Legal Compliance | Teal Compliance

The cultural challenges of law firm leadership

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

There are many cultural challenges law firms face today, particularly around training, recruitment, succession planning and workplace flexibility. As law firm culture is a huge part of mitigating compliance risks, we delve into the complex cultural challenges of law firm leadership, and highlight the pressing need to adapt to evolving professional expectations.

Education and training challenges in the legal sector

There’s potentially a gap in legal education when it comes to preparing lawyers for the multifaceted roles they may take on in law firms. Education primarily focuses on legal skills, leaving lawyers ill-equipped to handle managerial, people and other operational responsibilities.

Smaller firms could benefit from employing experts in specific functions rather than asking lawyers to fill these roles. By freeing lawyers from non-legal tasks, firms can optimise fee-earning potential while enhancing the quality of support functions. Recognising the value of experts in business operations is a forward-thinking approach that can lead to more efficient and effective law firms.

When it comes to building an effective culture in law firms, leadership roles, such as team leaders, middle managers and business owners are crucial and face their own education and training challenges.

1. Elevating the role of team leaders

Team leaders play a critical role in ensuring that employees feel supported and empowered. However, many law firms overlook the impact of team leaders and miss the opportunity to invest in their development.

2. The challenge of training middle managers

Middle managers, often responsible for managing teams and facilitating communication, are the linchpin of successful law firms. They have a significant influence on the mental health and well-being of their teams. Training for middle managers is essential, as it equips them to have difficult conversations, create safe spaces, and engage in one-on-one interactions effectively.

3. Business owners' multifaceted roles and training needs

Business owners and sole practitioners in smaller law firms often wear many hats. Besides their legal work, they manage personnel, operations, compliance, and business development. This diverse set of responsibilities can be overwhelming, and training is often inadequate for these roles.

Attrition and recruitment challenges in the legal sector

There’s a significant cost of attrition for law firms. When employees decide to leave, they often enter a phase of ‘quiet quitting’, where they reduce their productivity and engagement. The notice period can also be challenging for law firms, as they need to recruit and onboard new talent. Investing in leadership development and training can help mitigate attrition and its associated costs.

The escalating cost associated with recruitment is causing law firms to reconsider their strategies. The 15% to 25% fees charged by recruiters for higher-paid roles can put significant financial pressure on firms. Not to mention the time and productivity lost during the notice period and the onboarding period for new hires. The traditional recruitment approach, fuelled by the urgency to fill vacancies, can be costly in the long run, and cause significant challenges for law firm leadership.

Succession planning challenges for law firms

The legal profession is facing a succession planning crisis. Law firm leaders are struggling to find motivated individuals willing to take on equity partner roles. Various factors, such as the perceived risk and reward of such positions and ongoing global uncertainties, contribute to the reluctance to embrace leadership roles.

This gap in succession planning poses a significant risk to firms, with potential impacts on run-off cover and industry-wide premiums.

Workplace flexibility challenges for law firms

The Covid-19 pandemic has fundamentally altered the work landscape. A debate rages on whether lawyers and staff should return to the office full-time or continue working remotely. While some law firms insist on an office-centric model, others recognise that employee expectations have shifted. The battle over flexibility has divided firms and professionals, with issues of presenteeism and productivity coming to the forefront. This obviously causes a problem for those in leadership roles.

Rather than an adversarial battle between law firm owners and employees, we argue for a more collaborative approach. The key to creating a sustainable and adaptable workplace environment lies in cultivating a culture where employees want to be present. This cultural shift is essential in making the office and workplace attractive and supportive, focusing on quality of life, professional development, and meaningful work.

What cultural changes should law firms consider when it comes to effective leadership?

Effective leadership, supported by proper training, is crucial for a healthy law firm culture. Team leaders, middle managers, and business owners all play pivotal roles in shaping the well-being of employees and the success of the firm.

Recognising the influence of these roles and investing in leadership training is not only a best practice, but also a proactive response to the changing expectations of both employees and regulators.

The transformation of the legal profession is inevitable. To remain competitive and attract top talent, law firms need to reassess their recruitment strategies, adopt proactive succession planning, and recognise the changing priorities of legal professionals.

A culture that combines flexibility and in-person collaboration, supported by effective leadership and training, will be the hallmark of law firms that thrive in this evolving landscape.

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For more information on law firm culture read our blogs on ‘Fostering an inclusive law firm culture’ and ‘Navigating the cultural challenges in law firms’.

If you’d like to know how we can help promote a positive law firm culture to help mitigate compliance risks, get in touch today.

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SRA’s Sectoral Risk Assessment: Economic Pressures

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

There are four emerging risks that the SRA has identified in the Sectoral Risk Assessment which was published in July 2023. One of these emerging risks is economic pressures. Here, we explain the SRA’s update on economic pressures, the associated risks, and advice on what actions you should take.

What impact do economic pressures have on AML?

We’ve had economic pressures ever since the Covid-19 pandemic. More recently, we’ve seen the cost of living crisis, and increases in pay rises to cope with inflation. It’s been a difficult time for many individuals and businesses and the landscape is still uncertain.

When there are economic pressures, there are two risks to AML, and the SRA in the Sectoral Risk Assessment is calling both of these out.

1. Temptation to reduce costs in AML compliance

The first risk is the temptation to reduce costs in AML compliance. The SRA don’t want to see this occur, and this goes for any changes you make to your policies and procedures. If the SRA believes you’re doing less, and you have made cost cuts in this area, you need to be ready to explain why you think it’s still effective.

If the SRA has records of how many people you’ve got in your AML function, and they carry out an inspection and find you’ve now got a fraction of that number, they’ll be interested to find out why that’s the case.

One question we’ve been asked about saving costs is whether or not firms should introduce a centralised CDD team. It’s important to be aware that introducing a centralised team very rarely saves costs. Although it increases compliance considerably, and you get a better CDD, its unlikely to save you costs.

