The Law Society has called on the European Commission to maintain the flexibility of a risk-based approach to anti-money laundering (AML) compliance as the EC drafts its fourth European money laundering directive.

The Society’s response to a call for views also urges the commission to reinforce the protection of legal professional privilege and professional secrecy, and to take a proportionate and practical approach to transparency of corporate entities and legal arrangements.

A fourth European directive is expected to be published in October, following revised international standards on AML and counter-terrorism financing published by the international Financial Action Task Force in February and an EC report on the application of the third money laundering directive in April. The third directive has been in force since 2005. The commission’s report concluded that while existing money laundering legislation works well, its provisions need updating to incorporate the latest guidelines to combat new threats.

The commission also sought views on whether it should seek greater harmonisation of rules across Europe. In its response, published yesterday, the Law Society encourages the commission to retain the flexibility of a risk-based approach to due diligence, especially for pooled client accounts held by solicitors.

The Society says the commission should support the involvement of professional bodies in supervising compliance with obligations, and ensure that amendments to data protection requirements do not put firms at risk of being abused by criminals for the purposes of money laundering.

It says: ‘We do not believe the development of a European regulation on money laundering would adequately support a risk-based approach by member states or regulated entities.’ The commission is expected to publish the draft fourth directive in October, and any amendments are likely to be incorporated into UK law by the end of 2014.

The Law Society’s full submission can be read on the website.