The latest article in our London Market series reflects on the SRA’s Business Plan for 2024. Our Professional and Financial Risks team consider the key compliance themes for law firms and insurers to take into account over the coming year, offering practical tips to navigate the increasingly challenging world of compliance.
With the SRA now having the power to impose fines of up to £25,000 on individuals and ‘traditional law firms’ (up from £2,000 under the previous regime) and unlimited fines for ‘economic crimes’, it is all the more important that everyone in the legal sector – including insurers, brokers and underwriters – understands and appreciates the constantly evolving compliance landscape within which we operate.
There are a number of key themes emerging from the SRA’s objectives for 2024, three of which are:
It is clear that the SRA intends to focus heavily on sanctions compliance, recommendations for the implementation of a stand-alone sanctions risk assessment and separate sanctions policy, as well as full training for all staff on sanctions-related issues and procedures. Accordingly, the SRA has signalled its intent to investigate sanctions compliance across the profession in 2024, and this is consistent with the letter that it issued to 1,000 law firms earlier this year with further advice on compliance with the UK’s financial sanctions regime. As the war in Ukraine enters its third year and global tensions continue to rise, it is clear that sanctions compliance will continue to be a priority for the SRA going forward.
Another key area of focus for the SRA is anti-money laundering (AML) compliance and procedures. It is clear that the SRA expects firms to adopt a much more rigorous approach to their AML processes. This includes the need to consider and identify potential red flags arising from both the nature of the client (e.g. their geographical location) and the nature of any relevant transactions (e.g. the structure of the transaction and whether it is designed in a way that favours anonymity, for example through the use of cryptocurrencies or complex and opaque structures). It is also clear that the SRA expects firms to do more to identify beneficial owners standing behind ostensible clients and to extend their AML enquiries to those entities and individuals where appropriate (including as to the source of any relevant funds and the client’s/beneficial owner’s wealth). From an enforcement perspective, the record fine of £500,000 handed down by the Solicitors Disciplinary Tribunal earlier this year to Clyde & Co, for various breaches of AML regulations, should leave no doubt as to the SRA’s attitude to such matters.
The SRA’s system of “professional self-reflection” has been in place since 2016. The SRA has now said that it intends to undertake a “thematic review to understand the levels of competence achieved and the regulatory action required to address any shortfalls”. It remains to be seen whether this review leads to any substantial change to the SRA’s competency framework.
Bearing in mind the SRA’s objectives for 2024, there are various ways in which you can help ensure compliance in the coming months.
One overarching theme of the SRA’s Business Plan is the need for firms to review their risk assessments – both in terms of any Practice-Wide Risk Assessments as well as any matter-specific assessments in relation to key issues such as sanctions and AML compliance – to ensure compliance with developments in technology and the wider legal landscape. Firms should consider a wholescale review of their risk assessments and may consider making use of the SRA’s own templates and guidance materials (e.g. the SRA’s Guidance Note and Template accompanying its Client and Matter Risk Assessment Warning Notice published in October 2023).
It should go without saying that a risk assessment is only effective to the extent that it is actually implemented. To that end, another key theme arising from the SRA’s Business Plan is the need for better record keeping, particularly in terms of sanctions compliance and AML checks. Improved record keeping should assist not only in ensuring that policies and procedures are being adhere to but also in terms of assessing the extent to which those policies and procedures are working.
Following on from the above, it is clear that the SRA expects nuanced and targeted training to be provided to all staff on key issues, including those discussed above but also in relation to other growing areas of concern such as data protection and cyber security. Firms may wish to review their training programmes to make sure they align with both the SRA’s objectives and their own procedures and policies, and consider the need for regular refresher training on particularly important subjects such as AML and sanctions compliance.
As mentioned above, it is unclear what (if anything) will come of the SRA’s review of its system of “professional self-reflection”, but it would certainly seem prudent for firms to take a proactive approach and to review their own procedures and record keeping to ensure they are able to satisfy the SRA (if required) that adequate “self-reflection” is, in fact, taking place.
The compliance requirements for law firms and solicitors are constantly evolving and are as challenging as ever. While there are certainly plenty of pitfalls that law firms, practitioners and those in the insurance industry that sit between them need to be aware of, it is also the case that a focus on the key themes and issues identified in this article should at least provide a good starting point for those hoping to successfully navigate their way through this changing landscape.
For further information contact William Blevins or Jessie Clapham.
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