the evolving regulatory landscape.

As pillars of our society, the legal profession simply has to adhere and align to regulations and rules to uphold the sanctity of our reputation.

Thanks for reading and do get in touch with us if we can support your form with its AML compliance and risk management undertakings.

Team Teal

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Law Society Risk and Compliance Conference 2022 Teal Compliance Key Takeaways

Risk and Compliance March 2025 Key Takeaways

Anti-Money Laundering, Blogs, Compliance Training, Legal Compliance, Regulatory Compliance, Risk Management / Mark

Eilish Cullen, Teal Compliance’s Head of the Partnerships and our Data Protection Subject Matter Expert attended the Law Society Risk and Compliance Conference on 12 March 2025, here are her takeaways.

As ever, the sector is shifting big time, and we all need to be ready for it – whether managing complex and evolving regulations, ensuring data security, adapting to the rise of AI, and navigating economic pressures, all while building a positive culture and driving new business.

So this is something we all need to keep a close eye on, especially for COLPs and MLROs as the challenges we in AML and risk management are facing is going to dramatically ramp up with more and more complexities to navigate.

Here are Amy Bell’s Handy Hints for those new to the role of COLP & MLRO – READ HERE

The agenda for the rest of the day looked like this, and each delegate was offered 2 out of the 4 workshops:

TED talk: Is the legal profession fit for the 21st century?
SRA: Regulatory priorities in a changing legal landscape
Plenary 1: AI on trial This session delves into the risks and opportunities of AI in legal practice.
Workshop A1: Cybersecurity for small and medium-sized firms (run under Chatham House Rule)
Workshop A2: Social conflict and reputational risk
Plenary 2: Economic crime concerns
Workshop B1: Handling client money Post Axiom Ince the SRA proposes
Workshop B2: Risk management 101 Essential risk management strategies and best practices for process mapping and policy development.
Plenary 3: Code of conduct and culture What is your role as a compliance officer in shaping conduct and culture?
Reputational risk in law: Defending your reputation Join Jacqueline McKenzie, human rights and immigration lawyer, for an insightful keynote on managing reputational risk.

Eilish’s Key Takeaways:

Is the Legal Profession Fit For the 21st Century?

Kirin Kalsi, General Counsel, Compliance Officer and Data Protection Officer at E.ON UK, gave us a Ted Talk on the subject.

With the focus on law firms and their lawyers being focused on the billable hour and money, the potential for risk is high, to the client, to the reputation of the law firm, and of course to the law firm employees.

Kirin went on to talk about how the training of juniors/trainees hasn’t really changed in 20 years. The same methods are being used, but how do we come together as a legal sector to change that approach for training our new generation.

From training new generations coming into the profession and how the culture of the sector as a whole, as well as firmwide, is key to long term growth. New entrants to the profession say work/life balance is really important, their outlook on what’s important is different and Kirin said that potentially the profession is still way behind on this.

As attendees, we were asked is it within our power to change this? A conversation that I am taking back to the team at Teal and asking ourselves how we can support change.

As the Post Office Scandal, ‘Biggest Miscarriage of Justice’, is still very much in our front of minds, seeing Lee Castleton speak at various events, and knowing that 900 Post Masters were prosecuted, Kirin asked what can we learn from it in our risk and compliance efforts, both as consumers of law and of practitioners.

On a side note away from Kirin’s talk, the SRA confirmed it has more than 20 live investigations into solicitors and law firms who were working on behalf of the Post Office/Royal Mail Group. In a statement it says “We will take action where we find evidence that solicitors have fallen short of the standards the public expects”.

If you haven’t already read this, I urge you to: Post Office Horizon Inquiry – human stories

The need to ‘speak up’ and remind ourselves of our professional obligations. Attendees were asked if we have carried out our own firm’s internal training/briefings when it came to ensuring there will never be another Post Office Scandal (in terms of aggressive litigation, dehumanisation, bullying).

If you haven’t, then it’s time to have the conversation as to why we and/or our bosses feel it’s irrelevant?

It didn’t take long for the talk to turn to the use of AI and technology. As a profession we need to be forward thinking and proactive, especially when it increases efficiency and time. For example, our Teal Tracker, is built for efficiency and risk management. It’s accessible and easy to use. Amy Bell wrote this software and had it built specifically for the holes that appear in a firm’s AML compliance, data protection and regulatory processes.

TEAL TRACKER – you can read more about our software by clicking on the link HERE.

The takeaways on the subject of AI from Kirin’s Ted Talk for me were that in 2025, lawyers and colleagues in firms are more efficient and self-sufficient, arguably due to the software firms currently have in place.

As with technology and change, with AI there is an element of firms being both delighted at what AI can assist with in tandem with fear that it will replace their jobs.

There is still a concern regarding the reliability of AI (still in experimental phase) but the stark reality is that it is improving every day. We can’t afford to be dinosaurs.

When it comes to law firm risk and compliance, human risk has always been present (ask any insurer!), and therefore accuracy and reliability has always been a concern even without the use of AI.

All of us in the legal sector need to consider human risk -v- risk of AI getting it wrong.

Concern regarding whether a firm’s insurance covers the risk surrounding using AI – a reminder to firms to have that open conversation with their PII provider.

Regulatory Priorities in a Changing Legal Landscape (Aileen Armstrong, SRA) “We are Looking Forward”

Aileen Armstrong, Executive Director, Strategy Innovation and External Affairs at the SRA, focused on their priorities when it came to client money, high volume claims, and governance & regulation of AI.

Client Money Consultation

The SRA received hundreds of written responses from the legal profession on this as well as insights and opinions from their round table and focus groups.

In terms of alternatives to firms holding client money, some firms did agree that third party managed accounts (TPMAs) may present less risk.

However, firms had concerns that using TPMAs could increase the risk of cyber crime due to the amount of funds in them. Costs of their use and visibility were also a key concern in this respect. Other firms thought that changes to the current regulations surrounding accountant reports should be strengthened, perhaps in favour of annual declarations.

The SRA knows that any change won’t happen immediately and no decisions have been made at present. An executive speaker for the SRA stated that it may be a case that a tech solution may be the answer, something which may not even be in existence yet.

It’s a case of watching this space.

Handling Client Money - Residual Balances

We talked to Karen Edwards, Head of Professional Development at the ILFM, who found the conversation on residual balances intriguing.

Jayne Willetts, solicitor advocate, said that there is likely to be tightening up by the SRA on the issue of residual balances in the form of warning notices or additional guidance notes, but in her view she didn’t think the SRA will amend the Accounts Rules.

If you need Residual Balance Training – look no further – CLICK HERE.

High Volume Consumer Claims

The SRA currently has 60 live cases regarding law firms on this issue. They have published

guidance to consumers on this point, which you can READ HERE.

The SRA realise that these types of funding (no win no fee as an example) are a vital access to justice for so many, especially when other funding methods are not available.

The flip side is that there simply has to be better consumer protection overall. There have been significant problems and failings in this area, namely unstable funding models, lack of supervision, how ‘no win no fee’ models are sold/marketed to clients, as well as cold-calling and failings surrounding ATE/keeping clients up to date.

The SRA however does recognise that there are many claims’ firms doing a grand job, but the continued risks to consumers must be monitored and controlled.

Governance & Regulation of AI

The SRA recognises the importance of innovation in general.

In many ways we are still at the bottom of the hill however in terms of our understanding of this fast evolving landscape. In terms of what the SRA is doing in this area, it was said that it is producing guidance to help, whilst working with tech providers. The SRA is conscious that different firms/departments will have different AI needs.

The regulator says it has also been working with the Law Society on legal tools and the need for regulation surrounding this.

Question to SRA: What can the SRA do to win hearts and minds?

Answer: They recognise that the regulator must play its part and it recognises the need to engage with the sector… “talking and hearing”. This is why they wanted to do the Client Money Consultation differently rather than just set out proposals. They wanted to look at all of the evidence.

Question to SRA: Supervision. Is the SRA just concerned about supervision on high volume claims or in general?

Answer: Obligation to supervise must happen across the board.

On a side point, I read a post from John Hyde, Reporter at the Law Society Gazette.

He reported that the SRA insisted, on his questioning, that no decisions had been made on the future of the client account. He went on with his opinion post saying when asked how much money is held in law firm client accounts, the response was that the SRA didn’t know off the top of their head right now.

Hyde said that given that it was fundamental to the whole topic of client accounts, he might have imagined that the figure would be a key one. He concluded his short LinkedIn post saying,

“The SRA is acting without truly understanding the profession or acquiring sufficient evidence”.

Plenary 1: AI On Trial: Felix Zimmerman from Simmons & Simons (and others)

Felix specialises in negligence claims in firms, specifically surrounding AI use.

Conveyancing & Artificial Intelligence

The data came first in this talk.

There were 1.2 million property transactions in the UK last year and an increase is anticipated.

There is a drop in conveyancers so this means less people doing more work. The conveyancing industry has a reputation for doing things slowly. However, exciting for this area of property transactional law is development with the use of AI Agents to assist (multi models) which can control the mouse and key board, log into peoples inboxes, draft emails and then put them in their draft inbox ready for the staff member to check and send out.

This is designed to improve efficiency, Teal Compliance will be keeping its ear and eyes open with regard to risk in this regard.

Litigation & AI

There is now the ability to look at pleadings and review the prospects of success, thus reducing fee earners time on this.

Compliance & AI

There is a plethora of data online Felix said, and reviewing all of this can take time. AML compliance, risk management etc, can cause frustration for everyone, with fee earners and lawyers who just want to get on with their own client work, as well as partner feedback explaining they are worried about their firm’s bottom line, time constraints, fees and the possible impact on client relations due to delays.

All of these stresses around compliance can significantly impact job satisfaction.

Replacing Staff?

The average demographic of junior lawyers is 30 years and up now. There are concerns that they might be replaced by AI.

Ultimately, AI is being built to empower and assist with the “heavy lifting” in a law firm. It’s important for the legal sector as a whole to understand that AI should not be delegated tasks which are not appropriate for it, and that will negatively impact their clients and the firm’s reputation whilst keeping the insurer satisfied.

The reality is that the next set of laptops being bought will have AI chips built into them, it’s a language model training tool.

It was suggested that if we are having to double check the work of AI assistance, is it worth it in the first place?

Arguably yes, as it will still cut down a lot of time.

Question: Could firms face negligence claims for their failure to use AI?

Answer: Felix says yes potentially- for example in commercial litigation. ‘Relatively’ software is commonly used in these departments to review disclosure and can provide much better selection than any team of paralegals would.

Question: Environmental Consequences -v- Commitment to Net Zero.

Answer: Yes, recognise that there is a big environmental impact regarding use of AI e.g. use of water coolers for hard drives.

Question: What Training Should Firms Put in Place for AI Safety?

Answer: An overview of solutions, limitations etc.

Economic Crime Concerns.

