Client and Matter Risk Assessment Essentials: A Guide for Compliance and Legal Professionals

The Solicitors Regulation Authority’s 2022/2023 anti-money laundering (AML) report revealed that only 30% of firms were fully compliant with AML regulations, while 51% were partially compliant, and 19% were non-compliant. Key areas of non-compliance included a lack of robust client and matter risk assessments, inadequate client identification, and insufficient checks on the source of funds, among other issues.

Amiqus’ new guide, “Client and Matter Risk Assessment Essentials for Compliance and Legal Professionals,” offers a comprehensive overview of effective risk assessment strategies from an AML perspective. It references crucial regulatory guidance, outlines key steps in the risk assessment process, and explores best practices and specialised compliance technology solutions.

Download the full guide (Link: https://bit.ly/3WxKnSE).

Regulatory Guidelines for Risk Assessments

The LSAG guidance provides comprehensive directives on identifying, assessing, and managing risks. According to Section 5.10 of the guidance, firms must record a risk assessment for every client as part of their client due diligence procedures. Section 5.11 specifies that matter risk assessments should focus on the unique risk factors presented by specific legal matters. These assessments help firms decide whether to proceed with a case and how to adjust internal controls to manage the associated risks effectively.

The SRA and the Law Society of Scotland advocate for a holistic approach to risk assessment, considering factors such as client risk, geographic risk, service risk, transaction risk, and delivery channel risk to make informed judgments.

Conducting Effective Client and Matter Risk Assessments

In addition to practice-wide risk assessments, effective client and matter risk assessments are integral to conducting thorough client due diligence (CDD) and ongoing monitoring. Evaluating risks based on the nature of the legal service provided is crucial, especially for higher-value transactions that typically pose greater risks. Geographic risk, particularly involving clients from high-risk jurisdictions, must also be factored into the assessment.

Supervisory bodies including the SRA, Law Society of Scotland, Council for Licensed Conveyancers (CLC) etc provide risk assessment templates that firms can use or adapt for their purposes. If the risk assessment indicates a higher level of risk (e.g., the client is a PEP or comes from a high-risk jurisdiction), firms should consider applying enhanced due diligence (EDD) measures.

The Benefits of AML Compliance Technology

To fulfil their CDD and EDD obligations, law firms are expected to conduct various AML checks, including identity verification, PEPs, sanctions and adverse media screening, and source of funds and wealth checks. The traditional, manual approach to these checks, though well-established, can be complex and time-consuming.

Section 7 of the LSAG guidance highlights the potential benefits of incorporating electronic identity and verification (EID&V) services in the legal sector. While manual verification remains valid, LSAG emphasises EID&V as a robust alternative to traditional methods, citing advancing security and sophistication.

Trusted Digital AML providers that use EID&V technology offer significant advantages in managing    compliance, such as:

• Automating CDD processes to reduce human error
• Real-time sanctions and watchlist screening
• Continuous PEP monitoring and beneficial ownership verification
• Source of funds verification through FCA-regulated Open Banking technology
• Continuous adverse media checks and comprehensive audit trails
• Real-time monitoring and alerts for suspicious activities
• Integrated risk assessment templates by regulatory bodies within the platform

To access a full toolkit for client and matter risk assessments, download the Risk Assessment Guide  (Link: https://bit.ly/3WxKnSE). by Amiqus today and ensure your practice remains compliant and secure.

Amiqus empowers firms of all sizes to carry out the full suite of AML and KYC checks, complete risk assessments, maintain a comprehensive audit trail, and more, all within a single platform. To find out how Amiqus can support your firm, email sales@amiqus.co or book a personalised demo. (Link: https://bit.ly/3LO98VO)