Enhanced AML inspection pilot

Our Head of Anti-Money Laundering, Graham Mackenzie explains how, due to a growing understanding of the inherent risks faced by legal professionals, we are enhancing our Anti-Money Laundering supervision regime. 

As many of our members will be aware, we are enhancing our Anti-Money Laundering supervision regime due to a growing understanding of the inherent risks faced by legal professionals. We have been steadily building our capability in this space with a new specialist AML team, a new AML Sub Committee and, at the end of last year, we launched the annual AML Certificate process - collecting AML relevant data on firms, their products and services and their clients. This annual process continues to be a crucial tool in our efforts to implement a fair and robust risk-based approach to AML supervision.

The Money Laundering Regulations 2017 oblige us to develop and record risk profiles for each firm and then base the frequency and intensity of our supervision on these profiles. Using the data collated from the AML Certificate (along with other insight), we have now completed this exercise, and from 2020 we will be using the risk-profiles developed to undertake revised, risk-based AML inspections as well as the usual client account inspections which firms will already be familiar with. These new AML inspections may be carried out alongside a client account inspection or be standalone.

For those firms which have been profiled as being of higher inherent AML risk, the revised AML inspection process will typically take place in two parts; firstly, a firm will be asked to send in general firm-level AML documents (e.g. policies, controls and procedures, risk assessment templates, training records, MLRO reports etc.). The inspector will review this information, and request lists of clients/transactions relating to particular/specific areas of work (e.g. conveyancing, trust work etc.) The inspector will then arrange to attend the practice unit at a future date to undertake focused file reviews. We will let the firm know which areas will be reviewed prior to our onsite visit, in order that suitable arrangements can be made.

Those firms that have been profiled as being of medium inherent AML risk will see little immediate change to the inspection process. Those firms that have been profiled as lower inherent AML risk will be subject to a lighter review.

We are hopeful these changes will benefit both the Society and firms – by ensuring resource is allocated and focused towards areas of higher inherent risk, and away from those areas of the firm’s business which carries lower inherent AML risk.

To ensure we are well placed to roll out our new AML inspection regime, we will be piloting the process with a small sample base between August and December this year.

We have had some great feedback from colleagues and members alike so far and we look forward to continuing to work with firms to ensure we give ourselves the best possible chance of keeping the proceeds of crime out of the Scottish legal sector.