The panel consisted of Colette Best (Kingsley Napley), Anita Clifford (Red Lion Chambers) Andy Donovan (Vinci Works), Harriet Holmes (Thirdfort) and Nicola Kirby (Latham and Watkins).

The Dentons case was one of the first topics discussed. Let’s face it, it wasn’t a great result for the legal profession. HOWEVER, the saving grace is that it highlighted only serious breaches will result in the SDT getting involved.

The headline from the Law Society Gazette (article dated 11 March 2025) is:

“SRA overturns Dentons acquittal in AML case”

You can read the article written by Bianca Castro HERE. The judgment from the High Court, said the ‘only evaluation’ required by the SDT ‘was whether or not the firm had complied with regulation 14 of the MLRs 2007’.

Source of Funds (SOF) and Source of Wealth (SOW):

There are no anticipated changes to the legislation for source of funds / source of wealth.

The legislation states get it from the source “where necessary” so we are left to look at the LSAG Guidance.

SOW is needed where a client is a PEP or in high risk jurisdiction. The difficulty with SOF/SOW is that a lot of it is a judgement call, making it a tricky area. Similarly, the legal profession is using terms interchangeably, which isn’t helpful.

Generally speaking, getting six months of documentation, as a starting point, but with the possibility of having to go back several years for higher risk areas. Teal and the team will update any changes and of course we always have updates and webinars on this subject.

The panel said that documenting decision making is important with decision making, information considered and action taken as a result.

Law Society’s 2025 focus on Risk and Compliance

The Law Society outlined their Formal Response to the SRA Consultation on Client Money with the following points:

Government considerations were discussed including the question, should we dispose of Enhanced Due Diligence (EDD) for high risk jurisdictions i.e. make it more risk based? Should we have lower risk factors?

The SRA has said that sanctions need to be in FWRA, either within the AML one or a separate one.

Trade sanctions should also be considered, especially if firms are at risk.

The SRA is carrying out sanction visits on law firms it regulates. This is mostly following on from its earlier sanctions questionnaires. It’s usually a 1 day visit, with policies and interviews taking place. Do check with the SRA on this point if you have any concerns.

Accountants’ Reports – there was talk about asking firms to submit these every 3 years (at present law firms need to obtain an accountant’s report within six months of the end of each accounting period if they hold or receive client money; and this report should only be submitted to the SRA if it is qualified, meaning it identifies issues with compliance regarding client fund).

Enforcements – we should expect SRA enforcements to continue and don’t think the ‘change of guard (Paul Philip leaving) will change this!

SRA Thematic Review on AML Training October 2024 Findings:

There is a distinct and direct link between the quality of AML training and findings on files. Firms and the legal sector as a whole must move beyond “Tick-Box” training, something that Teal Compliance has been passionately focused on for a long time now.

The SRA is concerned that some firms treat AML training as a mere formality, rather than a crucial tool for preventing financial crime. The regulator stresses the need for training to be relevant, engaging, and tailored to the specific risks faced by each firm.

TEAL COMPLIANCE TRAINING – find out more of how our tailored, relevant and engaging training can support your law firm policies and procedures.

As mentioned a few times throughout the day, ‘Off the shelf’ training probably isn’t going to cut it. The SRA wants to see that the training is tailored to real life scenarios. AML training should be at the very least carried out annually.

It was said that there needs to be systems in place for when someone misses AML training, including seniors management and partners.

In terms of specific training, there was a recommendation for training that is interactive such as ‘have a look at this” examples and “ who do you think is the beneficial owner?”’ i.e. pin the tail on the beneficial owner type of situation. Great to know that Teal Compliance is doing this and more in all our training sessions.

Someone came out with this statement, which I loved: “If it has a heart beat, train it’.

It was concluded that treating templates as a final solution is wholly inadequate. Use them as a base, yes, and then meticulously adapt them to your firm’s specific requirements. This is one of the themes we see at Teal Compliance, a firm’s assumption that a template is enough. It’s not.

Have a look at our Policy Review and Writing HERE.

Regarding ongoing monitoring, Harriet Holmes said there was a necessity to document ongoing monitoring, even if there have been no changes to client or matter risk, and to make sure everyone understood the tools and technology they are using. She pointed out that if you get alerts, look at them in a timely fashion and solve any issues as otherwise it leaves you and your firm exposed.

Have you downloaded your TEAL TRACKER?

Code of Conduct and Culture in Law Firms

This session had panel speakers, Paul Bennett (Partner at Bennett Briegal LLP), Clare Hughes-Williams (Partner at DAC Beachcroft), Pearl Mosses (Head of Regulatory Compliance at Setfords Law Ltd), and Elizabeth Rimmer (CEO at LawCare).

Between the above speakers, it was agreed that firms need to have strong HR support and buy in to the employees, not just their employers

Great leadership means leading by example, ensuring your team has trust in you, whilst having a transparent organisation that has the ability for staff to call out poor behaviour. HR and supportive teams must communicate throughout the firm what your culture is and embed it firmly. This should never be just a website policy saying how great you are with your culture and DEI, you have to show it through actions.

The following were suggested to manage risk as well as look after your staff and colleagues:

Anti-Bullying and Harassment training.
Performance reviews should be part of your culture.
Survey staff to find out what is the drive and motivations within your culture.

Elizabeth Rimmer, CEO of Lawcare, reminded us that the charity was there for everyone in the legal sector. It’s a place of confidentiality and no judgement.

Lawcare has been in place since 1997 and 2024 was their busiest year apart from 2020 (lock down).

The charity findings say that a review of your hierarchy behaviours could flag up some vital change requirements as they are seeing a culture in many firms on the premise that “it’s how things are done round here” which isn’t sustainable for retaining great staff or business growth.

With the topic of psychological safety at work, questions that you might ask yourself are:

Do you and your colleagues feel valued?
Is constructive criticism in place?
Is there a fear of raising mistakes (i.e., if I own up to a mistake, might I lose my job or be judged?)
How do we learn from this as a culture (when mistakes happen – because they will happen!)?
Is there a subtle blame culture?
What are our inherent risks that might hinder our staff’s mental health?
Is there a lack of supervision when it comes to bullying and harassment?

Overall, this was a really great session to bring the day to a close. ·

Eilish Cullen’s Conclusion of Risk & Compliance Conference Talks

For me, I found the conversations and topics around the evolving risk and compliance landscape to be as follows:

There is an increasing complexity of risk and compliance for law firms, not only traditional AML and regulatory risks, but also reputational risks, which are now receiving greater scrutiny.

The role of risk and compliance professionals is evolving to encompass a wider range of responsibilities.

When it came to culture and legal ethics it was very evident that the SRA is placing greater emphasis on firm culture and well-being. We know from speaking with our friends in insurance that this is a big factor for protecting firms against risks because having a strong moral and ethical culture is seen as essential for reducing errors and improving client outcomes.

Discussions also focused on the need to balance regulatory priorities with lawyers’ ability to advocate for their clients.

The conference underscored the insufficiency of generic compliance templates. Law firms must recognise this and develop tailored AML strategies to meet the demands of the current regulatory environment.

If you’d like to chat with me directly or find out how my colleagues can support you, please

do get in touch with me: eilish@tealcompliance.com or you can get hold of any of us HERE.

Risk and Compliance March 2025 Key Takeaways Read More »

Teal Compliance debate the topic of law firm client accounts and the use of TPMAs

The Future of Client Accounts: Should Law Firms Move to Third-Party Managed Accounts?

Anti-Money Laundering, Blogs, Data Protection, Legal Compliance, Regulatory Compliance, Risk Management / Mark

The management of client accounts has come under increased scrutiny in recent years, with the Solicitors Regulation Authority (SRA) questioning whether law firms should continue to handle these accounts themselves.

One alternative that has been proposed is the use of third-party managed accounts (TPMAs). But is this the right move for law firms? I know this is a contentious topic, but it’s well worth exploring the potential benefits if we’re forced into change, as well as the challenges of relying on TPMAs.

Legal Futures’ article dated 25 February 2025, with an alarming headline here:

“Time to act” on scrapping client accounts, consumer panel says

It includes statements from the Legal Services Consumer Panel regarding law firms holding client monies on account and commenting on the SRA’s Consultation, Mr Hayhoe, Panel Chair of the Legal Services Consumer Panel (LSCP), said “the consultation on the model of solicitors holding client money “disproportionately” focused on residual balances and interest, rather than the “central issue” of misappropriation.”

The Case for Third-Party Managed Accounts

If you’re not sure exactly what third-party managed accounts (TPMAs) are then here’s a quick definition:

TPMAs are accounts managed by third-party providers that are regulated by the Financial Conduct Authority (FCA). These providers* offer a range of services, including secure handling of client funds, compliance with anti-money laundering (AML) regulations, and protection against cyber threats.

One of the key benefits of using a TPMA is that it should reduce your firm’s risk associated with client accounts, since you’re not holding any money.

Since TPMAs are managed by specialists with advanced security measures, they could be better equipped to prevent fraud and cyber attacks because that’s vital for them in their service to you.

For instance, a TPMA provider might invest more heavily in cybersecurity than a typical law firm, hence the deterrent for baddies.

Additionally, TPMAs could alleviate some of the administrative burdens and headaches that come with managing client accounts.

Law firms could focus on their core legal work while the TPMA provider would handle the complexities of management the funds, including compliance with regulatory requirements.

TPMAs offer some potential advantages for law firms, but they’re certainly not a silver bullet. I’d suggest that as a firm (especially in property law and corporate) you need to carefully consider your needs as well as your circumstances before deciding whether to switch to a TPMA.

*there aren’t that many providers

The result of the SRA’s consultation should provide further clarity and I will be sending out updates as and when.

Pros of TPMAs for Law Firms

Reduced Risk: Less chance of law firms breaching the SRA Accounts Rules, and as TPMAs are regulated by the FCA (Financial Conduct Authority), law firms will have less direct responsibility for compliance with the SRA Accounts Rules. This can reduce the risk of accidental breaches, disciplinary action, and claims against professional indemnity insurance.

Lower risk of fraud and theft: TPMAs will have invested more funds into security measures than a law firm could. This might potentially reduce the risk of cybercrime and financial fraud compared to managing client accounts in-house.

Increased Efficiency: Will this be the end of legal cashiers? Probably not as we all need bookkeepers but if you don’t operate double ledgers, then this may change your accounting. TPMAs would streamline the accounts’ processes, freeing up time, plus no more manual reconciliation of client accounts! Do keep in contact with the ILFM for their updates and support in the meantime.

Faster transactions: Some TPMA providers offer faster transaction speeds, which will always be helpful for time-sensitive transactions (that said, Friday Afternoon Fraud is a concern due to the amount of transactions that happen, see below!).

Improved Client Experience including transparency and convenience. TPMA providers have online portals where clients can track their funds in real-time. Also, it will be interesting to see how TPMAs integrate with other legal tech solutions you might use already.

