Banks, client accounts and the Money Laundering Regulations
From the Professional Practice team: the UK Law Societies are in discussions with the banks over due diligence requirements as respects client accounts
The Law Society of Scotland is aware that some banks might be starting to seek additional information from law firms about the client account.
Under the Money Laundering Regulations 2007, client accounts were automatically subject to simplified due diligence by banks. The Money Laundering Regulations 2017 (MLR) mean that client accounts are now only subject to simplified due diligence if the bank assesses its business relationship with the law firm as “low risk”.
As a result, banks may require law firms to provide evidence of the low-risk nature of their financial relationships.
In practice, where the clients are engaged in activities regulated under MLR, this may mean the law firm being asked to provide confirmation of the existence of internal risk assessments, policies, controls and procedures, or evidence of appropriate risk-based due diligence.
Where the clients are engaged in activities which are not regulated under MLR, such as litigation, it is more difficult to predict how different banks might seek proof from firms that these financial relationships are “low risk”. Solicitors are already subject to Law Society rules and obligations relating to client verification. There is also guidance which states that solicitors should not act as a bank for clients. Given that firms already have to comply with Law Society guidelines, we believe that additional due diligence by the banks is disproportionate. Furthermore, by omitting “low-risk” activities from MLR, the UK Government has implicitly recognised that such activities are inherently low risk for money laundering.
The Society is in discussions with the Law Societies of England & Wales and Northern Ireland, HM Treasury and UK Finance. We are arguing that the banks need to take a proportionate approach given existing obligations on solicitor firms.
Nonetheless, in the short term some banks may request additional information, for example on the types of identity checks conducted on all clients (including clients in unregulated activities), to assess the risk of the relationship with your firm.
Where the banks request specific information relating to individual clients, confidentiality rules might prevent solicitors being able to disclose this information without consent being obtained from the relevant clients.
We would encourage solicitors to contact the Professional Practice team if they find themselves in these situations or if they wish to discuss these issues generally.