As part of their AML firm visits in 2021, the SRA highlighted that many law firms were not effectively managing their matter risk assessments.
In a recent webinar, Kate Burt, Head of Risk & Compliance here at Legl, discussed the challenges surrounding how firms approach and capture AML and best practices towards achieving 100% compliance.
The key challenges firms face include:
- Inconsistent or disjointed processes between onboarding team and fee earners
- Incomplete or not documented at all
- Poor quality of the written risk assessments
- Lack of understanding and staff training
- Lawyers don’t have visibility of firm-wide risk assessments
- Lack of oversight for compliance teams
- Fostering an embedded compliance culture
Throughout Kate’s compliance consultancy visits to law firms, she has recognised that there seems to be an overarching complacency about matter risk assessments amongst the profession. The likely reason for this is that there’s currently a lack of repercussions for law firms that do not comply with SRA regulations.
In our recent webinar, Kate referred to a perceived lack of consequence for not having a written risk assessment, when their view is that they have a good approach to assessing risk, but are simply not documenting the process. Failure to have a written risk assessment on relevant matters is a breach of the AML legislation, whether or not money laundering is later identified.
In the webinar, Kate recommended that a good starting point for firms was to look at the LSAG guidance.
High-level principles from LSAG
LSAG guidance states that:
Practices must have a written, up-to-date practice-level risk assessment in place, in line with R18 requirements. Practices must use this to directly inform their AML PCPs.
Chapter 5 from the LSAG guidance states that if firms’ risk assessments are not properly used with assessing client or matter risks, or do not inform the PCPs in place, the practice will be exposed to the risk of abuse from criminals.
Comprehensive and documented risk assessments, combined with written records of decisions made on individual clients and matters, will enable firms to justify the decisions and actions to law enforcement and supervisors.
Compliance culture challenges
There can be an administrative burden to completing matter risk assessments in the traditional way, so fostering an effective firm-wide compliance culture in already pressured teams can be a challenge.
Add to the mix that firms often work with manual and clunky processes to document risk, and matter risk assessment documents can fall to the bottom of the priority pile. Technology can help to ease that burden and promote adoption.
What role does technology play in matter risk assessments?
Technology plays an essential role in providing a better picture of risk and adherence to processes. It can also:
- Provide comprehensive audit trails across all clients of the firm
- Help firms manage their risk and reduce the occurrence of breach caused by human error
- Deliver a single source of truth for client due diligence throughout the client lifecycle
- Aid firms in applying consistent processes across the practice
Disjointed processes can be prone to human error without a high level of visibility and oversight, which is a compliance risk.
Best practices to increase compliance
By using Legl, law firms can:
- Link AML compliance with internal documents like risk assessments and other key client information such as payments history.
- Help better inform next steps using risk scores to offer quick visibility of a client’s risk profile and upload matter risk assessments over time to build a full audit trail.
- Easily accessible matter risk assessments.
Risk assessments are viewed as a continuing process, and one which must be updated when risk changes.
For many firms, Legl can be a quick win to handle some of these processes and remove some of the heavy lifting associated with change management.