Written by The SRA has recently announced over £57,000 in fines for law firms breaching anti-money laundering (AML) regulations. The fines, distributed among five firms in just two days, signal an intensification of efforts by the regulator to ensure compliance across the sector. However, as welcome as these moves may be, they remain largely reactive and insufficient to bring about meaningful change in a legal landscape that requires firmer regulation.
The Current Approach: Reactive and Modest Penalties
The SRA’s recent actions, outlined by John Hyde in his article for the Law Gazette today, appear to represent a long-overdue push towards stricter enforcement. The financial penalties have been imposed on firms in Oldham, Surrey, London, Wolverhampton, and Birmingham for failing to comply with statutory AML obligations. These breaches include failing to maintain adequate risk assessments and neglecting necessary due diligence on clients.
While these fines may sound impressive in the context of a two-day blitz, the reality is less encouraging. The amounts levied—ranging from £3,828 to £24,123—are relatively modest for law firms with substantial financial resources. In most cases, these penalties are little more than a “slap on the wrist.” It is highly doubtful that these fines will serve as effective deterrents. Many firms will continue to view AML compliance as a risk worth taking, calculating that even if they do get caught, the resulting fines will be easily absorbed within the business’s operational costs.
Disproportionate Consequences
The true problem lies in the disproportionality between the potential consequences of AML failures and the level of penalties imposed. Money laundering can enable numerous crimes, from drug trafficking to terrorism financing, and law firms—by their very nature—are in positions of significant responsibility when it comes to preventing these offences. Yet, the SRA’s response seems almost hesitant, as though unwilling to truly confront the scale of the issue.
A law firm choosing to disregard AML regulations is making a conscious decision to cut corners, save on compliance costs, and potentially facilitate illicit transactions. The sanctions handed down so far fail to properly recognise the gravity of this. If the SRA genuinely wants to create a culture of compliance, then the fines need to be proportionate to the potential harm caused by a lack of due diligence. At present, they simply aren’t.
The Need for Proactive Regulation
What is more troubling is that these fines come years after the breaches first began. In most cases, the issues cited span back as far as 2017, or even earlier. This clearly shows that the SRA is reacting to problems rather than preventing them. Had these breaches been caught sooner, or had firms been given sufficient incentive to comply with AML obligations in the first place, there may never have been cause for sanctions at all.
Until the fines increase dramatically and the SRA moves towards more proactive enforcement, law firms will continue to take their chances. They will weigh up the cost of compliance against the manageable risk of getting caught and ultimately decide that taking the latter is more profitable. The SRA has certainly taken a step in the right direction with this latest flurry of fines, but it remains just that—a step. A proper crackdown would involve a shift towards significant financial penalties that would genuinely threaten the profitability of firms that choose not to comply.
Creating a Culture of Compliance
To bring about real change, the SRA needs to focus not just on catching non-compliant firms, but on making non-compliance unthinkable due to the potential repercussions. Until that time, these fines will remain an ineffective response to a serious and systemic issue.
Original Reporting By John Hyde, Law Gazette
Read John Hyde’s full article here.
Disclaimer: This article is based on reporting by John Hyde for the Law Gazette (November 14, 2024). The views and analysis expressed are interpretations of the reported events and should not be considered legal advice. For current regulatory requirements and compliance guidance, please consult the SRA directly or seek appropriate legal counsel.