Right, that’s the upside of using TPMAs, but in reality, are we a long way from a mass changeover?

The Challenges of TPMAs for Law Firms

Despite the potential benefits I mentioned above, of course the whole conversation around TPMAs isn’t so clear cut and there is the continued debate around pitfalls and challenges of using TPMAs.

One of the most significant is cost.

TPMAs typically charge fees for their services, which can add up, particularly for smaller firms. These costs may include fees for each transaction, as well as ongoing account management fees.

Currently it looks like typical costs are between 0.25% and 1.5% of the funds held, depending on the transaction size, complexity, and the TPMA provider.

Another challenge is the potential for increased administrative work. While TPMAs handle many aspects of fund management, as a law firm, you are still responsible for ensuring that the TPMA meets the required standards. This might involve additional due diligence and compliance checks, which could offset some of the administrative savings.

On top of that, there is the issue of trust. Some of your clients may feel uncomfortable with their monies being managed by a third party rather than the law firm they have instructed.

Transparency and openness is key when it comes to consumer protection. The SRA is hot on that, as you will know!

Law firms will have to communicate clearly with their clients about the benefits of using a TPMA and provide assurances about the security and oversight in place.

TPMAs, Law Firms and SRA Accounts Rules

TPMAs will need to abide by SRA Accounts Rules 2019 to an extent although they are primarily regulated by the FCA.

Rule 11 of the SRA Accounts Rules specifically addresses TPMAs, requiring firms to ensure the provider is FCA-regulated, the client understands the arrangement, and that accurate records are maintained.

The key difference is that the TPMA provider takes on the primary responsibility for compliance with the detailed rules on holding and managing client money.

Have you had a compliance audit recently?

Whether you’d like to read Teal’s brochure or want to dive in and get a legal compliance audit done now, you can read all about how we support you, your reputation and your clients. CLICK HERE

Aggregation Risks

There may be an aggregation risk associated with TPMAs. If the legal sector were to move en-masse to TPMAs, this could create a concentration of client funds into a few large providers.

While this might reduce potential risks in individual law firms, it could also give a greater focus to financial criminals on their concentration of targeting TPMAs, as well as cybercriminals.

The potential for a large-scale breach of a TPMA could have catastrophic consequences.

Are insurers prepared to underwrite?

Is the Shift to TPMAs the Solution?

While TPMAs offer some clear advantages, they’re not a panacea for the risks associated with client accounts.

The decision to move to a TPMA should be made extremely carefully, weighing the benefits against the costs and potential risks.

For some law firms, particularly larger ones with significant resources, managing client accounts in-house might still be the best option. These larger law firms should have the capability to invest in advanced security measures in order to maintain rigorous compliance standards.

Teal Compliance offers expertise back-up with Data Protection Compliance support in this regard.

For smaller firms, however, TPMAs could offer a valuable solution, provided they can manage the associated costs and maintain client trust.

While the adoption of TPMAs offers potential benefits, particularly for smaller legal practices, it’s crucial to understand that it doesn’t absolve firms of their fundamental responsibilities.

Maintaining robust compliance and risk management protocols, prioritising client safety, safeguarding your firm’s reputation, and ensuring adequate insurance support remain paramount. Only after these foundational elements are firmly in place would I suggest you consider the budgetary and ROI implications of a TPMA transition.

Small law firm SORTED Programme support and all compliance services and training can be found HERE.

Switching to a TPMA means different things to different MLROs, COLPs and Managing Partners.

Who do you want to hold funds?
Would using a TPMA be less time consuming?
Is it a convenient way to offer full transparency to your clients?
Are you fee earners and legal cashiers on board with the requirements?

Insurers' thoughts

Marc Rowson and Brian Boehmer, partners at insurance brokerage Lockton, discussed the implications on the profession, explaining how law firms can confidently navigate this evolving legal landscape.

Further to the SRA consumer protection review, and the talk about client accounts, Brian said he believes that mandating the use of TPMAs would be “a reactionary response to a few bad apples”, while Marc questions whether using TPMAs could entirely prevent the improper use of client money: “I suspect if someone wants to game the system, they’d find a way.”

If you want to read more about what Marc and Brian think you can read their thoughts HERE.

Quotes on Client Accounts and SRA Plans

"Kneejerk and disruptive": The Joint V law societies (representing 15,000 legal professionals) criticized the SRA's plans, stating they show a lack of understanding of the legal profession and could add a whole new level of risk.

Law Gazette

"Time to act": The Legal Services Consumer Panel urged the SRA to take decisive steps towards scrapping client accounts and mandating TPMAs, arguing that the current framework doesn't offer adequate consumer protection.

Legal Futures

"Disproportionate and poorly justified": The Law Society expressed similar concerns, arguing that the proposals are disproportionate and not justified by the evidence. They also highlighted the potential for increased costs and delays for clients.

Law Society Website

"Resistance to change": The Consumer Panel also criticised the SRA's "conservatism" and resistance to change, suggesting that embracing TPMAs could modernise the handling of client funds.

Legal Futures

Financial transactions in the legal sector will always be a target for financial and economic criminals. If you directly hold client funds and make use of the interest, being forced to take reasonable steps to change to a TPMA facility will be jarring.

As the legal sector continues to evolve, the debate over the future of client accounts is likely to continue, with firms exploring various options to protect client funds and maintain compliance. I, for one, will be here to support any changes for Teal Compliance clients.

Catch up on Teal Compliance’s Legal Webinars

CLICK HERE

Need Help?

Did you know that Teal provides specialist training to both COLPs and MLROs? If you want to find out more, simply GET IN TOUCH HERE.

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The Future of Client Accounts: Should Law Firms Move to Third-Party Managed Accounts? Read More »

Handy Hints for those new to the role of a COLP and MLRO in a law firm

New to the role of COLP and MLRO?

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance, Risk Management / Mark

Firstly, if you’re new to the role of a compliance officer in your law firm, congratulations! If you’re the MLRO or the COLP, which are key positions in a law firm, getting to grips with our Handy Hints will help you stay on top of regulatory expectations and best practices.

If you haven’t downloaded already, our Guide to Source of Wealth & Funds for Law Firm Compliance is a must have.

Here are some of our key tips, plus practical guidance written for you, if you’re new to the role in a law firm in England or Wales.

1. Understand Your Core Responsibilities

As MLRO, your primary duties include:

Receiving and assessing Suspicious Activity Reports (SARs) from staff
Deciding whether to report suspicions to the National Crime Agency (NCA)
Keeping a clear and auditable record of decisions
Ensuring compliance with the Money Laundering Regulations 2017 (as amended)
Keeping up-to-date with Sanctions Regimes (especially in light of post-Brexit UK sanctions)

As COLP, your duties include:

Ensuring compliance with the SRA Code of Conduct and SRA Principles
Reporting serious compliance breaches to the SRA
Acting as the firm’s ‘whistleblower’ for misconduct

If you don’t already have a TOOLKIT then you can get hold of our TEAL TRACKER HERE which will get you off to a great start.

2. Keep on Top of Key Legislation & Guidance

Some key documents and sources you must be familiar with:

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended)
Proceeds of Crime Act 2002 (POCA) – especially on offences like failure to report and tipping off
SRA’s Anti-Money Laundering (AML) Guidance
Legal Sector Affinity Group (LSAG) AML Guidance – this is tailored for law firms
Sanctions and Financial Crime Guidance from the Office of Financial Sanctions Implementation (OFSI)

3. Risk Assessment & Client Due Diligence (CDD)

Ensure your firm-wide AML risk assessment is up-to-date
Make sure your firm is risk-based – i.e., clients, transactions, and matters are assessed for risk at the outset and on an ongoing basis
Implement proper Know Your Client (KYC) checks – ID verification, beneficial ownership checks, source of funds/wealth assessments
Make use of electronic verification tools, but don’t rely on them alone
High-risk clients (PEPs, high-net-worth individuals, complex structures) require enhanced due diligence (EDD)
Have a clear matter risk assessment process that all fee-earners follow

4. SARs & Internal Reporting

Train staff on how to spot red flags (e.g., unusual payments, urgent last minute changes in payments, complex company structures, reluctance to provide information)
Have a clear SAR reporting process – encourage staff to report suspicions internally first (to you as MLRO)

If you file a SAR to the NCA, remember:

You mustn’t tip off the client
You may need a Defence Against Money Laundering (DAML) before proceeding with a transaction
Keep a clear record of why you did/didn’t report

HOW WE CAN SOLVE YOUR COMPLIANCE HEADACHES

AML SORTED Programme (for medium to large sized law firms) CLICK HERE
AML SORTED Programme (for small law firms) CLICK HERE
Regulatory SORTED Programme (for medium to large sized law firms) CLICK HERE
Regulatory SORTED for Small Firms Programme (for small law firms) CLICK HERE

5. Training & Staff Engagement

Provide regular AML training for all fee-earners and staff
Training should be practical – use real-life examples of risks in legal work
Ensure all new joiners get AML training as part of induction
Encourage an open culture where staff feel comfortable raising concerns

6. Staying Compliant with the SRA

Be prepared for SRA AML Audits – they’ve increased spot checks on firms
Ensure your Policies, Controls, and Procedures (PCPs) are documented and kept up-to-date
If you’re ever unsure about an issue, document your reasoning before making a decision
Keep a register of AML breaches and near-misses
Attend their Compliance Conference each year

AML AUDITS WITH TEAL COMPLIANCE

7. Managing Stress & Your Own Risk

Keep an audit trail of key AML decisions – this protects you if questioned by the regulator
Use external resources and networks – join MLRO/COLP forums for peer support
If in doubt, seek external legal or compliance advice rather than making risky decisions alone
LawCare is the legal sector’s charity, supporting us in our roles in law firms. Their helplines are confidential, if you’re struggling with stress please contact them. They’re excellent and all the volunteers on the helplines have either worked in law, or still do, i.e. they “get it”.

READ THIS ARTICLE FOR FURTHER INSIGHTS

Need Help?

Did you know that Teal provides specialist training to both COLPs and MLROs? If you want to find out more, simply GET IN TOUCH HERE.

New to the role of COLP and MLRO? Read More »

How to master the tricky world of source of funds and wealth

How to Master the Tricky World of the Source of Funds and Wealth

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance, Risk Management / Mark

AML compliance can feel like walking a tightrope, right? Especially when it comes to a client’s source of funds and wealth. It’s a balancing act: you need to be flexible enough to handle all sorts of clients, but you also need a rock-solid strategy for managing risk.

At Teal Compliance we hear that it can be hard to have the conversation around source of funds and source of wealth with a well paying existing client, or those who have a high net worth.

If you haven’t downloaded already, our Guide to Source of Wealth & Funds for Law Firm Compliance is a must have.

Here are my thoughts on how law firms should nail the risk-based approach to source of funds and wealth verification, keeping you compliant without slowing things down.