The SRA, however, is concerned about firms having centralised teams. They think that having a centralised team will take fee-earners away from their compliance responsibilities. This is particularly the case when centralised teams are involved in curating or signing off matter risk assessments, or keeping the matter risk assessments on a system that the rest of the business can’t see. It’s the lawyers’ responsibility to carry out risk assessments, as they have conduct of the matter on a day to day basis, and it’s the lawyers that will need to be able to explain the risks to auditors or regulators.

In a nutshell, the SRA don’t want you to be scrimping on costs. Make sure your staff are resourced properly and that includes your money laundering compliance officer (MLCO), money laundering compliance officer (MLCO).

2. 'Baddies' changing tactics

The second thing that happens when there are economic difficulties is the ‘baddies’ change tactics. When law firms have busy periods, such as a stamp duty holiday, scammers can try to hide in plain sight. This is because, everyone’s far too busy to check properly about source of funds/source of wealth, and the baddies will take advantage of this. This may lead to transactions getting through that wouldn’t in a normal working environment.

When it’s extremely quiet, baddies can start to take advantage of fee-earners’ concerns about billing targets. In some ways they’re very sophisticated, but in other ways their approaches are often quite simple. So, they often come along in quieter times, particular in the area of property, where they’ll approach you with deals that you might otherwise turn down in a normal set of circumstances.

The same applies for corporate deals. Corporate deals can dry up in tough economic times and they’ll target lawyers with deals that would normally be turned away at the matter risk assessment stage.

What action should be taken to mitigate the risks of economic pressures?

Firstly, consider what you’re spending on AML. Is that the right amount? If there are any pressures to reduce what your spend is, especially if you’re bringing in technology and you don’t know how the technology works, take the time to reconsider this. If you’re reducing costs or resources, ensure you document this thoroughly to say why you’re satisfied that it won’t impact on the effectiveness of your AML programme.

Secondly, remind your property and corporate teams that during this time, baddies may be presenting riskier deals in order to take advantage of their need to generate business. It’s important that they understand the risks of money laundering, that they’re able to spot it, that they are honest in their matter risk assessment, and that they turn down things that look too good to be true.

From a compliance point of view, you might want to do some auditing and matter risk assessments to make sure that risks are being properly identified and documented.

Get in touch

At Teal Compliance, we’re here to support your journey towards regulatory and AML compliance.

If you’re looking to ensure that you, your firm and your clients are safe, simply contact our experts today.

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SRA’s Sectoral Risk Assessment: Technology Risks

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

There are four emerging risks that the SRA has identified in the Sectoral Risk Assessment which was published in July 2023. One of these emerging risks is technology risks. Here, we explain the SRA’s update on technology risks, and advice on what actions you should take.

What technology risks are identified in the SRA's Sectoral Risk Assessment?

It’s not the first time that the SRA has mentioned technology risks that are emerging in the legal sector. There are several areas which are in discussion.

1. FinTech - Payment platforms

Recently, there’s been news about one payment platform allegedly allowing transfers from accounts that are identified for money laundering. This raises concerns about what checks are in place for these emerging industries. If they’re not traditional banks, how do we know that they’ve got safeguards in place for AML?

2. FinTech - Crowdfunding platforms

The SRA also talks about crowdfunding platforms, which is also mentioned in the National Risk Assessment. There are instances when people are genuinely crowdfunding in order to pay for their legal fees. However, there’s a risk that people may be using crowdfunding platforms as a way to obscure the source of wealth.

3. Cybercrime

There’s a lot of new legal technology out there, but if law firms don’t know how to use it, they won’t know how to protect it. This could lead to being exploited by the ‘baddies’ and becoming a victim of cybercrime, by them stealing personal information from your clients, infiltrating your bank accounts, etc.

A cyber-attack is an economic crime if the criminals access something that’s valuable, or if they want you to pay them with crypto-currency. So, this is no doubt on your radar already and you’re aware that you’ve got to have procedures in place to prevent cyber-attacks, and that those procedures are tested and working properly.

Over-reliance of technology

The SRA does make the point in their risk assessment about overuse of, and over reliance on, technology to do things like ID&V, with people relying on the big green tick on the report or the pass on the ID&V report as opposed to understanding what CDD has actually been checked and whether you have to do anything else.

With the increase in source of funds/source of wealth technology, understanding how it works and making sure that you’re satisfied with any conclusions that it’s drawing is extremely important.

What actions can be taken to mitigate the technology risks?

Firstly, review the work types that may be exposed to FinTech such as payment platforms and crowdfunding platforms and carry out a risk assessment.

Take a look at recent cyber-attacks of law firms that have resulted in fines from the ICO. You’ll see what investigations have been made and the disciplinary outcomes as a result. The investigations will likely include questions like:

When was last time you trained everybody?
What system do you have in place?
How do you know it works?

Although we’re discussing AML, there’s also an obligation in the Money Laundering Regulations that when you introduce new technology into your law firm, you need to have conducted a risk assessment about it.

When it comes to introducing new technology, you should make it easy for your law firm to comply by communicating exactly what the tech is doing and exactly how it works. If the SRA is doing an inspection, they’ll expect a good level of knowledge from the person responsible for AML on how the tech works.

Consider any tech you’ve introduced and carry out a risk assessment if you’ve not already done so. Also include any tech that you’re considering introducing. We often find that policies don’t include details of the process of any introduction of any new tech. What it should confirm is that a risk assessment will be conducted as to whether it increases or decreases the risk of money laundering or terrorist financing, and it will be recorded in the Practice Wide Risk Assessment.

Whether you’ve got a new case management system; changed your CDD provider; or got a new accounting system, as auditors we’d be asking to see your risk assessment in relation to each piece of new tech.

As with all things compliance, making sure everything is recorded in your assessment is essential!

Get in touch

At Teal Compliance, we’re here to support your journey towards regulatory and AML compliance.

If you’re looking to ensure that you, your firm and your clients are safe, simply contact our experts today.

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SRA’s Sectoral Risk Assessment: Proliferation Financing

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

There are four emerging risks that the SRA has identified in the Sectoral Risk Assessment which was published in July 2023. One of these emerging risks is proliferation financing. Here, we explain the SRA’s update on proliferation financing, the associated risks and advice on what actions you should take.

What is proliferation financing?

