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New Money Laundering Legislation Demands Greater Focus on Risk & Compliance by Law Firms

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In previous years, the words 'risk and compliance' had become synonymous with "red tape" and "process stalling". Today however, managing risk and compliance is a business imperative and a 'burying your head in the sand' approach just won't cut it with the regulation authorities.

Legislation

New regulations such as Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; which came into force in June 2017, will add to the already burdensome process of ensuring that law firms know their client and the work that the organisation is undertaking for them. It will be essential to ensure that no breaches of the new code occur and that the necessary safeguards are put in place to measure the 'risks' associated with clients and any resulting matters.

The Law Society website recently provided the following guidelines and actions for firms to help them ensure they are in compliance with these new regulations:

  • Conduct a money laundering and terrorist financing risk assessment
  • Implement systems, policies, controls and procedures to address money laundering and terrorist financing risks and meet the requirements under the regulations
  • Apply your policies, procedures and controls across your firm’s group structure (if relevant)
  • Adopt appropriate internal controls
  • Provide training to staff
  • Apply for approval if you are the beneficial owner, officer or manager of a firm
  • Comply with new customer due diligence, enhanced due diligence and simplified due diligence requirements
  • Comply with requirements relating to politically exposed persons
  • Ensure your record keeping and data protection systems, policies and procedures meet the requirements of the regulations
  • Comply with new obligations relating to record keeping and the provision of information about beneficial ownership if you act as a trustee of a relevant trust

With such an extensive laundry list of risk and compliance-related requirements, it’s now not enough to merely do an initial risk assessment on clients at their first instruction, as has been typically the case. Subsequent repeat instructions require as much assessment, especially if the firm is undertaking different work types.

Technology, such as case management systems, will play a critical role is enabling law firms to deliver against these legislative requirements.

Client-related assessments

The ability to review the risks associated with clients at each subsequent instruction requires a system that makes these reviews easy and least time consuming as possible. Also, the assessment questions relating to client risk need to be tailored to the entity type of the instructing client – for example, a large corporate client should be asked a different set of questions compared to say an individual.

Matter-related assessments

Differing matter work types need to have their own specific questions pertinent to their respective legal areas. Scoring the answers to each of the specific questions will be necessary to ensure that the threshold used to mark a matter as low/medium/high risk is easily maintainable. The standard questions for a conveyancing file, for example, will be different to those for a litigious file, although there may be some cross over in terms of ensuring any funds are ‘legitimate’.

Reporting

If a client or matter breaches any scoring threshold, then the system will need to be able to escalate that issue to the nominated Compliance Officers for Legal Practice (COLP) / Money Laundering Reporting Officer (MRLO) for further investigation or approval.

Delivering against the above-mentioned requirements is complex and extremely challenging, not to mention error-ridden, if undertaken manually.

To this end, users of our legal workflow and case management system, Lexis Visualfiles, can use the Visualfiles Risk and Compliance Add-in, which provides law firms the necessary flexibility to cover all their practice areas alongside the ability to enforce escalation rules to enable COLPs/COFAs to manage the business more easily and apply changes quickly and seamlessly, where needed.

This Visualfiles Risk and Compliance Add-in enables law firms to standardise questions across work types to ensure that a consistent scoring mechanism identifies matters that require further investigation. Of course, being Visualfiles based, the application provides automation where suitable, saving users time and enabling them to focus on the more pertinent and complex questions that potentially may need a little more research.

If your firm is a Visualfiles user and you are reviewing current processes for meeting the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, please get in touch with us on marketing@lexisnexis.co.uk. We will be able to assist you.

Tags: Visualfiles

About the Author:


Shaun Denham is Client Advisor at LexisNexis Enterprise Solutions. He has over 25 years’ experience in legal IT and finance and has held a variety of roles including Head of IT at Lupton Fawcett in Leeds. He has also worked at a number of legal software suppliers.

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