Step 1: Build Your Risk-Assessment Toolkit

Think of your clients and transactions like a deck of cards – some are higher risk than others. Maybe you’ve got clients from countries with shaky AML rules, or maybe their business structure is a bit of a maze.

Whatever the reason, I suggest you begin by categorising them.

Once you’ve sorted them, decide what level of due diligence each category needs. Basic checks for some, the full nine yards for others. And don’t forget to keep your toolkit updated! Regulations change, the market shifts, and new risks pop up all the time.

If you don’t already have a TOOLKIT then you can get hold of our TEAL TRACKER HERE which will get you off to a great start.

Step 2: Set Clear Rules for High-Risk Transactions

Certain transactions, like residential conveyancing (a classic money laundering route as you will know) and corporate acquisitions, just scream “high risk.” For these, you need clear, standardised policies.

Within your AML Policy, you should spell out exactly what you consider is acceptable proof of source of funds and wealth. For example, if funds are coming from somewhere from a sale being handled by another law firm you may want your fee earners to get a completion statement from the law firm along with a bank statement from the client to show the funds being deposited. You should also build flexibility into your policy too because what happens when a transaction throws you a curveball? Your policy should tell you how to handle it.

Our SORTED Programmes can help you spot the gaps in your compliance and fix them.

Step 3: Train Your Team – Make Them Risk Detectives!

Handling High-Risk Transactions

Your team needs to be sharp when it comes to risk. I can’t emphasise enough how your training should be FIRMWIDE.

From your MLROs and COLPS to your receptionists, each one should be able to spot risk at the start a new client onboarding process and a new transaction, whilst keeping an eye on it during ongoing monitoring, and double-check everything whilst having the confidence to ask for help or back up if they need it. No fear culture is seriously important.

And here’s my pro tip: document everything. Why did they assess the risk the way they did? Write it down. It not only protects your firm but also shows you’re serious about compliance. Your PII firm will appreciate your documented communications and it will help should you ever get a visit from your regulator.

HOW WE CAN SOLVE YOUR COMPLIANCE HEADACHES

AML SORTED Programme (for medium to large sized law firms) CLICK HERE
AML SORTED Programme (for small law firms) CLICK HERE
Regulatory SORTED Programme (for medium to large sized law firms) CLICK HERE
Regulatory SORTED for Small Firms Programme (for small law firms) CLICK HERE

The UK Bank Account Myth: Don't Get Caught Out!

Let’s bust a myth that’s been doing the rounds for way too long: just because money’s in a UK bank account doesn’t mean it’s clean. Big banks have been in hot water for money laundering, so don’t assume anything.

Myth #1: UK Bank Account = Clean Money

Nope. Even the most reputable banks can have dirty money flowing through them. Just because it’s in a UK account doesn’t automatically make it legit.

Action: Always do your own due diligence on the source of funds, no matter where they’re held. Trace the money back to its origin and make sure the client’s story matches the documents.

Myth #2: The Bank’s Already Checked It

Maybe the bank did file a Suspicious Activity Report (SAR), but they might still have to release the funds. It doesn’t mean you’re off the hook.

Action: Treat every transaction like it’s brand new. Even if a bank has cleared the funds, your firm needs to verify the source and make sure everything is AML-compliant.

Bottom Line: Don’t fall for the UK bank account myth! It’s a trap. By understanding the limitations of relying on bank checks and doing your own thorough due diligence, you can keep your firm safe.

In conclusion....

If you find you are procrastinating from having that awkward conversation with a client (or indeed that well paying existing or high net worth client) about having to do some comprehensive checks as to where their funds are coming from, you can simply blame it on legislation! Come what may, you, as a solicitor, compliance officer, CILEx lawyer, paralegal, Senior Partner…have to adhere to the AML regulations by performing comprehensive checks to authenticate identities, proof of address, and source of funds and wealth.

Would you rather have a short, possibly tricky conversation with a client, or potentially face a serious consequence (no one wants a huge fine or go to prison).

As an example, if you are a conveyancer, you have to follow the rules to make sure the money used to buy a property isn’t from the proceeds of crime. It’s not just about ticking boxes for your law firm, you have to be smart and proactive in the fight against financial crime.

Let’s be honest, nobody wants their firm involved in money laundering. That’s where risk assessments come in. They’re like a health check for your business, helping you identify potential vulnerabilities so you can take action. By understanding the risks, you can put smart controls in place and keep things running smoothly (and legally!).

It’s never too late to get compliant, and it’s definitely never too early to begin the process.

You can email me directly, or any of my team to find out how Teal can help support you, your reputation and your clients.

Please remember that Teal Compliance is your go-to AML and Risk Management Partner and we have a variety of packages available to support you, your colleagues and of course, your clients!

To find out more, click HERE and come what may, we look forward to supporting you soon.

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How to Master the Tricky World of the Source of Funds and Wealth Read More »

Hidden costs of inadequate risk management in a uk law firm by AMY BELL

The Hidden Costs of Inadequate Risk Management in Law Firms

Anti-Money Laundering, Legal Compliance, Regulatory Compliance, Risk Management / Mark

What keeps a lawyer up at night? The answer will depend on where they sit in their role in a law firm. As a solicitor and AML compliance specialist, I get it.

Senior partners might focus on cashflow and reputation. Newly qualifieds might be struggling with imposter syndrome. Practice managers may be spinning their plates with software integration and IT headaches, whereas compliance officers will have their own plethora of worries.

From my experience, it depends on whether you’re specifically a COFA, COLP, or MLRO (of course many small high street firms have one person covering all the compliance and risk management pathways in a firm whilst fee earning).

Does your firm focus on conveyancing and private client work? You’ve got a whole host of challenges just by default. Are you involved in litigation and dispute resolution? Then you’ve got the “sham litigation” scenarios abounding. Onboarding overseas’ clients from possible “risk” territories? You’ve got some serious CDD work there. Have a senior partner that also holds the role of the compliance officer and looks after client accounts? Let’s not even go there…

It’s great that I’m seeing so many more firms come to me and my team asking for support in compliance training, more onboarding with our Teal Tracker software and generally being more proactive with their firm’s visibility in understanding and staying compliant, but there are so many that are still focused on the pounding billable hour and 100% client focused, rather than 85% on client work and 15% training and compliance.

The concept of “sustainable effort” is the idea of working at 85% capacity, as we can maintain the perfect equilibrium of high performance and well-being, i.e. if you are working at 100% then this leads to burnout, which of course leads to risk. McKinsey’s Burnout Tool is handy HERE.

It’s too easy to use AML templates and not tailor them to your firm, your clientele, and of course your employees and colleagues. I designed our AML software, TEAL TRACKER, with you in mind….if you’re reading this, then why not have a look at our software HERE.

We can all rely on those basic templates, ask new employees to read the policy online, run a tick box exercise, but what happens when it’s too late? When risk has crashed through your door.

Ultimately, overseeing risk management in your law firm is about finding a balance that works for you and your employees, whilst seriously considering factors like workload, regulator fines, insider (and outsider) threats, and workplace culture.

As the CEO of Teal Compliance and Chair of the Law Society’s Money Laundering Task Force, I can only continue to support my peers in the legal profession and impart my insights and expertise.

Sometimes if you look at scenarios and work backwards it helps to identify the stages of how to feel secure in your firm’s compliance processes and controls. Know the saying “I never thought it would happen to me?”. My advice is to assume it will be you and deter the baddies whilst appeasing the regulators.

Some of the “hidden costs”, i.e. consequences of inadequate risk management include:

Regulatory penalties: Firms that fail to comply with AML regulations can face significant fines and penalties. All you need to do is look at the SRA’s website or a search in Legal Futures to hear the latest. The law firm Ashfords LLP had a largely unblemished regulatory and disciplinary history and so it is regretful that they were then fined more than £100,000 for failing to comply with AML regulations
Reputational damage: A firm’s “brand” reputation can be devastatingly damaged if it has been involved in money laundering or other illegal activities, whether or not the crime was due to naivety or planned. We are in a digital age where social media and Google reviews can be detrimental, leading to a loss of clients, difficulty attracting new business, and a decline in overall firm value – you want succession and have worked so hard but then you’re fined, possibly struck off and another firm sweeps in at a price that’s hard to swallow.
Client money losses: The responsibility for client account monies falls on the law firm and its managers, including the Compliance Officer for Finance and Administration (COFA) and the Compliance Officer for Legal Practice (COLP). If client monies are stolen or laundered, and the SRA finds out, the firm and its responsible individuals can face serious consequences, including disciplinary action and potential referral to the Solicitors Disciplinary Tribunal (SDT). If the loss of client money is due to dishonesty or negligence by your firm, then you and your firm would be responsible for reimbursing the client. Consequences are hidden from this obvious painful financial strain, but brand reputation, personal life stresses and recruitment are key players.
Cybersecurity threats: Inadequate risk management can leave firms really open and vulnerable to dreaded cyber-attacks and data breaches. These can cause significant financial losses, including the cost of remediation, legal fees, and potential fines.
Internal fraud: This is a painful one because it forces us to look at insider threats. Common types of internal fraud include administering the accounts of individual clients where a single person has sole authority, and unofficial “borrowing” from client account or billing fraud. Billing fraud is where fee earners might inflate time spent and/or fees charged to meet or exceed targets. In the latter scenario it goes back to the pressures put on lawyers and therefore workplace culture might need more looking into.
Increased scrutiny: Time in a law firm is hard to come by, especially if there aren’t enough fee earners to cover the amount of work. It’s back to the balance of 85% output. If your firm has a history of compliance issues that aren’t rectified or evidenced to be doing more to manage risk, that firm faces increased scrutiny from the regulators. That is time-consuming in itself, as well costly. Your firm might be incurring higher costs to bring your practice into a healthy compliance model after failing to manage all risks adequately.
Difficulty obtaining insurance: If you have poor compliance records then it stands to reason that you might find it more difficult to obtain professional indemnity insurance or cyber insurance, or may face higher premiums. Insurers prefer continued transparency and openness. They better serve you when you come to them quickly with a possible breach. If they see you are in communication with them with anything seemingly risky, they’ll be able to help you navigate the process better.
Recruitment and Talent: Ask anyone in law and they’ll tell you that recruiting is a headache but then keeping great people in your firm is a migraine. A poor risk management culture leads to employee dissatisfaction, burnout, and ultimately, loss of your talented peers and colleagues. You don’t want to see your colleagues heading off to a competitor who offers continued training that’s engaging, and focuses on the 85% model at work do you?
Operational Inefficiencies: Practice managers have many plates to spin, therefore if part of their role is to ensure the operational running of your firm lacks effective risk management the plates begin to drop. Billing errors, CMS glitches, delayed disbursements, increased administrative workloads, and no controls to track and measure for compliance policies and processes.
Clients: We are all consumers of law in some way or another, yes, even us solicitors, i.e. we are all human. We observe, we listen, we trust, we lose trust…. clients may lose trust in a firm that fails to manage risks effectively. Remember social media, and insider gossip? It happens, people talk. If there’s a local newspaper with a budding journalist reading to crawl the disciplinary pages or court documents for their “business section”, and you’re in a firm of high street residential conveyancers, before you know it, the reputation is damaged, leading to loss of business and an impact on your firm’s market value. Whether you might be thinking of succession or investment, poor risk management has many hidden costs that include your future.

