In depth: Risk and compliance conference - AML, ethics and workplace culture

Robert Baden-Powell did not pursue a career in law (unlike his brother), but his Scouts’ motto must be the mantra for all law firms trying to overcome risk and compliance issues.

Be prepared.

Whether it be the Solicitors Regulation Authority’s relentless focus on potential anti-money laundering breaches, new ethical challenges important to Gen Z lawyers or the risks associated with culture in the workplace, compliance managers must jump many hurdles. The prevailing hope from delegates at this week’s Law Society risk and compliance conference – just like all those runners at Cheltenham – is that they are not riding for a fall.

A succession of speakers pleaded with delegates to go back to their firms and check that the right policies are in place. This includes gold-plating AML compliance to be ready when the SRA comes knocking (even more so given the High Court’s decision the day before to remit the Dentons SDT ruling (p10)). Strategies for reputational damage, a code of conduct for staff culture and checks on client balances were all talking points too.

The regulator’s sanctions against all types of firm for not having MLR-proof risk assessments and procedures was the biggest cloud looming over the conference. A whole session was dedicated to what measures can be taken to avoid disciplinary action, with the main takeaway being that this has to be front and centre of training for everyone dealing with high-risk client matters.

'The starting point is whether it is immediately obvious where the funds have come from. The first port of call is to ask the client and verify using reliable information. The guidance is quite clear: you can’t act unless you can make that judgement call'

Colette Best, Kingsley Napley

Asked to vote on what aspect of AML keeps them awake at night, most delegates opted for source of funds and wealth checks on clients. The message amounted to: proceed with caution, document everything, and if in doubt, drop the client.

Colette Best, director of anti-money laundering at London firm Kingsley Napley, said: ‘The starting point is whether it is immediately obvious where the funds have come from. The first port of call is to ask the client and verify using reliable information. The guidance is quite clear: you can’t act unless you can make that judgement call.’

Her colleague Iain Miller spoke about lawyers increasingly declining on moral grounds to represent a party. This suggests firms should have established onboarding policies long before a client walks into the office. ‘Lawyers can act for anyone and on a societal level it is important that we do,’ he stressed. ‘But we need to think about these things in a purposeful way in terms of practicalities.’

Miller cited a recent survey that found two-thirds of junior lawyers believe they should be able to turn away a client on ethical grounds. These views should not be ignored, regardless of the more traditional partner’s instinct to demand that underlings get on with it.

Nick McAleenan, a partner at Brabners, said firms taking on problematic clients should have a plan for dealing with adverse coverage. ‘Like it or not, you as a law firm are going to be associated with this particular client and will be judged by their actions and decisions.’

Elsewhere, it was hardly a surprise to be told that relations between the regulator and the profession have sunk to an all-time low.

Aileen Armstrong, the SRA’s executive director of strategy, innovation and external affairs, was asked during the Q&A whether the SRA has work to do to win the hearts and minds of the regulated community. ‘I understand and appreciate the question,’ she replied. ‘In order to have a strong sector, we need strong firms and solicitors, and we need the regulator to play its part. We [the SRA] need to be credible and engage well with the sector.’

The relationship between regulator and regulated will come under intense pressure if the SRA pursues its plans for a third party to manage client accounts. This idea has predictably been savaged across the profession, and Armstrong appeared to suggest it is more of a longer-term proposal for consideration and not something that is going to happen this year.

Many lawyers did not seem to agree with the premise that they profit greatly from interest on the client account. And as regulatory specialist Andrew Blatt, director of Murdochs Law, pointed out, issues such as dealing with residual client balances are a drain on time and resources.

Again, his message to delegates was not to ignore the problem, but to go back and get prepared, because the SRA will see residual balances as an ‘easy target’.

Blatt added: ‘If you don’t have a policy, if you don’t review the balances post-file, this is a timebomb ready to explode.’

Delegates will add this to a to-do list which becomes ever longer.