Proposed new guidance from the Legal Services Board (LSB) has prompted concerns about potential inconsistencies in how legal regulators address economic crime.
The Economic Crime and Corporate Transparency Act 2023 has introduced a statutory duty for legal regulators to promote the prevention and detection of economic crime. In response, the LSB, which oversees these regulators, has issued draft statutory guidance aimed at clarifying how they should fulfill this new obligation.
This guidance outlines four critical outcomes for the regulators. First, they must identify and address risks that could lead to their regulated entities facilitating economic crime, either knowingly or unknowingly. Second, they need to ensure that lawyers can recognise and mitigate these risks effectively. Third, regulators are tasked with monitoring compliance with established standards. Lastly, there is a need for regulators to regularly assess their own procedures to ensure they remain robust.
Interestingly, while the LSB suggests a unified approach, the guidance leaves the prioritisation of specific economic crimes—under the broad umbrella defined by the act—to the discretion of the individual regulators. Colette Best, who recently transitioned from the role of director of Anti-Money Laundering (AML) at the Solicitors Regulation Authority to a position at Kingsley Napley, highlighted this as a potential flaw. She notes the autonomy granted might lead to varied interpretations and implementations across England and Wales, and even more so when considering the distinct regulatory jurisdictions in Scotland and Northern Ireland, which the LSB guidance does not cover.
The eight frontline regulators have reported actions taken towards adhering to this new duty. Their primary focus has been on anti-money laundering, financial sanctions, and fraud. LSB’s Chief Executive, Craig Westwood, emphasised the importance of this initiative to fortify the legal sector’s integrity, which underpins the rule of law.
Despite assurances from the LSB, Ms Best remains sceptical about achieving a consistent application of safeguarding measures across the legal profession. The diverse interpretation allowed by the current guidance could, she argues, lead to fragmented efforts, undermining the fight against economic crime across different legal frameworks and practices.
Furthermore, the consultation document accompanying the guidance indicates additional scrutiny on how lawyers comply with regulations. It highlights past non-compliance issues within the sector, suggesting that without rigorous oversight, economic crime could exploit regulatory gaps.
This initiative aims to elevate standards universally across the legal field, thereby discouraging individuals involved in economic crime from seeking laxer regulatory environments. However, the challenge remains in balancing regulatory autonomy with the need for consistency in addressing such crimes.
The LSB’s guidance on economic crime represents a significant step towards standardising legal practices, but its success largely depends on achieving cohesive implementation across jurisdictions.