It’s never too late to invest in your firm’s compliance and manage risk effectively.

Amy

The Hidden Costs of Inadequate Risk Management in Law Firms Read More »

Guide to Source of Wealth & Funds for Law Firm Compliance

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance, Risk Management / Mark

As many of you will know I am the Chair of the Law Society’s Economic Crime Taskforce which allows me to share with Team Teal and our clients inside intelligence regarding updates on source of funds checks. Your source of funds checks are crucial for verifying the origins of money used in your regulated matters. These checks ensure that funds come from legitimate sources which help to combat money laundering and other financial crimes. Basically, it’s the way to stop the baddies.

The guide I’ve put together below explains the purpose of source of funds checks, it outlines their key components, and discusses best practices for keeping on top of your compliance.

Key Takeaways

Source of Funds (SoF) checks are vital for understanding and verifying the legitimacy of funds in transactions, helping to prevent money laundering and ensure compliance.
Key components of effective SoF checks include Client Due Diligence (CDD), Enhanced Due Diligence (EDD), and ongoing monitoring to identify high-risk transactions.
Thorough documentation is crucial to evidence compliance, and firms must be prepared to report suspicious activities while avoiding ‘tipping off’ clients.

Understanding Source of Funds (SoF)

In the complex realm of law firm financial activities, Source of Funds (SoF) checks play an instrumental role in maintaining transparency and integrity for the regulators, your clients and your reputation.

These checks aim to mitigate the risk of financial crime by ensuring that all the funds used in transactions are legitimate and not derived from illicit activities.

But what exactly does SoF mean, and why is it so important in today’s financial landscape? SoF checks focus on verifying where the money for a specific transaction originates. This prevents criminals from using illegal funds and protects the financial system’s integrity.

Understanding the definition and importance of SoF checks reveals their critical role.

Definition and Importance

At its core, Source of Funds refers to the process of checking where the money for a particular transaction comes from. This involves ensuring that the funds are not from illegal activities and verifying their legitimacy. For instance, if a client is purchasing a property, the SoF check would involve verifying that the money used is not from criminal activities.

The importance of SoF checks cannot be overstated. They are essential in preventing money laundering and terrorist financing, which means your firm is proving it is maintaining the integrity of the financial system. Verifying the Source of Funds minimises the chance of criminal property being used in transactions, safeguarding a law firm’s reputation and the broader financial market.

Legal Framework

The legal framework surrounding Source of Funds checks is robust, designed to combat financial crime effectively. The Proceeds of Crime Act 2002 (POCA) is a key piece of legislation that makes concealing criminal property an offence along with being involved in an arrangement that facilitates criminal property and the acquisition, use and possession of criminal property. The Money Laundering Regulations (MLR) then set out the steps that are required to avoid becoming involved with the proceeds of crime. The MLR mandates that businesses must conduct SoF checks to ensure that funds used in transactions are legally obtained.

In addition, payments from certain high-risk countries might not be accepted due to the elevated money laundering risks they present. This highlights the importance of understanding the legal requirements and implementing thorough SoF checks to comply with anti-money laundering legislation and avoid severe penalties.

I can’t emphasise enough the importance of training for your compliance officers and support staff. TRAINING INFORMATION

Key Components of Source of Funds Checks

Conducting effective Source of Funds checks involves several key components, each playing a super vital role in ensuring compliance and mitigating risks. These components include Client Due Diligence (CDD), Enhanced Due Diligence (EDD), and ongoing monitoring. Each of these elements works together to create a comprehensive approach to SoF checks.

Documentation is a vital part of this process, as it provides the necessary evidence to verify the source of funds. Depending on the risk level of the transaction, the type of documentation required can vary significantly. Keeping on top of updates and sanctions is so important because as you know, there’s always loads going on in AML!

Subscribe to Teal Compliance Newsletter HERE.

Exploring these components in detail reveals their significance.

Client Due Diligence (CDD)

Client Due Diligence (CDD) is the first line of defence in identifying and verifying clients to eliminate anonymity and identify potential risks of money laundering. This process involves obtaining official documents such as passports and utility bills to confirm the client’s identity. Regulation 28 mandates that firms must also scrutinise transactions throughout the client relationship to ensure they align with the client’s risk profile.

Implementing robust customer due diligence procedures is particularly important for high-risk transactions. It helps firms understand their clients’ backgrounds and transaction patterns, thereby identifying any anomalies that might indicate money laundering, i.e., ongoing monitoring.

Enhanced Due Diligence (EDD)

Enhanced Due Diligence (EDD) comes into play when dealing with clients who pose a higher risk, such as politically exposed persons (PEPs) or individuals linked to high-risk jurisdictions. EDD requires additional scrutiny and verification steps to ensure the legitimacy of the client’s source of wealth and funds.

When dealing with PEPs, extra vigilance is necessary to uncover potential connections to corruption or abuse of power. This includes verifying their source of wealth and funds to mitigate potential money laundering risks.

By implementing EDD, firms can better manage and mitigate the risks associated with high-risk clients.

Ongoing Monitoring

Ongoing monitoring is a continuous process that helps firms detect and address any suspicious activities promptly. Continuous transaction monitoring allows firms to identify and prevent potential money laundering activities. This ongoing vigilance is crucial for effective risk management and compliance with anti-money laundering regulations.

Transactions involving high-risk jurisdictions require heightened scrutiny and additional verification steps due to the increased money laundering risks they present. Firms must conduct thorough investigations and maintain a thorough understanding of their clients’ financial histories to ensure compliance and mitigate risks.

Documentation and Evidence Requirements

Thorough documentation is the backbone of effective Source of Funds checks. Acceptable documentation for verifying SoF can include bank statements, recent tax returns, and proof of sale for acquired assets. The type of documents required can vary based on the assessed risk level of the transaction.

Documenting all interactions and materials received during the SoF verification process is crucial for compliance. This documentation helps firms verify legitimate financial activities and provides a defence against potential regulatory scrutiny.

Bank Statements and Pay Slips

Bank statements and pay slips are fundamental documents for verifying the source of funds. Recent bank statements that reveal the source of funds are significant for verifying financial activities. Typically, a minimum of six months of bank account statements might be requested during the verification process, although more extended periods may be required for thorough scrutiny and checks.

Pay slips and employment contracts are also essential for verifying employment income. These documents provide a clear picture of a client’s financial stability and help ensure compliance with anti-money laundering regulations.

Letters Confirming Employment Income

Letters confirming employment income are another major piece of evidence for SoF checks. These letters serve as official documentation of a client’s regular income, providing important information for verifying financial stability. Documents needed for employment income verification can include official pay slips and contracts from the employer.

Ensuring that these documents are accurate and up-to-date is vital for compliance. They help verify that the funds used in transactions are legitimate and not derived from illegal activities.

Loans from Regulated Financial Institutions

Loans from regulated financial institutions provide a reliable source of funds, helping to establish financial security in transactions. Different types of loans, such as personal loans, mortgages, and auto loans, can serve as acceptable proof of funds, provided they are well-documented. It’s all about the evidence!

Essential documentation for validating loans as a source of funds includes loan agreements, statements showing the release of funds, and repayment schedules. Thorough verification of these loans is needed to comply with the AML regulations as well as to prevent the financial criminals.

Handling High-Risk Transactions

Handling high-risk transactions requires a meticulous approach to ensure that the funds used are legitimate. Legal regulations (Money Laundering) mandate that law firms conduct enhanced monitoring and due diligence when dealing with clients identified as high-risk. This involves obtaining additional details to explain the nature of significant deposits and scrutinizing large or regular deposits in bank statements.

It’s worth having a look at Teal’s partnership programmes with have with law firms:

AML SORTED Programme (for medium to large sized law firms) CLICK HERE

AML SORTED Programme (for small law firms) CLICK HERE

Regulatory SORTED Programme (for medium to large sized law firms) CLICK HERE

Regulatory SORTED for Small Firms Programme (for small law firms) CLICK HERE

More information may be requested if there are large cash payments or funding from third parties without a clear purpose, as these raise significant concerns and warrant closer investigation.

Identifying Red Flags

Identifying red flags is crucial for detecting potential money laundering activities. Clients who are secretive about their identity or the purpose of the transaction may display a red flag for suspicion. Unusual payments from third parties or large cash transactions are also indicators that warrant further investigation.

Transactions that exhibit unusual features, such as excessive urgency or last-minute changes, can be grounds for further inquiry. Early identification of these red flags allows firms to take appropriate measures to ensure compliance and mitigate risks.

Enhanced Scrutiny for High-Risk Jurisdictions

Transactions involving high-risk jurisdictions and high-risk third countries require enhanced scrutiny to mitigate risks. Risk assessments for these transactions should analyse various factors, including country risk and customer risk profiles. Conducting thorough due diligence is crucial to ensure compliance with anti-money laundering regulations.

The level of due diligence required for counter-parties in high-risk transactions should be determined based on the risk assessment conducted. This helps firms manage and mitigate the risks associated with high-risk jurisdictions.

Politically Exposed Persons (PEPs)

Politically Exposed Persons (PEPs) are individuals who hold prominent public positions and are subject to additional regulatory scrutiny due to their potential for corruption or misuse of entrusted power. When dealing with a politically exposed person, it is crucial to conduct enhanced due diligence to identify and mitigate associated risks.

Transactions involving PEPs require enhanced scrutiny to ensure compliance with anti-money laundering regulations and identify any irregularities. This includes looking for information about corruption or misuse of government funds when conducting due diligence on PEPs.

Don’t forget, the definition of a PEP also extends to immediate family members and known close associates.

Practical Tips for Effective SoF Checks

Conducting thorough Source of Funds checks requires a clear understanding of both the client’s financial history and the transaction in question. Businesses must implement internal controls and monitoring systems tailored to their size and complexity to meet AML regulations.

Here are some practical tips to help you navigate this process effectively.

Tailoring Enquiries Based on Risk Profiles

Employing a risk-based approach is essential for managing high-risk clients and/or matters effectively. It is important to establish if the funds are consistent with the client’s risk profile and the nature of the transaction.

Client and matter risk assessments are critical for apply a risk based approach to Source of Funds enquiries to match the specific risks associated with a client or matter. By tailoring enquiries based on risk profiles, firms can improve compliance and implement efficient risk management strategies.

Utilising Technology Providers

Choosing an appropriate technology provider is crucial for streamlining due diligence processes effectively. Factors for choosing a digital client due diligence provider include assurance levels, system understanding, and training requirements.

