The legal profession is a highly regulated sector with a wealth of professional standards, regulations, and legislation that must be adhered to. Today, compliance covers many activities, including conflict of interest, anti-money laundering (AML) and client due diligence (CDD), claims and complaints, data protection, and more. With so much scope for error, modern firms must have robust policies, processes and tools to manage and mitigate risk.
Client onboarding is a critical stage in the compliance process, and to meet their obligations in this area, law firms must know exactly who their clients are and where the money is coming from. But, the KYC (Know Your Customer) regulations can be tricky, especially when working with complex business structures, companies, and other entities.
Thankfully, onboarding doesn’t have to be complicated, and with the right technology, firms can make the whole process more manageable while mitigating risk. Here are ways some of the ways using Minerva sets your firm up for compliance best practice.
The UK is a high-risk jurisdiction for money laundering. Law firms – especially conveyancers – are attractive to criminals, with hundreds of millions laundered through conveyancing across the UK1. To help tackle this problem, AML legislation requires solicitors and conveyancers to carry out robust ID checks when onboarding clients, and there are severe penalties for firms that fail to do so. Indeed, during 2021/22, the SRA issued 29 fines, totalling £286,976, for failings relating to money laundering.
Minerva helps firms meet their AML/KYC obligations with real-time eIDV checks and an identity process that meets the HM Land Registry Safe Harbour standard. Effective, safe and secure, Minerva’s intelligent onboarding system picks up on fraud techniques that are not always obvious to humans and carries out enhanced due diligence (EDD) where needed – for example, where there are politically exposed persons (PEP) involved. What’s more, as well as reducing the risk, Minerva also improves the client experience by empowering clients to upload key ID documents in a user-friendly way.
Improved SoF and SoW checks
As well as proving that clients are who they say they are, to ensure compliance with the AML regulations, law firms must also establish Source of Funds (SoF) and Source of Wealth (SoW). However, according to the 2022 CLC Risk Agenda, this isn’t happening, with 45% of firms unable to demonstrate that adequate SoF and SoW enquires were undertaken when inspected.
Minerva lets firms delve deep into a client’s funds, providing a complete overview of SOF and SoW, so solicitors can easily spot red flags and make solid evidence-based conclusions to mitigate risk.
An accessible document trail
It’s not enough to follow the correct actions and checks; solicitors and firms must also be able to demonstrate that they:
- Have effective governance structures, arrangements, systems and controls in place (firms)
- Keep and maintain records to demonstrate compliance with their obligations (firms)
- Are able to justify their decisions and actions in order to demonstrate compliance with their obligations (solicitors)
One of the easiest ways to do this is for firms to invest in an intelligent digital solution that captures all the necessary evidence and offers easy-to-digest reports when needed. Through Minerva, client data is pulled and collated from one central system. So, when it comes to file reviews, all is in order.
Mitigate the risk of human error
According to the SRA “all firms need to be more alert to the potential of being used to launder money“. But, when it comes to onboarding clients safely, effectively, and in line with their compliance obligations, many barriers need to be negotiated. As discussed, Minerva reduces the risk of client onboarding with stringent ID and AML checks. In addition, automating the onboarding process reduces the number of human errors – especially by people who are busy and stressed. Such errors may be understandable, but they can have significant negative consequences in the heavily regulated legal sector.
By taking much of the onboarding process out of human hands, with systems that do not allow for steps or checks to be skipped, Minerva removes human error with an impressive 97% accuracy rate.
The role of technology in matter risk assessments
Law firms that carry out work within the scope of the money laundering regulations must undertake robust risk assessments for individual clients/matters (in addition to a firm-wide risk assessment). And they must adopt a risk-based approach to compliance that is reflected in their policies and procedures. KYC is an essential part of this.
However, according to the SRA2, after inspecting 273 firms:
- 42% of client/matter risk assessments reviewed were ineffective
- 30% did not show clearly when EDD was necessary, including where mandated under the regulations
- 20% did not reflect the firm’s firm-wide risk assessment.
To meet the required standard, many firms could see significant improvements by investing in new compliance tools. It’s a move supported by the SRA, with the regulator stating that: “adopting new anti-money laundering technologies can be an attractive improvement for legal services businesses and for their clients. Inside law firms, new technologies can drive efficiencies in compliance processes and offer an effective way to remain compliant3.”
When it comes to client onboarding, Minerva’s intelligent legal tech ensures a robust approach to ID&V that helps to mitigate the risk and gives firms everything they need to ensure compliance.