Proliferation financing is the act of providing financial support to individuals or entities involved in the development or acquisition of weapons of mass destruction. Essentially, this means nuclear, chemical, biological or radiological weapons.

How does proliferation financing affect law firms?

When considering proliferation financing, you can’t just assume this doesn’t affect you as you don’t do any military work. You have to think about whether the business is actually a sham, which is financing such weapons.

In addition, many of the ingredients of nuclear, chemical, biological and radiological weapons are common, everyday products, such as fertiliser, chemicals and computer chips. Businesses that appear to sell these products for everyday use, may in fact be supplying them for the production of such weapons.

What does the SRA say about proliferation financing?

The SRA does recognise that the risk of proliferation financing in the legal sector is low. However, they make a valid point in that low frequency doesn’t necessarily mean low risk. So, you do have to consider the areas of work that may be exposed to this and, if you have them, you need to identify the risks.

What actions should you take for proliferation financing?

Firstly, you need to consider the work types that might be exposed to proliferation financing. Work types that might be exposed include trade finance, commercial contracts, manufacturing commodities, shipping/maritime and military defence.

Next you should consider jurisdictions. Are any of the countries involved subject to UN sanctions? Additionally, are any of the countries involved suspected of using, or seeking, weapons of mass destruction? Also are any of the countries involved thought to have a weak border? This relates to countries that could involve people sending ingredients of weapons of mass destruction to neighbouring countries, and bringing them back over the border.

Once you’ve carried out your investigation, you need to ensure that you record your assessment.

Just like with sanctions, even if you don’t think there’s a risk of proliferation financing for your practice, you must demonstrate to the SRA that you’ve thought about it. If this is the case, we suggest adding a line in your AML Practice Wide Risk Assessment to say you’ve considered proliferation financing, you don’t work in these areas or jurisdictions, and therefore you consider the risks to be low.

Like with everything, making sure you record everything is essential!

Get in touch

At Teal Compliance, we’re here to support your journey towards regulatory and AML compliance.

If you’re looking to ensure that you, your firm and your clients are safe, simply contact our experts today.

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SRA’s Sectoral Risk Assessment: Sanctions

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

There are four emerging risks that the SRA has identified in the Sectoral Risk Assessment which was published in July 2023. One of these emerging risks is sanctions. Here, we explain the SRA’s update on sanctions, the associated risks and advice on what actions you should take.

What does the SRA say about sanctions?

We know that sanctions is a completely separate regime to anti money laundering (AML), but the SRA has stated: “Firms cannot assume that sanctions are not relevant to them. There are a significant number of British nationals subject to sanctions.”

The problem with sanctions is the strict liability. If you’ve acted in breach of the sanctions, then you’re liable. It’s possible that you might get some relief from sanctions as a result of what you’ve done to try and prevent it, but that would be determined as part of the disciplinary process.

Sanctions doesn’t work like bribery and tax evasion, for example, the failure to prevent bribery or the failure to prevent corporate facilitation of tax evasion. Both of those have a statutory defence regime that says, if you follow the guidance issued by Government to try and prevent sanctions, then you’ll have a defence if it actually happens. There’s no equivalent in sanctions.

So, if you do have a sanctions breach, then you’re at the will of the adjudication process as to how your process will be looked at, and whether or not you’ll be disciplined. Doing sanctions training, having a sanctions policy and doing sanctions screening is not an automatic ‘get out of jail free’ card.

What is the SRA doing regarding sanctions?

The SRA is really ramping up on sanctions. If you’re from a larger firm, this may not be news to you. You’ve probably known about sanctions for a long time, have a sanctions policy in place, may have done sanctions training, and probably always do sanctions screening as part of a wider ID&V process.

However, for the rest of the sector, the SRA is expecting to see sections in your AML PCPs or in a separate policy about sanctions. They’re probably looking for you to have incorporated it into training, or at least communicated the policy in relation to sanctions. This includes how they happen, what to look out for, and what CDD you should be considering.

At the recent Law Society Conference, the SRA confirmed that they’re doing some thematic work on sanctions and inspecting firms. If we look at the potential changes in the forthcoming Economic Crime and Corporate Transparency Bill, the SRA’s remit, as in what they’re responsible to detect and prevent, is potentially going to be extended. We believe it’s highly likely that this will be extended to include economic crime as well as money laundering and terrorist financing.

Economic crime obviously carries sanctions with it. So, whilst at the moment we’re talking about sanctions in the context of your AML risk assessment, if it’s not already on your to-do-list, you should be looking into this. In the meantime, make sure that you’re recording sanctions in your Practice Wide Risk Assessment, demonstrating that you’ve thought about it. If it’s in a separate document, make sure you reference it.

Is there an overlap between sanctions and AML?

As we’ve already said, sanctions is a separate regime to AML. However, there is an overlap. Some of the things you need to consider for AML will also be relevant for sanctions, such as:

1. Jurisdictions

This is where you look at countries where there’s corruption. If you’re using commercially available CDD searching tools, they’re likely to have sanctions checks within them. However, there is a huge list of countries that you should be aware of.

When looking at AML and CDD processes and procedures, think about when are you going to get a sanctions match. Do you do it after you’ve taken instructions, later on, or does it depend on what you find out? Always think about the timing of these things. If there’s some distance in your processes, make sure your lawyers have a good awareness of these high risk jurisdictions. That way, they’ll be able to identify them, not just because a search told them, but because they’ve thought about it.

2. Politically exposed people

Politically exposed people can get vast sums of monies from a country and then disappear with it. They then suddenly become sanctioned.

3. Complex corporate structures

The SRA makes the point that a person who becomes sanctioned may suddenly want to offload all of their assets to other people that they have control over. This is so the assets are being owned by those people, and move through banking systems in the name of these other people rather than themselves. So, your CDD, especially in relation to corporate structures, should involve considering:

Whether it makes sense for that person, or is this an attempt to evade sanctions?
Is it really under the ownership or control of the sanctioned person?

When considering complex corporate structures, don’t scrimp on CDD.