Staff must be trained on entering information correctly and interpreting results. When deciding to use a digital client due diligence provider, consider assurance levels, system understanding, staff training, and decision-making responsibility.

Documentation and Record-Keeping

Effective documentation and record-keeping are essential for compliance with anti-money laundering regulations. Documenting all interactions and materials received during the verification of Source of Funds is crucial for compliance. This includes questions asked, answers given, and supporting material received during the SoF verification process.

Detailed records of Source of Funds checks help firms defend against potential regulatory scrutiny and demonstrate compliance efforts. Thorough documentation of inquiries and responses is crucial for compliance and audit purposes.

It is important to ensure that any who picks up the file would be able to understand the person who is dealing with the matters understanding of where the Source of Funds are coming from.

Addressing Concerns and Reporting Suspicious Activity

Addressing concerns and reporting suspicious activity are critical components of a robust anti-money laundering framework. Large amounts of private funding that do not align with the client profile can raise concerns. This is particularly true if there is no legitimate explanation, as it may indicate potential money laundering during Source of Funds checks. If a client cannot provide paperwork for their source of funds, continue assessing the situation; lack of documentation does not automatically imply money laundering but further enquiries may be required.

If there is a suspicion of criminal property, it is critical to consider making a Suspicious Activity Report (SAR) to the National Crime Agency and determine if consent is needed to proceed. For specific compliance questions or uncertainties regarding suspicious activities, contact the Professional Ethics team or seek independent legal advice. Contact the Professional Ethics team or seek independent legal advice.

When to Submit a Suspicious Activity Report (SAR)

Suspicious Activity Reports (SARs) are submitted to the National Crime Agency and other relevant authorities when a regulated entity suspects that a client is involved in prohibited activities. Submit SARs when there is reasonable suspicion of money laundering or terrorist financing based on the client’s transaction patterns or other behaviours.

Failing to report suspicious activities can result in legal implications and potential sanctions against the reporting entity. SARs are governed by a different regime than sanctions reporting.

Avoiding ‘Tipping Off’

The term ‘tipping off’ refers to the act of disclosing to a client that they are under investigation after a report has been filed, either internally or externally, which is prohibited by law. Avoiding tipping off is crucial to protect both the firm and the client from potential repercussions and can result in prejudicing an investigation.

Communicate with clients in a manner that does not arouse suspicion. General language about compliance processes, without directly referencing any enquiries, helps avoid ‘tipping off’.

Internal policies should guide staff on handling client communication related to sensitive compliance issues while preventing breaches of confidentiality.

Compliance with Anti Money Laundering Legislation

Compliance with anti-money laundering legislation is a cornerstone of financial integrity. Source of funds obligations are part of a broader framework to ensure financial integrity and compliance with anti-money laundering regulations. Thorough Source of Funds checks ensure compliance with anti-money laundering regulations and help avoid financial penalties.

The Solicitors Regulation Authority (SRA) uses a risk-based approach for AML supervision. Firms should refer to the Legal Sector Affinity Group guidance for information on how to comply with the money laundering regulations.

Role of the Money Laundering Compliance Officer (MLCO)

MLCO and MLRO Compliance Officer TRAINING

Risk assessments should consider minimizing exposure to sanctions breaches. When suspecting proceeds of crime or money laundering, it is necessary to file a Suspicious Activity Report (SAR). A SAR is required to be submitted when there is a belief that funds are linked to crime or money laundering.

Independent Audits and Assessments

Independent audits are required under Regulation 21 of the MLR depending on the firm’s size and nature. Firms can record their reasoning if they believe an independent audit is not necessary however, the SRA have previously said that the majority of firms they supervise will require one.

Independent audits help firms ensure their AML policies and procedures are effective and compliant with regulations. These audits provide an objective assessment of the firm’s AML compliance framework and identify areas for improvement.

Summary

In summary, Source of Funds checks are an essential component of the fight against the baddies who operate in financial crime. By understanding and implementing best practices in SoF checks, businesses (and make no mistake, law firms are businesses!) can ensure compliance with anti-money laundering regulations, POCA and protect themselves from potential risks.

Remember, thorough documentation, ongoing monitoring, and a risk-based approach are key to effective SoF checks. Stay vigilant, stay compliant, and contribute to a transparent and secure financial system.

As a final sign off, data for root cause analysis in AML compliance is why I built TEAL TRACKER software.

The Tracker’s features include:

Incident management – Report incidents and suspicious circumstances
Training needs – Record training needs, training record and training plan
File reviews – Records of all file reviews and steps forward
Gifts and hospitality register – Register of any gifts of hospitality received
Own conflicts register – Register of affiliations to carry out conflict checks against
Undertakings register – Details of the firms’ undertakings
High-risk client register – Register of any high-risk clients

Book a DEMO with our brilliant team HERE.

Please remember that Teal Compliance is your go-to AML and Risk Management Partner and we have a variety of packages available to support you, your colleagues and of course, your clients!

To find out more, click HERE and come what may, we look forward to supporting you soon.

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Guide to Source of Wealth & Funds for Law Firm Compliance Read More »

SRA Consultation Response Tips on client accounts from Teal Compliance and Amy Bell

SRA Consultation Response Tips for Client Account Changes

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance, Risk Management / Mark

Further to the SRA’s January Consultation latest round, Amy Bell at Teal Compliance would like to impart her insights best practice for responses.

It’s a hot topic for 2025 and beyond for law firms, their legal cashiers and compliance officers.

I ran an online debrief of the latest round of the SRA’s consultation on Wednesday 8 January 2025 and this article is an outline of the insights.

For those that don’t know me, I am the second time Chair of the Economic Crime Task Force (ECTF) and one of the roles of chairing this committee at the Law Society is that I need to assist with consultation responses. The SRA’s consultation is one that could have a significant impact on you and your practice. I wanted to share my insights that have been flagged within responses to the consultation and share my hints and tips for getting further consultation responses to the SRA effectively. One skillset I have learnt through my role in the ECTF is how to lobby persuasive arguments and how to make sure our arguments aren’t dismissed.

Content Guide for Top Tips

Show the evidence
Get Organised
Don’t give false impressions
It’s a fine line

How to construct a consultation response

How do we construct a consultation response which hits the right notation and points that are serious? Our questions are always valid, but sometimes that SRA assumes we are simply venting or ranting. I’m going to give you my tips on how best to get your point across.

Pre-Christmas I had a few people ask me if they believed the consultation was happening because the SRA didn’t manage Axiom Ince properly. If I’m honest, I don’t think it is specifically because of this as the SRA has had accounts rules on their agenda for quite a long time now. The Axiom case has definitely brought the conversation around law firms holding client monies on account into the forefront however.

Top Tip #1 – show me the evidence

When we look at the compliance officer and their roles and responsibilities, within the consultation, suggests that the SRA are going to do thematic work before they make any decisions.

One of my concerns (about any proposal to change anything) is, where’s the evidence?

If you want my top tips on guiding your response, then asking where the evidence is would be at the top of the list.

Where is the evidence for the point the SRA is making? Ask them to prove it to you.

As legal professionals, we do have accidents and human error mistakes. We also know that in regard to Axiom, they have been charged by the Serious Fraud Office in relation to that, and in the fullness of time, we will find out what happened.

Yes, something went terribly wrong there with client money, and the consequences are going to cost all of us in the profession through compensation it already has done through the contributions. However, it is an isolated issue.

New models of law firms with no client accounts

75% of law firms currently have a client account.

The more research I do however, shows that more and more firms are moving away from a client account. Our American firm colleagues that have launched practices in London tend not to have a client account at all.

What we know is that 1000 firms will have more than a million pounds in the client account at any one time.

There are approximately 3500 to 4000 firms that are servicing areas of high-volume transactional conveyancing work on a regular basis. If your firm offers conveyancing, you know client account changes are going to affect you.

Maybe you are in a regional firm, or a local high street practice that does conveyancing. When it comes to law firm risk by holding monies on client account, there are substantial sums of money being transacted, and the regulator is hot on your heels.

If you hold more than £100m, or as some do, more than £100b, on client account, your risk is high.

Of course, there are thousands of firms that hold less than £100,000 on client account, and keep it that way as a constant precaution. To those firms, it might not be such an issue for this consultation.

The bottom line and the question we need to ask is did we get the amendments to the Account Rules right? Maybe we didn’t.

One of conversational themes around the Accounts Rules is perhaps to take away some of the flexibility that the SRA sought to introduce back in 2019.

When we move to outcome-focus regulation and look deeper at specifics, law firm compliance professionals will embrace and go, yeah amazing! Specifics is where risk management can get behind and tell their senior partners and the overall business plan about.

That being said, by doing this you are also hamstrung by the specifics, as you must meet them.

Top Tip #2 - get organised

The consultation runs until 21 February 2025, so you have a few weeks to respond.

There are 19 questions just in relation to client money. From there it then depends which parts you want to answer. It’s a lot for one person to do, which is why my consultation webinar came in handy for tips. I’d also suggest that if you’re part of a decent sized firm, drag some other colleagues in to help you – divvy up the questions and collaborate effectively.

WATCH IT AGAIN HERE.

The question “What impacts might arise from notifying us of changes in advance? Please provide specific examples of where firms provide information about changes to other third parties, e.g. insurers.?” will take a fair bit of time to gather the evidence, so sharing the need for documented responses will need time and colleagues!

One thing that we do at the Law Society is make sure it’s all signed off by the Law Society “sign off” procedures. You may want to have something similar.

If this is your first consultation, you may want to have the managing partner, and/or the management team, sign off on the response as a whole, especially if you’re putting your name to it. Getting organised in this will help the flow of tracking the responses. Do make time to organise that because preparation is key and often takes the longest.

The drafting
The agreeing
The final sign-off

If you haven’t already started, I highly urge you to start the process now if you are going to do it and want the SRA to seriously take your response into regard.

Now you have the process in place, you can split the questions down into different topics.

Have a “KICKOFF” meeting with those that you have (cross fingers) brought on board to help you. Next, divvy up the work and questions, give them the 1 – 3 process (drafting > agreeing > final sign off) process and deadline dates.

Give your colleagues a couple of weeks to come back with their first draft, then collate that draft into one document. Next, circulate it and see if you all agree on the answers. Here, you are looking at an effective workflow based on consistency. Yes, that takes time too so factor that in – maybe give yourself a week just for that.

What if you have no opinion?

You don’t have to answer all of the questions. If you have no opinion, you can do two things.

You can either do a consultation response that says, these are the questions I’m answering,
Or you could do a consultation response that says wherever there are questions you don’t want to answer we will add “We have no comment on this” or “We have no answer in relation to this question”.

There is nothing in the consultation that says you have got to answer them all.

Residual Balance Questions

The regulator knows and has mentioned in the consultation that they’ve heard anecdotally that residual balances are a problem.

