New AML Guidance: Where to start

An important revision and extension of the UK Anti-Money Laundering (AML) guidance for the legal sector was recently released by the Legal Sector Affinity Group (LSAG), which includes the Law Society of Scotland and all legal sector supervisors named in the anti-money laundering regulations.

In the first of a series of blogs over the next two months, Graham MacKenzie, Head of AML at the Law Society of Scotland, helps to break down the 212-page document, highlighting some of the key changes that have been made to the guidance and what solicitors should look out for.

What is the purpose of the Guidance?

Let’s set the scene. What is the purpose and nature of this guidance, and why does it need approved by HM Treasury?

Approved guidance, such as the LSAG guidance, is a fundamental constituent of the UK anti-money laundering regime and is intended to convey the wider intention, risk-based nature and spirit of the money laundering regulations to businesses regulated for AML purposes.

It’s there to “add colour” to the underlying regulations and help legal professionals understand how to comply with their AML obligations by offering more focused, practical advice, guidance and support across all the main aspects of the UK’s anti-money laundering regime.

In addition, compliance with approved guidance, such as the LSAG guidance, may provide a possible legal protection for businesses. Essentially, those contemplating civil or criminal action under the Money Laundering Regulations, the Proceeds of Crime Act (POCA) or the Terrorism Act 2000 (TACT), must consider the ability of the business to demonstrate compliance with authorised guidance.

Given the above, it is crucial that HM Treasury, as UK government AML policy-setters, agree and approve the content of the guidance.

Why has it been updated now?

This significant rework and extension of the guidance from the last iteration in 2018 reflects the increasing prominence and complexity of AML risks, issues and challenges in the legal sector. These factors (along with  increased AML supervisory oversight) means that it has become even more important to give the profession up-to-date, practical and in-depth support to help them comply with their obligations.

Firms should familiarise themselves with the content of the document and review/update their internal AML policies, controls and procedures (PCPs) accordingly. We will of course allow firms adequate and ample time to do so, particularly given the unprecedented economic pressures caused by the current pandemic.

We hope too that the document will serve businesses in the longer term, by acting as a useful reference tool, to be used as and when firms require assistance on a given AML issue.

The new High-Level Compliance Principles

A relatively quick and straightforward way of using the guidance as such a reference tool would be to review your practice’s AML policies, controls and procedures against the new High level Compliance Principles, contained in Section 3.

The guidance states: "The Regulations set out requirements, which must be adhered to. These, in addition to the compliance principles, should be viewed as the 'building blocks' for creating robust AML policies, controls and procedures."

I couldn’t agree more.

It's important to remember that the principles are not there to trip you up or cause you headaches! To the contrary - they are there to help and guide you and your practice.

The principles cover all the key AML considerations. Addressing the areas covered in them will really help your practice comply with its anti-money laundering obligations. Evidence of adherence to these principles will also help to demonstrate compliance in any future AML inspection of your practice.

Bear in mind that the rest of the guidance document (all 212 pages of it!) is built around these principles.

The top of each following section repeats the principles that are most applicable to that section – giving in-depth, practical advice, in order to help you implement and embed good AML controls at the heart in your business.

Some of Principles are “musts”. For example:

• No. 10: Practices must have a written, up-to-date practice-level risk assessment in place, in line with R18 requirements
• or No. 28: Practices must have a documented procedure for the Identification of Politically Exposed Persons (PEPs), their relatives or close associates and the control of any associated risks.

However, it is important to note that some are not wholly prescriptive. There may be good or obvious reasons why you cannot (or choose not to) implement them. For example:

• No. 6: The AML policies, controls and procedures (PCPs) of the practice must be approved by the practice’s senior management (and/or board). This approval must be documented.

This might be quite tricky to achieve if you are a sole practitioner!

Indeed, some are explicitly stated in the regulations as being dependent upon the size and nature of your business. For example:

• No. 3: Where appropriate to the size and nature of the practice a member of the board (or equivalent) or of senior management must be appointed to be responsible for compliance of the practice with the Regulations. This position is referred to as the Money Laundering Compliance Officer (MLCO).

As with everything AML, what is important is that you’ve thought the principles and their implications through in the context of your practice, and can reasonably demonstrate and justify to us why you have deviated from them.

In order to do so, it’s important you have documented this justification. A wee tip - this could take the form of a short note, annex or inclusion as a paragraph in your AML Policies and Procedures.

I hope this has given some useful initial context to the revised guidance – it’s background and purpose, why it has been refreshed now, and an indication as to where to start in reviewing the significant AML advice and support it provides against the circumstances, risks and issues unique to your business.

More on the guidance to follow in the next blog.