5. Sectors

Of course, there are lots of different sectors which are exposed to sanctions. However, if you have practice areas in the following, these are definitely areas where you should be carrying out a sanctions risk assessment and considering what you think the chances are of being targeted:

International trade
Shipping
Aviation
Immigration

Most high street firms don’t practice in these areas. They’re mainly found in larger law firms, and most larger firms have no doubt already got mature programmes in place for sanctions.

However, with immigration in particular, you need to recognise that it does appear in the SRA Sectoral Risk Assessment and that you should think about whether that’s something you’re likely to encounter.

What actions should you take for sanctions?

If you do get exposed to sanctions, you’ll no doubt have already done this work. However, for everyone who believes it’s unlikely to affect them, you do have to be cognisant of the SRA’s quote that “Firms cannot assume that sanctions are not relevant to them….”

If you don’t think that sanctions are relevant to you, make a risk assessment that states that they’re not and record that you’ve done that risk assessment. When you look at the sanctions guidance, it states you ‘should’ conduct CDD on counterparties. We believe you need to consider whether you should be doing this as part of a risk assessment first, before you implement a process.

Of course, your processes always depend on what your risk appetite is. If you’re a particularly risk averse kind of person, and you definitely want to sleep at night knowing that no sanctions could creep in at all, then you’re going to want to do sanctions screening for everybody.

Consider what action you already take. The SRA suggests that there’s a theme of people doing sanctions screening at the file opening stage, and then looping back around as part of ongoing monitoring. Of course, the issue with sanctions is usually about making economic advantages available to someone. It’s usually much later down the line than file opening. So, think about whether your screening has ongoing monitoring or whether you should rescreen if it’s a one off thing.

Consider if you’ve ever actually encountered sanctions. You may decide that you don’t have sanctions exposure, then you find out you do later on because, for example, there was a problem with processing a payment at your bank, or a problem had flagged up. If so, you might wonder whether your processes are adequate. If not, it might be that you don’t think you need to do much about sanctions. However, don’t say nothing about it! The SRA want you to demonstrate that you have thought about it.

Get in touch

At Teal Compliance, we’re here to support your journey towards regulatory and AML compliance.

If you’re looking to ensure that you, your firm and your clients are safe, simply contact our experts today.

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Legal compliance issues: Embracing legal compliance for success

Audit, Blogs, Legal Compliance / Joanne

In the world of law firms, the mere mention of the “C” word tends to send shivers down the spines of many. Partners and owners alike sometimes choose to bury their heads in the sand, hoping that legal compliance issues will resolve themselves. However, the landscape is changing rapidly, and firms are evolving their approaches to business support. The old misconceptions of ‘fee burners’ and ‘fee earners’ are giving way to a proactive stance, where compliance isn’t just a requirement but a fundamental aspect of a firm’s culture.

We believe that investing in business support is the compass that points your firm in the right direction. In this blog post, we’ll delve into why legal compliance is the cornerstone of your firm’s success. It’s not just about collecting a plethora of accreditations, although staying within the guidelines of these accreditations certainly minimises your risk exposure.

Asking the right questions and breaking down silos

Are you asking the right questions to stay informed about your firm’s day-to-day activities? Are all departments collaborating to review risk registers and ensure everyone’s on the same page? Avoid the smoke and mirrors approach, which only masks underlying legal compliance issues. Instead, let’s shine a light on the importance of communication.

Engaging with your employees is key to success. Often, during performance reviews, employees express a lack of communication. It’s not about inundating your team with every minor detail; it’s about involving them in achieving the firm’s objectives. Without effective communication, there’s room for important matters to slip through the cracks.

Consider a compliance project. How many different team members are involved, and is there a streamlined approach to ensure continuity and prevent duplicate tasks? A joined-up approach is crucial.

Ground-level knowledge: Your shield against regulatory pitfalls

Ground-level knowledge is your shield against regulatory pitfalls. To truly understand its importance, think of it as a solid foundation based on understanding, vigilance, and adaptability. In this section, we’ll explore why this knowledge is crucial for the well-being and prosperity of your law firm.

1. A foundation of understanding

Understanding begins with actively listening to what’s happening within your firm. It means having a finger on the pulse of daily operations, being aware of the challenges your employees encounter, and comprehending the intricacies of your clients’ needs. This understanding extends to the beliefs and values that underpin your firm’s culture, ensuring everyone is aligned with the same vision.

2. The cost of ignorance

When it comes to legal compliance issues, ignorance is not a valid defence. Regulators expect firms to be well-versed in the regulations governing their sector, and they won’t accept ignorance as an excuse for non-compliance.

Ignorance can lead to dire consequences, including hefty fines, damage to your firm’s reputation, and even legal repercussions. In the eyes of the law, not knowing isn’t an excuse. Ground-level knowledge is your safeguard against such risks, as it empowers you to stay informed and take proactive measures to address potential legal compliance issues.

3. The power of continuous review and analysis

Ground-level knowledge isn’t a static state but an ongoing process. It involves continuously reviewing your firm’s processes and critically analysing essential data.

Regular process reviews enable you to identify bottlenecks, inefficiencies, or areas where compliance may be at risk. It’s similar to fixing weaknesses to make sure they can handle the challenges of time and close inspection. Additionally, the analysis of critical data allows you to spot emerging trends and potential compliance challenges before they escalate into formidable problems.

Conducting a full 360 review of your business

The process of conducting a full 360 degree review of your law firm isn’t just a routine task; it’s a transformative journey that aligns your firm with the ever-evolving regulatory landscape. Visualise it as the compass that directs your firm towards its full potential in legal compliance. In this section, we’ll delve into why this comprehensive examination of your business is vital for your law firm’s success, particularly in the context of legal compliance, and how it can lead to meaningful change.

1. Celebrating achievements and strengths

Every law firm possesses unique achievements and strengths, often concealed in plain sight. Taking the time to recognise and celebrate these successes isn’t just about acknowledging your accomplishments in legal compliance; it’s about honouring what’s working exceptionally well within your compliance framework. These are the foundations upon which you can build a robust legal compliance structure for the future.

2. Embracing a culture of self-scrutiny

Genuine growth often necessitates introspection. It involves the willingness to roll up your sleeves and delve deep into the areas of legal compliance that require improvement. Just as a sculptor chisels away at a block of marble to reveal a masterpiece, your firm must be prepared to examine the rough edges within your compliance procedures.