The SRA knows residual balances on client account are problematic because it is flagged when they get requests from law firms to pay funds sitting in client accounts to charity. The SRA can see how long residual balances of more than £500 have been sitting in your firm’s client account, and also what you’ve been doing with it.

The regulator is aware that for us in the law firms up and down the country that trying to get hold of clients and chasing them for details to give them the balances sitting on their client accounts is an issue. Essentially, even if we are evidenced to be chasing for details, the SRA knows we are holding onto those funds longer than we need to.

The consultation seems to be suggesting this is all about interest and earning interest.

The SRA is concerned that if we’re not prompt with our residual balances, and we’re not motivated to crack on with detecting where the funds rightfully need to go, or that we’re not encouraged to do it, then we’re just not doing it and there’s a fine line with earning interest at the same time.

In April 2024, the SRA published its news update on interest rates and client accounts. It went on to mention The Law Society’s recent Financial Benchmarking Survey in which many firms said that they had been propped up by “abnormally high interest rates”.

2023 saw a steep increase in interest received on money held in client accounts. The Law Society’s findings showed a total net interest income rose over 1,000% to £27.5 million, compared to £2.6 million in 2022.

The question of law firms benefitting from financial gain on client accounts keeps surfacing and if you, like me, attended the SRA Compliance Conference in November 2024, the topic was searingly hot.

Rule 7 of the SRA Accounts Rules says:

You account to interest on any client money held by you on their behalf.
You may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as to the payment of interest, but you must provide sufficient information to enable them to give informed consent.

I think therefore, it’s definitely worth thinking about how residual balance changes will impact you and your firm if the SRA does go forward with some of these proposals.

On one hand, wouldn’t it be absolutely lovely to be able to tell everyone including the legal cashiers, we’ve got 12 weeks to get our files closed down and with zero balances?

But if you can’t do that within 12 weeks and might possibly breach the requirements, where do you stand, and more importantly what does that look like for you? Here are some thoughts:

Will this require additional resources?
Will it necessitate changes to your file opening processes?
How will you monitor this to meet the 12-week deadline?
What actions will you take in your firm with those who fail to comply or cannot comply?

Key issues to address:

Mechanisms for tracing clients.
Keeping client data up to date.
Possible need to sign up for a tracing agent service to locate clients.
Proactively checking clients’ addresses periodically throughout a matter.
Ensuring address verification just before completing a transaction to confirm where funds are being sent.
DWP delays in forwarding letters.
Concerns about increased costs and the justification for these additional expenses.
Seeking evidence of the problem’s impact on clients and operations.
Gathering insights from the accounts team to identify any trends or patterns.

Furthermore, when it comes to ensuring client information is up to date I’d ask:

What actions are taken to keep client information current?
Are all systems connected to ensure consistent information across platforms?
What are the potential discrepancies between systems (e.g., case management vs. accounts management).

What are your processes for tracking down and tracing clients? My suggestions:

Having a process in place for tracing clients.
Taking steps that are reasonable and proportionate to the amount of money being returned (see further down in blog).
Considering what the tracing process would entail.
Ensuring lawyers know what to do in this process.

Before I ask some key questions, as a reminder, I do know that the term “promptly” in accounts rules pops up:

Evaluating the need to replace “promptly” with more prescriptive requirements for returning funds to clients and third parties.
Determining if more detailed guidelines are necessary for timely and accurate return of funds.

“Promptly” being defined as “without delay”.

My key questions to you right now would be:

How do you ensure systems are updated uniformly?
What process do you have for tracing clients?
What steps should be taken based on the amount of money involved?
How can you make sure lawyers and business support colleagues are aware of and follow the process?
Should the term “promptly” be replaced with more specific and prescriptive requirements in the Accounts Rules?

Here are some examples of why client accounts have residual balances:

Unknown HMRC fees for probate matters.
Aborted residential property purchases.
Balance as a result of an M&A with your firm – original fee earner no longer involved
You have sent a cheque to client and they have not cashed it
Your client has changed their contact details without telling you
Your client is deceased, and the executors are unknown

Residual Balance Review Questions

My team and I here at Teal Compliance recommend that for every outstanding residual balance you hold to evidence:

That you have made reasonable attempts to establish the rightful owner of the money
That you have recorded the steps taken to return the money to the rightful owner and retained those records
That you retain information and all relevant documentation, including receipts from any charity that you have paid the balance to
That you have entered the balance onto a central residual balance register

Even when it comes to residual balances of £500 or less, it’s important that you take the appropriate action in paying the money to charity (where the SRA’s conditions for doing so have been met of course).

AML and Compliance Training is so important – do let Team Teal help.

TRAINING INFORMATION

Outcome Focused Regulation

I’d like to focus a little on outcome-focused regulation versus prescriptive standards.

The idea behind reducing prescriptiveness when Jatinder Loyal rewrote the Accounts Rules in 2019 was to allow firms to decide what is reasonable and appropriate in given circumstances. The theory was, by taking away some of the prescription, firms could differentiate themselves.

However, we’ve seen instances where people and firms did not act as expected, leading to questions on whether we should revert to more prescriptive measures.

Differences of outcome focused regulation and prescriptive standards

Outcome-Focused Regulation: Initially aimed at letting firms determine what’s appropriate based on their unique circumstances.
Prescriptive Standards: Were removed to allow service differentiation, as part of the Clement reforms. This enabled firms to make decisions tailored to their businesses, rather than following a one-size-fits-all approach.

Reflecting on these changes, it’s evident that many firms have anchored their processes over time, despite regulatory shifts. This raises the question as I’ve mentioned above, should the term “promptly” in the Accounts Rules be replaced with more specific requirements to ensure compliance and consistency?

You may already have a process in place that stipulates tasks should be completed within 12 weeks, including tracing clients.

If you’ve defined and adhered to a specific time frame rather than interpreting “promptly” loosely, you can better gauge whether the 12-week period is sufficient for you. As always, I’d say it’s crucial to communicate expectations clearly within the business firmwide, replacing vague terms like “promptly” with exact numbers to ensure everyone understands their responsibilities.

We all know that working in a law firm, and when residual balances are involved, those funds can easily drop to the bottom of the to-do list and as attention shifts to active matters.

I’d argue that they should be thought of as “active” in our minds, whilst implementing and sticking to defined timescales. By doing this it ensures the residual balances are deemed as active tasks and therefore monitored better and completed efficiently.

Back in the day, I actually used to train our trainees how to manage residual balances. Why is training so important for trainees? Because the trainees always get the job of trying to get the files to a nil balance for the legal finance team!

It’s all about processes for me in my experience in compliance, risk management and AML.

Overseas Clients | CDD | High-Risk Third Countries

Those of you with firms where you are trying to trace a person who is overseas and get money to them, I know that’s probably going to take you more than 12 weeks.

If what you need out of the consultation is flexibility to be able to adapt to different work types, different departments, different client types, etc. then I think you need to say just that and resist any prescription on that basis. Of course, I would encourage you to make sure you’ve got some examples of why that would be difficult.

What you’re trying to say to the SRA in essence is that, hey, we’re all right as we are. We’re NOT prejudicing any clients. There are no third parties that are prejudiced by our current regime. If you want to keep it as it is with a promptly and without the prescription, I recommend you need to find evidence why that works for your firm. Always back up your responses.

Even if you are thinking that whilst you are tracing your overseas’ clients and taking instructions to pay them their funds that you rather like the interest you are earning on it…. just be careful when responding to the consultations.

Customer Due Diligence (CDD) and High-Risk Third Countries

Law firms have to continually remain vigilant about financial crime, particularly in high-risk third countries. Those baddies are always one step ahead of us. Therefore, it’s essential to implement robust CDD procedures to ensure compliance with regulatory standards and mitigate risks associated with high-risk jurisdictions. Back to policies, procedures and my favourite, CONTROLS!

With the consultation in mind and your responses, here’s an example of residual balances and accounts rules that are more flexible and you give them reasons.

Say a high risk third country comes onto the list, and you have an existing overseas’ client on your files for 12 months that wasn’t on the list, but now, suddenly, is. What then?

Enhanced due diligence, that’s what. However, the risk from that client matter hasn’t changed just because the country has gone on the list. Yet, you’re going to now have to spend a fair chunk of money carrying out the enhanced due diligence. Simply because your existing client’s geographical status is now on the list; although their matter is not risk based.

The above example is a good basis to respond to the consultation if you have clients already on board. The reasoning is that it’s going to cost more and will impact your firm’s cashflow. The interest earned on a residual balance pays for all extra work processing the existing client’s enhanced due diligence. You will need to absorb that cost.

Work backwards and dig deeper into your reasoning for any response. Getting organised and showing the evidence and costs of extra work required.

Third Party Managed Accounts (TPMAs)

Third party managed accounts (TPMAs) are accounts managed by a third party that handle funds on behalf of clients and law firms, which offer an alternative to holding client money in our usual traditional law firm client accounts.

The Financial Conduct Authority (FCA) regulates TPMAs. Any law firms using TPMAs must integrate robust Customer Due Diligence (CDD) procedures, particularly when dealing with high-risk third countries.

My issue with TPMAs is the actual number of providers currently out there. Six TPMA providers holding monies versus 10,000 law firms with varying funds sitting in client account, if I was a cyber-criminal I know which one I’d target.

If the regulator touches on suggestions that law firms hold monies on account for interest purposes, it suggests to me that it believes we are all ignoring the principle about acting in the client’s best interest.

I ran an anonymous poll on this subject and the resounding results were that nobody takes money on account just to earn interest on it.

If a law firm’s unethical behaviour is that they taking money from clients just to earn interest on it, and they are ignoring any breaches in the reporting process, in line with the code of conduct about, including paying fair interest, this is no reason to change the whole account rules’ system as there are already mechanisms with which the regulators should be made aware of.

My point is, the SRA could deal with the firms rather than changing the whole rule. That works fine for everybody.

The other issue that I see around interest is a minimization of the issue of dealing with the interest: the time it takes to deal with the interest. When we moved to outcome focused regulation, we got “fair” wording, and a lot of firms set a de minimis. Many firms just stopped with the old table originally set; it’s not broken, so why fix it?

I think the issues arise when we have to ask the SRA the question if you are saying we can’t earn any interest at all (every single matter), there is a complicated interest calculation, we then pay it, trace clients, give the interest to them…and so on. It’s a hugely complicated system. If you are a conveyancing firm, you might ask how best to neatly sort out payments, i.e. on the day of completion or something else?

Who is taking into consideration and accountability of all the extra costs you will need to absorb by carrying out this extra, convoluted work?

Other alternatives to holding client money

It’s clear from the consultation that the regulator’s ambition is to remove the ability for solicitors to hold client monies on account. They admit that it’s never going to be an overnight change and I, like you no doubt, will have been looking at alternatives.

