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HomeLegal InsightOpinion & AnalysisTaking a risk-based approach cuts costs and makes compliance easier

Taking a risk-based approach cuts costs and makes compliance easier

At a time when economic conditions might push firms to consider reducing costs, the SRA has published its updated guidance on AML risks in the legal sector, which warns firms to maintain compliance with AML regulations despite the challenging conditions. It’s a directive that many might hope to ignore. However, there’s little point in doing so.

The UK’s gone from achieving the best rating of any country assessed so far in Financial Action Task Force’s 2018 evaluations to slipping to 18th place in Transparency International’s Corruption Perceptions Index by 2022. Things have to change.

Government pressure on supervisors to bring their sectors into line is a symptom of our AML failings. The SRA’s 2023 Sectoral Risk Assessment – Anti-money Laundering and Terrorist Financing makes it very clear that it’s aware of the weaknesses of its sector. And that every firm has a duty to address them: “…firms need to understand that economic conditions do not change the requirement to comply with the regulations.”

The price of non-compliance

Your AML obligations are legally required for one reason: so that your firm can submit a comprehensive Suspicious Activity Report (SAR) when necessary – or can hand over the correct information to law enforcement when requested. The Economic Crime and Corporate Transparency Bill has potential to make any firm not able to do this suffer much worse consequences than previously seen enacted in the legal sector.

As well as criminalising lawyers who don’t actively prevent crimes like fraud, false accounting and money laundering, it looks set to uncap the fines which the SRA can impose for non-compliance. With the UK desperate to regain its reputation as a fair, uncorrupt place to do business, you can bet that examples will be made of non-compliant firms.

Reduce your costs with a risk based approach

From my perspective as both a regulated professional and an AML expert, I’m telling you that it gets easier when you view AML as something that must be done, rather than a chore that can be put off indefinitely. It doesn’t have to be a costly exercise. By taking the risk based approach (RBA) recommended by FATF, you can focus resources where there’s high risk.

The RBA is an umbrella term for the steps you take to enable the correct decision to be made in an AML situation, such as gathering additional information, data and documents about a client. It kicks in when your firm’s systematic processes, the rules based approach from your Policies, Controls and Procedures (PCPs), identifies potential AML issues.

Such additional work is not necessary for every client, just those where your client information collection and verification produces uncertainty or anomalies. By only obtaining the extra information for higher-risk clients, you can focus your time and effort where it’s needed most.

Being able to apply the RBA effectively is an important part of your firm’s skillset. It also requires a systematic process that enables you to spot when to apply it. Once you have tailored PCPs which establish these steps, you’ll find that AML is a normal part of your daily business. And that risks are much easier to spot and tackle.

Richard Simms, MD of AMLCC, is both a regulated professional and a leading authority on anti-money laundering compliance, risk management and education. In both his role as a chartered accountant and licensed insolvency practitioner, and as a sought-after guest at AML conferences worldwide, Richard is on the pulse of changes in AML guidance. 

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