Scrutinising areas that need improvement isn’t a sign of weakness; it’s a testament to your dedication to legal compliance. It’s about identifying bottlenecks, inefficiencies, or outdated practices that may pose legal compliance issues. This process demands honesty and the willingness to address shortcomings proactively.

3. Implementing systematic change

The true power lies in translating your observations and insights into systematic changes that enhance legal compliance. Instead of just pinpointing issues, you develop actionable solutions that bolster your compliance efforts. These changes may include streamlining compliance processes, investing in training and development for your compliance team, or adopting new technologies to bolster compliance tracking and reporting.

This proactive approach creates an environment where your team can excel in legal compliance, your clients receive a top-notch service, and your firm operates with the utmost legal compliance diligence.

Revisiting key performance indicators (KPIs)

Key Performance Indicators, or KPIs, are not confined solely to your fee earners. They’re a potent tool that can revolutionise your firm’s approach to maintaining compliance standards. In this section, we’ll explore why KPIs are indispensable, how they extend beyond the fee earners, and why regular reviews are essential to ensure they align with your legal compliance objectives.

1. Expanding the scope of KPIs in legal compliance

While fee earners often take the spotlight, KPIs have a more profound role to play in the broader context of legal compliance. They should encompass every facet of your firm’s operations, from risk management to client service and regulatory adherence. By embracing a holistic perspective, you can foster a culture of compliance that permeates every department.

KPIs that focus on legal compliance go beyond mere metrics; they become a compass guiding your firm towards a safer, more compliant working environment. They encourage proactive behaviours and decision-making that prioritises adherence to regulations, mitigating risks, and ensuring ethical conduct.

2. The imperative of regular KPI reviews for legal compliance

KPIs are not static; they should evolve to reflect changing compliance requirements and your firm’s objectives. Regular reviews are the lifeblood of effective KPI implementation in legal compliance.

During these reviews, you assess whether the KPIs are still relevant, achievable, and aligned with your evolving legal compliance goals. They provide the opportunity to recalibrate your firm’s course, ensuring that you continue to navigate the legal compliance landscape with precision.

Independent file audits: Elevating legal compliance through insightful evaluation

Consider conducting independent file audits. They can unveil trends that highlight training issues or identify individuals with untapped potential. Striking a balance between micro-management and providing adequate supervision is essential for responsible leadership.

Conducting independent file audits is a strategic manoeuvre that transcends routine checks; it’s an opportunity to gain unparalleled insights and elevate your firm’s commitment to legal compliance. In this section, we’ll explore why independent file audits are a linchpin in the quest for legal compliance excellence, how they unearth invaluable trends, and their pivotal role in honing the skills of your team.

1. The power of independent file audits in legal compliance

Independent file audits are not mere paperwork exercises; they’re powerful tools for enhancing legal compliance. These audits provide an unbiased lens through which you can scrutinise your firm’s practices, ensuring they align with regulatory requirements and best practices. Beyond the checkboxes, they offer a holistic view of your firm’s performance in legal compliance.

One of the key advantages of independent file audits is their ability to spot trends. These audits can unearth patterns that might otherwise remain hidden. For example, they can highlight recurring legal compliance issues or training gaps within your team. By identifying these trends early, you can proactively address them, fortifying your legal compliance framework.

2. Enhancing training and identifying potential

The insights gained from independent file audits extend beyond compliance issues. They can also help identify individuals within your team who possess untapped potential. By recognising standout performance, you can nurture future leaders or identify team members ready for greater responsibilities. This not only benefits your firm’s growth but also bolsters its commitment to legal compliance, by having capable leaders.

3. Striking the balance in legal compliance leadership

Achieving legal compliance excellence requires a delicate balance between oversight and empowerment. Micro-management stifles initiative, while inadequate supervision can lead to lapses in compliance. Independent file audits help strike this balance. They provide a mechanism for oversight without suffocating your team’s autonomy.

Every role matters: A unified framework

In compliance, the significance of every role within your firm can’t be overstated. It’s not just the lawyers or compliance officers; it’s every individual, from support staff to partners. Embracing a unified framework is the cornerstone of fostering compliance excellence. In this section, we’ll emphasise the importance of this cohesion where everyone comprehends their responsibilities, and how it results in tangible benefits for your firm.

1. The power of a unified framework in legal compliance

Legal compliance isn’t a responsibility that falls solely on the shoulders of a select few; it’s a collective effort. Encouraging your entire team to work within an established framework ensures that legal compliance becomes an integral part of your firm’s DNA. This framework provides clarity, defining roles, expectations, and the processes that ensure adherence to regulatory requirements.

2. Benefits of cohesion in legal compliance

When every team member understands their role within the legal compliance framework, several benefits emerge. First, it minimises the risk of compliance gaps or oversights. Second, it fosters a culture of accountability, where everyone takes ownership of their compliance-related duties. Third, it streamlines communication and collaboration, facilitating smoother compliance processes.

In addition, a unified approach to legal compliance enhances your firm’s reputation. Clients and regulatory bodies, such as the SRA, perceive your organisation as one that takes its responsibilities seriously, instilling trust and confidence. It also mitigates potential legal risks, reducing the likelihood of legal repercussions or fines.

Get in touch

At Teal Compliance, we’re here to support your journey towards compliance that works by mitigating the risk of legal compliance issues.

We understand that compliance can be a daunting word, but it’s also the key to unlocking your firm’s full potential. Don’t hesitate to reach out if you need assistance. Together, we can navigate the compliance maze and ensure your firm’s continued success.

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Ellie Shute, Associate and Compliance Consultant at Teal Compliance

A day in the life of Ellie Shute – Associate at Teal Compliance

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

If you’re interested in a career in compliance, our associate, Ellie Shute, talks about life at Teal Compliance, and what her work involves.

About me

When I was studying law at university, the whole concept of compliance was a bit of a mystery to me. Surprisingly, I ended up falling into it after graduating. I embarked on a journey through various roles in different law firms, ranging from international researcher to compliance analyst. Along the way, I discovered my passion for navigating the realm of risk. So, when the opportunity to dive into AML compliance at Teal Compliance presented itself, I leapt at it without hesitation.

