Wednesday, November 30, 2022

Number of law firms fined by SRA increases following anti-money laundering compliance crackdown

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The number of fines against law firms, handed out by the UK’s solicitors’ watchdog, has increased six-fold over the past five years following an anti-money laundering compliance crackdown, according to data obtained by City A.M. 

The Solicitors Regulation Authority (SRA), which regulates more than 11,000 law firms in England and Wales, gave out just six fines in the financial year 2017/18 compared to 37 in 2021/22.

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The number of fines issued against law firms has also more than doubled each year over the past three years, from a total of seven in 2019/20, to 16 in 2020/21, and 37 in 2021/22, according to data received in response to a freedom of information request filed by City A.M. 

The uptick in fines came after the SRA launched a clampdown on firms that had fallen behind on their anti-money laundering obligations, after new rules were introduced in 2017.

The clampdown – which saw the SRA ask every law firm that it regulates to declare that they had a firm-wide risk assessment in place to help prevent and detect money laundering by January 2020 – led to 23 law firms being fined for anti-money laundering failures last year.

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A spokesperson for the SRA explained that the recent increase in the number of fines against law firms is the result of two different enforcement projects.

The two enforcement sweeps saw the SRA review firms’ compliance with anti-money laundering standards, and check whether firms were breaching transparency rules, which require law firms to publish basic information about complaints, and the prices of certain services, for example.

The SRA spokesperson added that while the anti-money laundering risk assessment exercise was “a one off”, and likely led to a delayed uptick in firm fines, checks on firms compliance with transparency rules will “continue”.

However, Andrew Pavlovic, a partner at law firm CM Murray, argued the SRA’s “focus on organisations is likely to continue” as the watchdog finds itself tasked with ensuring law firms’ compliance with sanctions that were introduced following Russia’s invasion of Ukraine.

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Pavlovic, who has represented both the SRA and firms facing action from the regulator, said the uptick is a sign of a “shift in emphasis” within the regulator that has seen it move away from a focus on “personal misconduct,” such as sexual harassment cases, towards “anti-money laundering compliance” and potential financial misconduct.

Value of penalties increases, but big ticket fine skews data

The total value of fines issued against law firms more than tripled in five years, from £87,000 in 2017/18 to £299,925 last year. 

But the total value fines against firms last year is heavily skewed after law firm Mishcon de Reya was hit with a £232,500 fine for anti-money laundering failures, which were not picked up as part of the sector sweep.

The majority of fines handed out following the money-laundering sweep were low, where 23 firms were fined only £800 each for such breaches last year.

Law firms found to have breached transparency rules were hit with fines ranging between £1,000 and £2,000.

In May, the SRA increased the maximum fine it can levy on firms 12-and-a-half times over, from £2,000 to £25,000.

Pavlovic noted that the watchdog is currently seeking to raise its fining powers even further, with a view to allowing itself to impose maximum fines of 5 per cent of turnover.

Elsewhere, the data also showed that fines issued against individuals remained relatively stable over the same five-year period, in showing the watchdog issued 60 fines against individuals in 2017/18, and between 34 and 43 fines issued against individuals in all other subsequent years.

The total value of fines against individuals remained relatively stable over the five year period, ranging from highs of £129,201 in 2020/21 to lows of £87,250 in 2021/22.

In the three years preceding, the total value of fines ranged from a total of £102,550 in 2017/18, £122,000 in 2018/19, to £88,572 in 2019/20, the FoI data showed.

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