What Is an AML Check, and Why Is It Important for Law Firms?

UK-based law firms operate under the watchful eye of AML regulations designed to prevent financial crimes like money laundering and terrorist financing. Yet, the path to compliance can be fraught with challenges: evolving regulations, lengthy checks, and the risk of alienating clients. How can law firms navigate this without sacrificing efficiency or service quality?

In this article, we’ll dive into the essentials of anti-money laundering checks (AML checks) and offer strategies to make them simpler and more effective for your practice.

Understanding Money Laundering Regulations

The UK's AML framework is primarily governed by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, aligning with international standards set by the Financial Action Task Force (FATF).

These regulations require firms to complete a comprehensive AML risk assessment process to identify and evaluate potential money laundering and terrorist financing risks specific to their firm. This assessment forms the foundation for the approach you implement to mitigate these risks.

Then, firms must establish written policies, controls, and procedures to address the risks identified in their risk assessment and prevent money laundering. These measures must be proportionate to the size and nature of the business, approved by senior management, and regularly reviewed and updated. They should also be clearly communicated within the firm to ensure everyone understands and adheres to the approach.

What is an AML Check?

AML checks protect law firms (and financial institutions) from financial crime, ensuring they have a thorough understanding of their clients and the business relationships they enter into.

​​AML refers to a broad framework of policies, laws, and regulations designed to prevent criminals from laundering money. These policies dictate the types of checks law firms conduct, based on the risk level. This involves conducting client due diligence (CDD), which includes:

• Identifying and verifying the client: Confirm the client's identity by requesting and reviewing official documentation that proves their name and identity.
• Identifying and verifying the beneficial owner: If the client is not an individual (e.g., a company or trust), identify and verify the ultimate beneficial owner(s) behind the entity.
• Understanding the business relationship: Gather information on the purpose and nature of the business relationship. This includes confirming the source of funds and ensuring the requested work aligns with the client’s profile and intentions.
• Completing a risk assessment: Assess the potential risks associated with the client and the matter. This involves evaluating factors such as jurisdiction, transaction size, and complexity.
• Conducting ongoing monitoring: Continuously monitor the client relationship to identify and respond to any changes or suspicious activity over time.

AML checks aren’t a one-time task. AML is a living, breathing process throughout the entire business relationship. Continuous monitoring is essential to ensure compliance as circumstances and risks evolve.

If firms do uncover potentially suspicious activity at any stage of the client relationship, they must create a Suspicious Activity Report (SAR) before submitting it to the National Crime Agency (NCA).

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Challenges in Conducting AML Checks

While AML checks are essential for compliance and risk mitigation, they come with significant challenges. Law firms must address these hurdles to ensure efficient and effective processes without compromising the client experience.

Keeping Up with Evolving Regulations

AML regulations are constantly updated to address emerging threats. It's crucial firms remain up-to-date with the latest changes, but this can be incredibly time-consuming and resource-intensive.

Balancing Compliance with Client Experience

Strict AML checks can create friction during client onboarding, leading to delays and frustration. Striking the right balance between rigorous compliance and a smooth client journey is critical.

Inefficiencies in Manual Processes

Traditional AML checks often require manual processes for verifying documents and maintaining detailed records. These manual processes slow down onboarding and strain internal resources.

Managing False Positives

High rates of false positives in AML screenings can overwhelm fee earning staff and compliance teams, delaying legitimate matters and increasing workload.

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Best Practices for AML Compliance

Staying compliant with AML regulations requires more than just meeting the bare minimum. Law firms must adopt proactive and efficient strategies to prevent financial crime while maintaining strong client relationships. Here are some best practices to help your firm enhance its AML processes and reduce risks.

Implement a Risk-Based Approach

Not all clients or transactions carry the same level of risk. By adopting a risk-based approach, your firm can allocate resources more effectively. High-risk clients, such as politically exposed persons (PEPs), require enhanced due diligence, while lower-risk clients can be managed with standard checks. This targeted strategy reduces the administrative burden and ensures compliance efforts are focused where they matter most.

Leverage AML Software

Manual compliance processes are time-consuming and prone to error. Using AML software streamlines key tasks such as , ongoing monitoring, and flagging suspicious activity. Automated tools also help reduce false positives, saving time while maintaining accuracy.

Regularly Train Your Team

Compliance isn’t just about systems—it’s about people. Regular training ensures your team understands AML regulations, can spot signs of criminal activity, and knows how to respond to potential risks. Training should also cover updates to laws and best practices.

Maintain Clear Records

Good record-keeping is essential for demonstrating compliance during audits or regulatory reviews. Keep detailed records of customer due diligence, risk assessments, and suspicious activity reports (SARs).

Conduct Ongoing Monitoring

AML compliance doesn’t stop after onboarding. Use ongoing monitoring tools and periodic risk assessments to keep track of client and matter activity throughout the lifecycle of the business relationship. This proactive approach helps detect changes in customer behaviour or new risks that might require action.

How Legl Simplifies AML Checks for Law Firms

Legl provides tailored AML solutions that streamline compliance while improving client onboarding. With automated client document collection, risk-based due diligence, and enhanced transaction monitoring, Legl helps law firms easily conduct thorough AML checks.

Here's how.

• Identity and biometric verification: Legl ensures accurate client identification through ID and biometric checks.
• Financial checks: Gain key insights into bankruptcy, debt collection, and CCJ screenings.
• Source of funds: Clients securely share bank transaction data via open banking, providing firms with instant access to verified, real-time financial information. 
• Know your business: With automated checks on company registries, ownership structures, and other key data sources, Legl enables law firms to quickly and accurately verify business clients and their ultimate beneficial owners. 
• Watchlist screening: Instantly flags risks through PEP, sanctions, and adverse media checks.
• Ongoing monitoring: Tracks client status daily for real-time updates on risks.
• No-code workflows: Easily create no-code workflows, customising both client-facing and internal processes.

Final Thoughts

UK-based law firms must navigate the complex demands of AML compliance, balancing strict regulatory requirements with the need to maintain strong client relationships. However, with the right approach—one that follows a risk-based approach and utilises advanced AML software—these checks can become faster, smarter, and easier.

Ready to simplify your AML processes? Book a demo to learn how Legl can help. 

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