I’ve been part of the Teal team for a year now, and it’s been quite a ride. Stepping into the start-up life was a fresh experience for me, but I had a gut feeling that I’d made the right call. Working directly with my own clients has been incredibly rewarding. I’ve had the chance to forge relationships with diverse individuals and witness first-hand how my work can truly make a meaningful impact.

My role

When a firm needs assistance or guidance on anything related to AML, I’m their go-to person. My role covers a wide range of duties, from addressing spontaneous ‘Ask Teal‘ enquiries to crafting comprehensive policies and procedures from the ground up.

A significant portion of my time is dedicated to conducting audits for our clients, which involves conducting a thorough 360-degree examination of the firm. I’ll delve into their policies, interact with their staff, and scrutinise their client files. It’s during these audits that you truly get to dive deep into the inner workings of a firm and discover what drives it.

In between all this, you can catch me participating in our webinars, ‘Teal Talks,’ where we discuss various AML hot topics. Alternatively, you might find me crisscrossing the UK, delivering training sessions for our clients.

A typical day

I know it might sound like a cliché, but seriously, no two days are alike in my line of work! My schedule is usually booked weeks in advance with client tasks, so I have a rough idea of what’s coming. But you never know what surprises the day might bring.

When I’m in the middle of an audit for a client, one day I’ll be digging through their files, determining if they meet AML requirements. On another day, I’ll be chatting with staff members at a firm to see how much they know about their own company’s policies and procedures.

In the midst of all this, when I’m back at the office, my time is sprinkled with tea & cake breaks, impromptu quizzes, and convincing my colleagues to come and eat pizza with me at lunch.

What I love about what I do

One of the things that I love about my job is seeing how my work directly impacts our clients. We often work with small firms just dipping their toes into AML, and through our efforts at Teal, we help them kick-start their compliance journey and navigate the regulatory landscape.

On the flip side, we also have massive magic circle clients where I spend my time chatting to senior staff from around the globe about the regulations in their jurisdictions. It’s like a dream come true for the researcher in me!

Another aspect of my job that I greatly appreciate is the chance to apply my skills in fresh and innovative ways. Having previously worked as an international researcher, where my responsibilities included reviewing and analysing legislation from various countries, I had the opportunity while working at Teal, to take the lead in a significant audit for an esteemed magic circle firm. This audit involved the assessment of all of their international offices, and presenting my findings and recommendations to their senior team – the entire experience was truly remarkable.

Find out more

To find out more about a career with Teal, visit our careers page.

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2 men in suits reading a document at a desk with a pen in hand

What are the SRA doing to enforce lack of AML compliance within law firms?

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

Sadly, law firms (along with other professionals) are still being labelled ‘ProfessiEnablers’ an arguably harsh term that has been in place for quite a few years now. This label was repeated by the National Crime Agency (NCA)’s UK Financial Intelligence Unit in their August 2023 update which stated that Professional Enablers’ “skills, knowledge and expertise are exploited by criminals to launder the proceeds of crime”.

For those of us that have dedicated our time, passion and finances to pursuing a legal career, this term is considered highly offensive. However, the term continues to be thrown at the legal sector because the levels of suspicious activity reports received by the NCA don’t reflect the level of serious organised crime that’s taking place within the UK. Their observations? Those of us within the profession are failing to spot the red flags of money laundering.

So, what are the SRA doing to enforce lack of AML compliance within law firms? As promised, they’ve continued to ramp up their anti-money laundering supervision and investigation measures, with dedicated AML teams being in place since 2019. This demonstrates their desire to dedicate time and resources to ensure AML compliance within firms.

Key Trends

Now, let’s take a look at some of the key trends they’re finding as a result of their supervision and investigation activities:

1. Firm-Wide Risk Assessments (A requirement since 2017)

Much to their despair, the SRA was finding that many firms didn’t have a Firm-Wide Risk Assessment in place, despite their numerous warning notices.

Similarly, a common trend was a failure to suitably tailor precedents according to the firm’s specific risks, namely client risk, product and service risk, jurisdiction risk, transactional risk as well as delivery channel.

They also addressed the fact that firms have returned Declarations to them stating that their Firm-Wide Risk Assessments were AML compliant, when this was far from the case. Whether this was intention or based upon reasonable belief that they were remains to be seen.

2. AML Policies, Controls and Procedures

Again, the SRA marked their disapproval at those firms who lacked any AML Policies, Controls and Procedures, a requirement that has been in place since the 2003 Regulations, and reiterated in the updated 2007 Regulations.

Surprisingly, they also found that some firms have robust and comprehensive suites of AML Policies, Controls and Procedures but these were effectively pointless as they weren’t communicated to staff who are the ones carrying out the day-to-day casework.

3. Lack of Independent AML Audits (where appropriate to the size and nature of the firm)

The SRA said that they expect most firms to have an independent AML Audit.

This is something that we see here at Teal Compliance. Many firms either don’t realise that they should have an Independent AML Audit or it’s something firms know they need to do, but don’t have the time, resources or budget to do.

Independent AML Audits can be a vital opportunity for your firm to address any deficiencies in your AML Policies, Controls and Procedures as well as to interview staff members and carry out review files to see whether the policies, controls and procedures are actually being adhered to as intended.

The SRA has confirmed that they intend to carry out AML audits for every firm, it’s a case of when this takes place as opposed to if this takes place.

4. Lack of AML Training within firms

Lack of targeted AML training within firms was another finding picked up by the SRA during their supervisory and investigative functions. Knowledge is power, so failing to equip staff with the knowledge and resources to spot red flags for money laundering can create large holes in a firm’s AML framework.

AML training should be a key focus for all firms, starting with the staff induction process and continuing on a regular basis (recommended annually as a minimum). Staff who work in higher risk sectors would expect to have more frequent bespoke training to their work type. However, distributing AML blogs and enforcement cases to staff can also form a supplementary part of the training framework, helping to keep staff members engaged.

