Just when it was thought that the regulation of AML in law firms could not get any more draconian, the Legal Services Board have produced draft proposals for clamping down even further. The proposal published on 15 November and entitled “Consultation on Guidance for New Regulatory Objective on Economic Crime” is a response to a new legal duty placed on the LSB and the legal services regulators to ‘promote the prevention and detection of economic crime’. The Economic Crime and Corporate Transparency Act 2023 introduced this as a new regulatory objective under the Legal Services Act 2007.
The role taken by law firms and legal regulators in upholding the UK’s economic crime regime was not previously an explicit legislative duty in legislation. The LSB has,therefore, now drafted guidance to ensure regulators understand how to meet this new duty and is now consulting on this guidance.
The proposed guidance identifies four outcomes that regulators should pursue to ensure compliance with the new economic crime regulatory objective. They are:
- Understand the risks and issues that may lead to the regulated sector facilitating economic crime and take appropriate actions to prevent and detect their occurrence.
- Ensure that authorised persons understand their duties and the risks related to economic crime in the provision of legal services and are supported to act in a manner that upholds the rule of law and adheres to the professional principles and other regulatory obligations.
- Monitor authorised persons’ compliance with any standards developed by regulators to support the prevention and detection of economic crime and address instances where authorised persons fail to comply.
- Maintain active evaluation of any implemented standards and procedures to ensure they continue to be fit for purpose in addressing economic crime risks over the long term
LSB Chief Executive, Craig Westwood, said:
‘Our goal is to bring about a step change in efforts from legal services regulators to tackle economic crime. This is essential to securing a legal sector that benefits the public and is built on strong foundations that uphold the rule of law.
‘Legal services regulators can play a crucial role in preventing economic crime, and the public harm it causes, by ensuring the profession adheres to high ethical standards and knows how to identify and prevent unlawful activities. By providing clear and practical guidance, we aim to help regulators develop effective processes and resources. This consultation is a critical step in ensuring that the legal sector remains vigilant and proactive in the fight against economic crime.’
Firms can take a shred of comfort from the report since it does at least acknowledge that regulators’ should “have regard in their regulatory activities to the principles of best regulatory practice, including ensuring regulation is transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed”.
The proposals include specifically a requirement that regulated persons should “have a good level of awareness of, and are appropriately equipped to respond to, risks that may lead to them knowingly or unknowingly enabling economic crime … Ensuring that regulated persons are able to identify risks and are undertaking appropriate due diligence should help ensure that their actions do not unwittingly facilitate economic crime” which is very much a theme that came out at the SRA’s COLP/COFA conference when the SRA stated that it would be taking steps to ensure that firms undertook more tailored and less generic AML training in the future.
The consultation will run from 15 November 2024 to 7 February 2025. To participate, see the consultation document.