Treasury officials have been warned that they could be placing an even greater anti money laundering burden on solicitors through potential changes to client accounts.
The government is proposing to require full diligence on pooled accounts, regardless of the assessed risk level and any safeguards already in place.
Many law firms operate pooled accounts for clients but under the proposed changes would no longer be able to apply a simplified due diligence (SDD) standard to them.
The Law Society responded this week to a Treasury consultation on draft new money laundering regulations, outlining how any requirement for full due diligence on pooled client accounts would result in delays and extra costs.
Society president Richard Atkinson said the proposed blanket obligations are ‘disproportionate, operationally burdensome and inconsistent with previous policy’.
He added: ‘By eroding the risk-based approach – where solicitors have the option of applying SDD in low-risk circumstances – the UK’s defences against economic crime would be undermined and compliances resources diverted away from higher-risk cases, while creating unnecessary work in low-risk contexts.
‘We urge HM Treasury to retain the option of applying SDD in pooled accounts, where the risk assessment supports it.’
Pooled accounts are commonly used by firms handling conveyancing, probate and corporate matters. Lawyers insist these accounts already have sufficient robust controls and oversight, with due diligence on clients providing the safeguards the government wants.
The Law Society expressed concern about the significant administrative and financial burden of requiring full due diligence – particularly for small and medium-sized firms.
Atkinson said: ‘To date no compelling evidence has been provided that the current approach to pooled accounts presents a systemic risk to the UK’s AML regime.
‘Without clear evidence of abuse or regulatory failure, the proposed amendment appears disproportionate and misaligned with the principles of better regulation.’
The government's proposal to bring about the reforms by amending a statutory instrument, allowing just a four weeks for feedback, has prompted particular disquiet.
John Binns, a partner with London firm BCL Solicitors specialising in AML compliance and financial crime, said while a debate on the issue might be appropriate, making such fundamental change under the cover of ‘technical’ amendments was not.
‘HMT should pause, reconsider its proposed changes on this issue, and return them to the table only when it has considered and consulted on them properly,’ he added.
7 Readers' comments