The SRA has confirmed that its next Thematic Review will be in respect of AML training. This means they’ll also be visiting firms to review firms’ AML training processes. So, make sure your house is in order. The SRA will expect to see a training record detailing what training each staff member has had and when.

AML Breaches

Now, let’s turn to some of the statistic findings from the SRA’s supervision and investigations. In 2022, 249 AML Reports were made from the AML Supervision team with the most common breaches being as follows:

61 Reports of failing to have proper AML Policies and Procedures
60 Failure to carry out source of funds and source of wealth checks
58 Failure to carry out risk assessment at client/matter level
48 Failure to carry out Firm-Wide Risk Assessment
47 Failure to carry out /complete CDD

SRA Enforcement Measures

Aside from sometimes causing catastrophic reputational damage, SRA enforcement measures can have a crippling financial impact on firms of all sizes. However, the SRA have continued to use their full fining powers – both at an individual level as well as a firm level. Let’s have a look at some of the key cases:

1. Mrs A - £2,000 fine

Failure to follow firm’s PCPs
Failing to establish appropriate level of risk
Failure to obtain source of funds and source of wealth information

2. Firm B - £20,000 Fine

Failure to have Firm-Wide Risk Assessment
Incorrect Declaration made to SRA regarding the Firm-Wide Risk Assessment
No independent audit
Failure to provide staff with AML training
Failure to carry out client and matter risk assessments
Failure to carry out source of funds and source of wealth checks

3. Mr C - 12 month suspension on Practicing Certificate

Failure to perform CDD adequately
Failure to perform EDD where appropriate
Found manifestly incompetent

For further information on the SRA’s New Fining Powers, please click here.

What should law firms take away from this?

At the SRA’s conference in March 2023, Paul Philips, Chief Executive of the SRA, recognised that most firms are still trying to ‘catch up’ with the large amount of regulatory guidance and legislation that’s come into force in recent years. He stated that these firms will have nothing to fear.

It’s apparent that firms that are demonstrating wilful disregard to the requirement to have a comprehensive AML framework in place are those that are likely to feel the full force of the SRA’s fining powers, in addition to firms who return Declarations that they know to be incorrect.

The SRA also recognised that in times of wider economic pressures (such as the current cost of living crisis) there may be a tendency for firms to reduce their AML resources, whether that’s staffing levels or technology. However, they confirmed that AML resources must not be reduced and must remain a key priority for all firms.

Get in touch

If you require assistance with any of the topics discussed in this blog, such as assistance with your Policies, Controls and Procedures, AML training for your firm or you’d like to discuss our Independent AML audit services then please get in touch.

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Eilish Cullen, Compliance Consultant at Teal Compliance

A day in the life of Eilish Cullen – Senior Associate at Teal Compliance

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

If you’re interested in a career in compliance, our senior associate, Eilish Cullen, talks about life at Teal Compliance, and what her work involves.

About me

I’ve been working as a Senior Associate at Teal Compliance since November 2022. Having previously carried out Teal’s comprehensive Compliance Officer Training Programme, I was already aware of their reputation within the compliance industry. Prior to this, I worked at a small litigation firm in Liverpool and had several roles including Head of Department, Deputy COLP, Director and Complaints Partner.

In my previous role, I carried out a wide range of tasks including fee-earning, supervision, training, elements of human resources, as well as policy drafting and compliance record keeping.

My role

My day-to day duties, usually consist of:

Reading Legal Futures/Law Gazette. Fellow ‘compliance geeks’ will understand the need to keep ourselves informed of Regulatory and AML developments.
I try to be active on LinkedIn. It’s a great platform to share our knowledge with clients, potential clients and those in the industry. I think it’s important for our clients to know about the services we provide and to put some personality into what others deem to be a ‘dry subject’.
I’ll plan out my day. This could be a Policy Review, Regulatory/AML training, CQS File Reviews or our most popular service – our independent AML Audit.
As Associates, we always keep an eye on our inbox for ‘Ask Teal’ enquiries. This is a central inbox where clients contact us seeking urgent guidance, and we aim to provide high-quality expert advice within a short period of time. Some of these can be very technical and tricky but between the Teal Team, we have always been able to assist.

A typical day

Whilst we’re thankful to have flexible working, I tend to work 9am-5pm.

Thankfully, the Management Team at Teal encourage taking regular breaks and are very keen on having good mental health strategies in place – no one wants a burnt-out employee! This means I always take my lunch break, something that didn’t really seem to happen in my last role due to other demands. I definitely feel more productive as a result.

Sometimes your best thoughts come to you whilst walking your dog – who would have thought?

What I love about what I do

One of the reasons I love working at Teal is the sense of job satisfaction I get, something I feel was missing in my last role due to ‘spinning so many plates’ and never truly feeling that I was adding value as a result.

Many of our law firm clients feel the same, with their time and resources being thinly stretched. Here at Teal, I’ve been given the opportunity to provide expert guidance to our clients and help to shape their compliance framework for the better which gives me a great sense of personal achievement. This is why I ‘do what I do’.

Diversity is also something that keeps me motivated. No month at Teal is ever the same! Alongside carrying out independent AML audits, CQS file review and AML training, I have also been selected to participate in round table discussions on financial management and regulatory issues. Having this level of exposure has been extremely beneficial for my career development within Teal.

That said, like many professionals, I’m sometimes plagued with the dreaded ‘imposter syndrome’ and doubt my own capabilities. However, I genuinely think this is counter-balanced by having a supportive and positive team around. Getting good client feedback also helps!

Find out more

To find out more about a career with Teal, visit our careers page.

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Filing cabinet draw with file partially lifted out named "suspicious activity reports (SARs)

The potential pitfalls of SARs: 10 ways to avoid them

Anti-Money Laundering, Blogs, Legal Compliance / Joanne

Filing Suspicious Activity Reports (SARs) should be a top priority for UK law firms, especially when dealing with situations that raise red flags for potential money laundering. However, the term ‘suspicious’ itself presents a conundrum due to its lack of a precise definition. The ambiguity surrounding suspicion demands clarity in expressing your concerns—not only to protect your firm against legal repercussions, but also to maintain transparency with your clients.

