The Solicitors Regulation Authority (SRA) has recently imposed fines totalling £57,000 on eight law firms due to deficiencies in their anti-money laundering (AML) controls.
A significant issue identified by the SRA was the absence of client and matter risk assessments (CMRAs) and firm-wide risk assessments (FWRAs) within these firms. The SRA’s annual AML report revealed that 19% of the 3,048 files reviewed lacked a CMRA, and 12% of those in place were ineffective, with vague reasoning for risk ratings. Despite an improvement from the previous year, where 51% of CMRAs were assessed as ineffective, the SRA remains concerned.
The most substantial penalty was issued to Surrey’s Hill Johnson & Leo. Between June 2017 and July 2023, the firm neglected to implement an FWRA or conduct CMRAs, failing to comply with both the 2017 and 2007 Money Laundering Regulations. Although no client suffered a direct loss, the firm was considered at high risk of facilitating money laundering due to its focus on conveyancing. Hill Johnson & Leo’s fine amounted to 2% of their turnover, reduced after the firm took corrective measures, resulting in a £18,094 fine plus £600 in costs.
Similarly, Stafford-based Tedstone George & Tedstone lacked CMRAs for 11 client files as found during an SRA inspection in 2023. Although the firm later documented and completed risk assessments, they were penalised £13,030 along with costs of £1,350 for historical non-compliance with AML regulations. The SRA underscored that informal assessments without proper documentation do not meet regulatory requirements, despite the firm’s efforts to correct its procedures post-inspection.
Bull & Co in Andover also failed to maintain CMRAs from 2017, contravening the 2007 regulations earlier. Although no harm was evident, the firm cooperated and complied with the SRA’s investigation, showing remorse for the infringement. Consequently, they received a £7,577 fine after a mitigation discount and were ordered to pay £600 in costs.
In Birmingham, Margetts & Ritchie displayed serious control failings with neither FWRA nor CMRAs from June 2017 to February 2023. A review of their files found missing source of funds checks in transactions involving high-risk countries. The SRA noted a general lack of risk assessment culture within the firm, particularly given the high-risk area of conveyancing work. Their fine was initially set at 2.8% of turnover, reduced to £3,828 with costs of £1,500 due to compliance improvements and external consultancy aid.
Croydon’s Edridges & Drummonds, primarily handling conveyancing, was fined £3,395 plus £600 costs for similar AML control failings. Despite previous claims of compliance, an inspection revealed outdated FWRA practices. Mitigation led to a 10% reduction in their penalty.
Kent firm Ratcliffes was similarly found lacking in CMRAs, despite much of their work falling under AML regulations. Their penalty began at £8,408, reduced to £6,727 after recognising their efforts to address the issues before an SRA inspection.
West Yorkshire’s Redfearns Solicitors neglected to maintain FWRA documentation between 2017 and 2023, although verbally assessed risks annually in partner meetings. Their compliance after the SRA ordered an FWRA led to a reduced fine of £2,435 after mitigation credits.
Rochdale’s Hartley Thomas & Wright was penalised £2,398 after failing to conduct CMRAs over five years, with uncovered conveyancing files showing unverified cash transactions. Nevertheless, their procedural adequacy and compliance mitigated potential risks despite initial documentation shortcomings.
The SRA’s enforcement actions underscore the essential need for robust AML controls within law firms. While some firms have taken steps post-violation to ensure compliance, these cases highlight the importance of consistent and documented risk assessments. The legal sector must heed the SRA’s warning to prevent future penalties and safeguard against money laundering threats.