Let’s have a look and evaluate the impact of the Australian model when it comes to conveyancing. There’s an organization in Australia called PEXA that is essentially a big pot where all the money for conveyancing is thrown into, and it’s PEXA that is thereafter responsible for distributing the funds.

By using this model it means that completions happen quicker, because money moves quicker. No one is waiting for transaction monies to go from one firm to the next firm.

It also means that purchasers are getting the keys earlier in the day. PEXA is responsible for the security of those monies, and for us in the UK, PEXA are here.

If you don’t know of them already, PEXA is conducting test pilot cases with the Bank of England to see if they can implement their model here in the UK. I have heard that the PEXA model might not work if there are chains, and so finding case studies in this regard to back your response would be helpful.

Now here’s the thing, there’s been an assumption that if you remove the client account us lawyers then there will be certain benefits that come with those significant changes. There is an argument that professional indemnity fees will come down if the client account is moved, but I’d always say be cautious and research well. There’s a chapter further down in this article about professional indemnity insurance.

Top Tip #3 – it’s a fine line

My top tip number three is to consider and highlight that there’s a finely balanced way of responding to proposals to explain and evidence that there are going to be added costs and complexities to what your firm is currently doing.

By this I mean, rather than a knee jerk “I’m not doing that,” or “It’s going to hit my pocket” argument, your biggest issue is that responses given are received via a fine line.

The regulator is not interested in how deep your pockets are but, for example, how any changes might impact your clients.

The questions in the consultation have been engineered in a way for us to agree with the regulator. For them, it’s difficult to think of circumstances where retaining interest could benefit the client. Therefore, really do your evidenced research into all the repercussions of what changes would mean to your firm and your clients. The regulator never wants a law firm to rely on interest earned on client accounts, because of course, this leads to risk. If your firm knows that taking away client accounts in your firm because you have been relying on interest and that changes will significantly impact cash flow then your firm possibly needs a whole new business plan in any event.

If you say you will have to up the cashiering team and the services to absorb new costs or add to accounting because of the changes, you’re admitting to the regulator that you were relying on interest. It’s easy to respond in this manner but it’s a fine line. Just be super careful about how you answer the question. Don’t lie or mislead but just work harder on your response preparation and research time. Think how your response would land for the regulator?

Any questions asked, give examples and be mindful of the “fine line”. Don’t give answers that

paint you in a worse picture than you actually mean to convey.

This leads me onto my top tip number four.

Top Tip #4 – don’t give false impressions

What is the regulator going to do with your answer? My tip here is ensuring you don’t give a false impressing of what your firm is currently doing.

Let’s talk about moving money between the client account to the office account. A personal interest of mine as I remember the earlier consultation where they were removing the section in the old accounts rules about fixed fees, and copies paid straight into the office account.

We now find ourselves back with questions on that very same subject.

What if you take all the money on account for a divorce upfront and the firm folds? Where’s the client protection? In the consultation questions we’ve got now, what if a firm takes all the money straight away, moves into the office and then goes under …. what’s the protection in place for the money?

The consultation suggests that the SRA is looking for there to be more control over moving money on the basis that they assume people are just moving monies between accounts in their firms, willy nilly.

The answer is actually not a problem for us. My question to you to think hard about for a response, is why would you change this?

The Axiom Ince knee jerk reaction from the regulator is palpable. How does the profession avoid other

Axioms without the regulator putting every single lawyer as a potential criminal in their eyes? Of course they won’t be thinking that, but it’s what we, as hard-working lawyers, feel we are doing the time for, because of one hugely bad apple.

For our responses, I think it’s important for us to split this up. What approaches do firms take when calculating the money, and the amount of money they request from clients in advance.

You might want to survey your department heads and ask them about it, to see what they think and how they would work out a reasonable amount, and how they would make sure they don’t go above it.

For a compliance and AML reason, we would always advise you to never take any more money than you think you’re going to need to spend in money on account situations:

Should they be more prescriptive
Should they set a limit
Should they set a new rule

What would a more prescriptive process look like in the short and long term to your firm? Remember, be careful what you wish for. You may be in favour of the previous style of prescriptive workings, but be mindful that in that scenario, you lose control.

A discussion you might want to have: what’s your firm’s perspective on “prescription rules”, and dovetail that discussion as to whether it’s just a policy position or a culture position.

Professional Indemnity Insurance (pii)

The majority of you will have heard and followed Jatinder Loyal (former SRA Accounts Rules Policy Advisor). Although he’s now moved to the GMC, Jatinder still gives opinions and comments frequently, especially on LinkedIn. Jatinder commented and tagged me in a post saying there was no evidence from the professional indemnity insurers that removing the client account, or the ability of law firms to hold client money, will have a short-term impact on your law firm’s PII premium.

The reason for this is that it’s not the money disappearing out of the client account that is pushing your premium up.

The main reason is the ability for a (in conveyancing terms) property to be resold at the value for which it was acquired.

We all know that conveyancing, wills & probate, and commercial property are generally the top three causes for insurance claims, and they’re not as a result of money being stolen out of the client account. It’s a result of some legal issue arising in relation to those matters or transactions.

In theory therefore, if you hold no monies on client account, then a partner can’t just run off with the money and therefore the Comp Fund wouldn’t have to pay out.

However, it’s really not the massive contributing factor into your PII premium that everyone’s making it out to be. In my opinion, there are other issues.

I mentioned TPMAs earlier in this article, and for a few reasons, this model has never taken off because of the additional cost to consumers. In the early days of third party managed account models the costs were on a per transaction basis, and were adding potentially £100 – £200 per transaction. From what I understand now the firms who currently use third party managed accounts are ones that don’t ordinarily have a client account, i.e. they are being used where firms already hold a client account. Or, from research I have done, firms are choosing TPMAs on select jobs where they don’t want it going through the client account for whatever reason.

What we are seeing is that the firms using TPMAs tend to be the larger organisations, e.g. the top 1,000 size firms and that’s because their clients aren’t as price sensitive to them adding a disbursement cost. A high street conveyancing firm’s client might choose a different firm without understanding the reasoning behind the difference.

I can be a little skeptical that the SRA’s consumer research says consumers are happy to pay a little bit more if their money has better protection via a TPMA. What’s interesting at the consultation is that they say 79% of clients say that they’re comfortable with the money staying with the solicitor. Breaking it down then, only 21% of clients aren’t comfortable with monies held in a law firm’s client account yet the SRA wants to make a change that affects everybody else.

Back to my Top Tip #1 – where’s their evidence if that really is a problem (surveys can be misleading if the questions are vague). They want to change, but why and where’s the evidence?

As always, please do get in touch with me, or one of my team. We are continually learning and researching, together with working on client audits as well as offering a whole host of other services.

More Information and Expertise Here

We will update you throughout the course of the consultation and thereafter as well.

Please remember that Teal Compliance is your go-to AML and Risk Management Partner and we have a variety of packages available to support you, your colleagues and of course, your clients!

To find out more, click HERE and come what may, we look forward to supporting you soon.

Amy

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SRA Consultation Response Tips for Client Account Changes Read More »

Why Culture is the Foundation of Compliance in Law Firms

Anti-Money Laundering, Legal Compliance, Regulatory Compliance, Risk Management / Mark

The word “culture” in terms of how a law firm is run, shouldn’t be a simple trending buzz word, or used for soft skills in marketing and for recruitment requirements. Law firm culture encompasses how effectively your firm looks after its staff, stakeholders and of course its clients.

When we think about compliance in law firms, it’s easy to get caught up in the details, and offload and delegate all the risk “stuff” to the MLRO or Compliance Officers. There are policies, procedures, and training sessions to control and deliver firmwide, true, but here’s the thing, none of that matters if the culture of your firm doesn’t support those risk management requirements holistically.

Compliance should never be about ticking boxes for the SRA or Lexcel. Compliance is about creating an environment where following the rules should be second nature. Why? It’s simply how things are done and what law firms and consumers of law expect and require.

Compliance Training Information READ HERE

Culture Drives Compliance

Culture is that invisible force that guides the behaviours of your firmwide solicitors, partners, associates, business support employees and stakeholders. If your culture values compliance, then sticking to the rules becomes effortless.

However, if compliance is seen as a chore or something to “get around”, you’re asking for trouble. The SRA will sniff you out.

Think about it, you can have the best policies in the world, but if your team doesn’t buy into them, they’re worthless.

Why should your law firm culture and risk management matter so much when you are already so busy working flat out on client work? A culture that supports compliance isn’t just nice to have—it’s essential. It reduces risk, protects your reputation, and keeps you on the right side of the regulators. Plus, it creates a workplace where everyone knows where they stand and what’s expected of them.

The cultural challenges of law firm leadership READ HERE

The SRA’s “Professional Obligations Thematic Review” published in December 2024, it reinforced that it expects firms it regulates to adhere to a positive workplace culture where employees felt safe to speak up, especially when there is a risk of:

mistakes being made
clients receiving poor outcomes
serious ethical concerns being raised

The regulator says it is rewarding and promoting positive behaviours of law firms looking at culture and compliance effectively together. It stated that:

SRA’s “Professional Obligations Thematic Review”

The SRA found a broad range of considerations reviewed by firms, including:

financials (65%)
contributions to the firm’s culture (50%)
training (85%)
career development (40%).

In the review it was interesting to note that some of the firms were confused about compliance and regulations, and to which organisation they should be adhering. As some law firms are regulated and audited by the Financial Conduct Authority (FCA), and some by the Legal Aid Agency, others mistook requirements from these agencies to that of the SRA’s.

It’s worth understanding exactly who a firm (as well as areas within a firm) must adhere to. We explain everything in our training. You can read more about Teal Compliance training HERE.

The SRA’s Upholding Professional Standards Annual Report 2022/23 was published on 20 December 2024 and it reported that when it came to anti-money laundering (AML) out of the 250 firms it checked on this specific subject, 47 of those firms had regulatory action taken against them.

That’s a massive 18.8% of the law firms it reviewed that weren’t compliant.

You can read the SRA’s annual report HERE.

The Bottom Line for Law Firm Culture and Compliance

Your firm’s culture should be intentionally shaped to make compliance a natural part of the day-to-day workings of your firm. It’s not just about having rules; it’s about embedding those rules into the very fabric of your firm and its people. In a digital world where reputations can be damaged in a moment in time, now, more than ever, integrate your compliance into your positive workplace culture. If you’d rather we kick start this for you and track your risk then why not have a look out our carefully curated and crafted software, TEAL TRACKER.

Thanks for reading and as always, any questions, please feel free to get in touch with me or one of my specialist AML colleagues – hello@tealcompliance.com

Get in touch

We will update you throughout the course of the consultation and thereafter as well.

Please remember that Teal Compliance is your go-to AML and Risk Management Partner and we have a variety of packages available to support you, your colleagues and of course, your clients!

To find out more, click HERE and come what may, we look forward to supporting you soon.

Amy

Why Culture is the Foundation of Compliance in Law Firms Read More »