Results of AML thematic review of Policies, Controls and Procedures published

Our anti-money laundering (AML) team has today, 20 April 2023, published the findings of its major thematic review of practices' Policies, Controls and Procedures (PCPs).

In response to the findings, a refreshed AML PCP template has also been launched.

We recommend that all practices in scope of the money laundering regulations fully consider the findings of this report and review their AML PCPs accordingly.

Background and methodology

In June 2022, we announced our intention to conduct an AML thematic review of PCPs.

We are keen to obtain further oversight regarding the overall standard of PCPs across the sector. In order to do so, we launched a sample-based review of PCPs across 40 practices. This allowed us to gain insight on how the profession complies with obligations under the MLRs and the Legal Sector Affinity Group (LSAG) guidance.

This review has allowed us to provide supplementary guidance and support in the form of this thematic report for this critical area of AML compliance.

The sector may be aware that, in order to fulfil our responsibilities as the AML supervisor for Scottish solicitors, we deploy a number of tools and resources. For example: AML inspections, selected file audits, MLRO discussions and the requirement to submit the AML Certificate.

Another such tool is sample-based thematic reviews, such as this. Thematic reviews are a compulsory exercise for those chosen to participate, which help us to identify and assess specific current and emerging AML risks within the regulated population.

They allow us to:

• Work collaboratively with our supervised population to gain a better, more detailed understanding of the products and services which may be exposed to use and abuse for illicit purposes.
• Gain a greater insight into how the profession complies with obligations under the Money Laundering Regulations and LSAG guidance.
• Use the data gathered to provide further information and support to members to mitigate the AML risks inherent in this type of work.

Findings: Positive aspects and areas to improve

Consequently, the Society is pleased to publish the findings of its AML thematic review of PCPs.

The AML team was encouraged by some of the data identified through this thematic review. However, a number of areas requiring improvement were highlighted.

Findings include:

• An absence of PCPs that clearly demonstrate that customer due diligence should be holistic in nature –and the importance of documenting the nature, background and circumstances of the client/matter.

• Inadequacy in documented and practical guidance in relation to record keeping requirements.

• A lack of practical guidance to staff on red flags in relation to the identification of money laundering and terrorist financing.

• An absence of documented and practical guidance in relation to the ongoing monitoring of clients/matters.

The team appreciate the general willingness of practices to accommodate supervisory requests for information and to comply. While the sample of practices participating represent a relatively small portion of the supervised population, we hope that this report provides useful guidance on areas that require further focus across the entire population.

Launch of refreshed AML PCP template

Given the nature of the findings and the subsequent identified areas to improve, the AML team has refreshed the AML PCP template.

The refreshed template can be found in our AML Toolkit under the name AML Policy.

It is important that practices are mindful that this is a template to aid compliance, and not be relied upon. While the MLRs provide for compulsory PCP requirements at r.19, not all aspects of the template will be relevant or applicable.

Practices should tailor their PCPs to be proportionate to their size and nature and in line with the requirements under the MLRs and LSAG guidance. This template may assist with constructing established, maintained, and written PCPs to help practices identify, manage and mitigate risks identified in their Practice Wide Risk Assessments.