Law firms face higher AML fines and more inspections than accountants

Law firms are being fined up to six times more than their accountancy counterparts for breaches of anti-money laundering regulations, a new report has revealed.

The Office for Professional Body Anti-Monday Laundering Supervision (OPBAS) today published its annual review of the effectiveness of the 25 organisations tasked with preventing financial crime in the accountancy and legal sectors.

This is likely to be one of the last years in which such a report is made, as the government has outlined plans for a single regulator, the Financial Conduct Authority, to take over the work of all 25. OPBAS, founded in 2018, is currently housed within the FCA.

The Solicitors Regulation Authority accounts for around 85% of the legal regulation of AML, with other regional and professional organisations making up the rest. More than 300 law firms and sole practitioners are classed as high risk because of the work they do, with more than 7,000 coming under the scope of AML regulation in total.

The figures in the OPBAS report relate to the 2023/24 year, but they are an important barometer of how the legal sector is regulated, and are likely to have followed similar patterns since.

During the year, law firms received 453 onsite visits – the highest number since before the Covid lockdown – and were far more likely to be visited than accountancy firms. Indeed, the number of visits in 2023/24 was slightly lower than in 2022/23 for the accountancy sector supervisors, whereas in contrast, the legal sector supervisors have collectively and consistently increased their number of onsite inspections.

In terms of enforcement, the regime for law firms appears much tougher than for accountancy practices. The number of fines issued by legal regulators rose to an all-time high of 39, although just one law firm had its licence cancelled during the year – the lowest number ever reported.

In 2023/24, the legal regulators issued fines totalling £470,859 – some £90,000 more than the accountancy regulators, despite the larger number of accountancy firms. Given this is mostly due to enforcement work by the SRA, and the organisation has stepped up its enforcement action in the past two years, that total is likely to have risen since. Fines imposed in the legal sector averaged £12,073, compared with £1,892 to the accountancy sector.

The OPBAS report adds: ‘The total sum of fines issued collectively by the accountancy sector is similar to the legal sector, but the average fine amount is over six times lower. This suggests lower average penalties. We are looking at this closely, with the accountancy sector generally receiving lower scores that the legal sector in their enforcement effectiveness scores in this cycle.’

The oversight regulator says it expects to see ‘significant improvements’ in some organisations’ enforcement approaches – although given the figures, this edict is unlikely to apply to the SRA.

The number of suspicious activity reports – which help law enforcement to detect and prevent financial crime – fell in the legal sector to 36. This was the fourth annual drop in succession, although it was noted that the sample SARs submitted for the review were of good quality.

The SRA appeared to be exempt from much of the criticism made by OPBAS of the effectiveness of professional body supervisors. OPBAS said it was concerned that for some organisations, their dual role as both a membership organisation and a supervisor can hinder effective action. This does not apply to the SRA or the other legal regulators in England and Wales.