Here, we look at the pitfalls of filing SARs, and provide our top tips to avoid them.

Battling financial crime

The 2022 Suspicious Activity Report (SARs) Annual Report, released by the National Crime Agency (NCA), presented a clear picture of the evolving landscape of financial misconduct, spanning 2020/21 and 2021/22. The report includes the following:

Setting new records

The report reveals an impressive 21% surge in SARs submissions, reaching a staggering 901,255 in the latest financial year. This increase underscores the growing vigilance within regulated sectors against potential money laundering and criminal activities.

Striking back at criminals

SARs continue to play a pivotal role in halting financial crime. An astounding £305.7 million was denied to suspected ‘baddies’ through Defence Against Money Laundering (DAML) requests – a remarkable 120.6% boost from the previous year’s £138.6 million. This surge reflects the effectiveness of SARs in curbing illicit financial gains.

Adapting to changing scenarios

The pandemic and geopolitical events have emphasised the adaptability and significance of SARs. Criminals exploited the pandemic chaos, underscoring the need for accurate financial intelligence – intelligence that SARs provide. The report highlights the role of SARs, in unearthing money laundering linked to sanctioned individuals and their affiliations, particularly following Russia’s invasion of Ukraine.

The potential pitfalls

Despite the crucial nature of SARs, there’s a challenge when it comes to what constitutes as ‘suspicion’. Cases like Lonsdale v National Westminster Bank plc [2018] EWHC 1843 (QB) have added to the complexity of this issue.

David Lonsdale, a property law barrister, found himself entangled in a situation where his bank accounts were frozen due to suspicions of money laundering.

Mr Lonsdale owned several properties and managed the finances of each of those enterprises with seven separate bank accounts; including one account for his earnings as a barrister, and another two joint accounts.

The bank's actions

In March 2017, NatWest decided to freeze one of his joint accounts for eight days while filing a SAR to the NCA. In December 2017, they froze all of his accounts while filing additional SARs. That same month, NatWest wrote to Mr Lonsdale, informing him that they were going to close all of his accounts, offering no explanation or justification.

Of course, if a bank has genuine suspicion of money laundering, they’re entirely within their rights to file a SAR and freeze accounts.

Mr Lonsdale's response

Mr Lonsdale vehemently objected to the closure of his accounts and the accusation of suspicious activity. Mr Lonsdale demanded an explanation, but the bank refused to discuss the issue. As a result, Mr Lonsdale requested disclosure of the SARs, as well as any notes leading to the decision, recorded against his accounts, under the Data Protection Act 1998 (since superseded by DPA 2018).

In line with DPA laws, the bank provided account data, but refused to share the contents of any of the SARs raised against him. This led Mr Lonsdale to file complaints on the grounds of:

Breach of contract
Breach of DPA 1998
Defamation of character

The bank continued to assert that they weren’t obliged to grant access to the contents of the SARs. This led Mr Lonsdale to escalate the case by making an application to the courts.

The case results

When the case was heard, the judge found in favour in Mr Lonsdale’s application to access the content of the SARs.

The judge stated that suspicion must exceed mere fanciful possibility and acknowledged the absence of a requirement for suspicion to be ‘clear’ or ‘firmly grounded and targeted on specific facts’.

What we learned

The lack of a formal legislative definition for ‘suspicion’ has led to confusion and subjectivity. However, the judge’s response implies that suspicion holds a subjective nature, although it must be genuine.

NatWest was within its rights to take action, as banks can freeze accounts if genuine suspicion exists. However, this case highlighted the need for transparent communication and well-founded suspicions.

It establishes that, in some circumstances, clients may be legally entitled to view a SAR made about them, which could, potentially, lead them to bring a defamation claim against the MLRO if that suspicion turns out to be damaging and incorrect.

10 tips to avoid the pitfalls of SARs

In line with advice from the National Crime Agency (NCA) and the insights from the Lonsdale case, here are ten effective ways to navigate the potential pitfalls when reporting suspicious activity:

1. Clear and concise language

Aim for simplicity over legal jargon. Remember, the ‘reasons for suspicion’ section of the SAR limits your input to 8,000 characters, which translates to about 1,500 words. Clarity is your best ally.

2. Precise reasoning

When expressing your suspicion of money laundering, provide a comprehensive narrative. Address the fundamental questions: Who? What? Where? When? Why? How? Leaving no room for ambiguity.

3. Thorough details

Don’t shy away from specifics. When identifying individuals and businesses involved, include as much detail as possible. If suspected criminal property is in the mix, ensure it’s outlined with precision while adhering to privilege guidelines.

4. Detailed information

Elaborate on every piece of information that contributes to your suspicion. Clearly explain how you encountered this information, creating a transparent trail that others can follow.

5. Distinguish facts from suspicions

Separate hard facts from suspicions. It’s essential to convey what you definitively know from what you suspect. This distinction adds clarity to your report.

6. Chronological sequence

Create a chronological timeline of events that substantiate your suspicion. Be meticulous with dates, providing a clear sequence that supports your case.

7. Justify suspicion

Go beyond a mere declaration of concern. Provide the rationale behind your suspicion. For example, if sizeable third-party transfers are involved, outline whether you contacted the client, explain the inadequacy of their response, and detail how the transfer pattern arouses suspicion.

8. Deviation from the norm

Highlight how the flagged activity differs from normal operations within the specific customer or business sector. This contextual insight strengthens the gravity of your concern.

9. Professional involvement

If your SAR implicates a professional enabler (like an accountant or conveyancer), assess their involvement. Specify whether their participation appears witting and provide reasons for your assessment.

10. Clarity on transactions

Clearly describe whether your suspicion pertains solely to transactions or if it extends to the professional behind them. Transparency in this regard bolsters the effectiveness of your report.

Given the potential for vagueness in the term ‘suspicion’, it’s reassuring to know that The Law Commission is working to provide clearer guidance on what constitutes suspicion. In the meantime, adopting these ten tips will bolster the thoroughness and precision of your SARs.

Get in touch

If you need advice or guidance with AML compliance, we’re here to help you. Simply get in touch with one of our friendly experts today.

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