Solicitors (MoneyLaundering and Terrorist Financing) Regulations 2020

1. Overview

The Solicitors (Money Laundering and Terrorist Financing) Regulations 2020 (the 2020 Regulations) implement the EU Money Laundering Directives in England and Wales, Scotland and Northern Ireland. They replace the earlier 2017 Regulations and set out the statutory duties that solicitors, law firms and other regulated legal services providers (collectively solicitors) must follow to prevent their businesses from being used to launder criminal proceeds or to finance terrorism.

Key objectives are to:

• Identify, assess and manage moneylaundering and terroristfinancing risks.
• Apply proportionate customer duediligence (CDD) and enhanced duediligence (EDD) where appropriate.
• Maintain robust records and enable effective reporting of suspicious activity.
• Demonstrate a culture of compliance through training and oversight.

2. Scope & Who Is Covered

The Regulations apply to any person or entity that provides one of the following services:

• Conveyancing (including the preparation of title documents, land registration and registration of mortgages).
• Estateadministration services, such as acting as executor or administrator of a will.
• Company formation, registration, and the provision of company secretarial services.
• Trust and investmentmanagement services, including the creation or amendment of trusts.
• Legal advice or representation in relation to any of the above activities.

Inhouse legal departments that regularly provide the above services for a publicsector client are also covered, as are lone practitioners and multipartner firms of any size.

3. Risk Assessment

Every solicitor must carry out a written risk assessment at least annually. The assessment should consider:

• Geographic risk clients or transactions linked to highrisk jurisdictions.
• Product/service risk higher risk arises from complex structures, offshore entities or large cash movements.
• Customer risk politically exposed persons (PEPs), highnetworth individuals, charities, and nonresident clients.
• Delivery channel risk remote or online conveyancing, thirdparty intermediaries.

The outcome of the assessment must dictate the level of CDD that will be applied, and should be reviewed whenever material changes occur (e.g., a new client or a change in the regulatory environment).

4. Customer Due Diligence (CDD)

CDD is the cornerstone of the 2020 Regulations. It consists of three core steps:

1. Identify the client and verify identity. Acceptable documents include passports, driving licences, utility bills, company registration extracts, and, for trusts, a declaration of the settlor, trustees and beneficiaries.
2. Identify the beneficial owner(s). For corporate clients, the beneficial owner is the natural person(s) who ultimately own or control at least 25% of the voting rights or who otherwise exercises effective control.
3. Obtain information on the purpose and intended nature of the business relationship. This includes understanding the source of funds or assets to be dealt with.

Enhanced Due Diligence (EDD) must be applied where any of the following apply:

• Client is a PEP or a close associate of a PEP.
• Transactions involve highrisk jurisdictions or states subject to UN sanctions.
• The nature or size of the transaction is unusual or appears to lack an economic rationale.
• There are doubts about the legitimacy of the source of funds.

EDD steps may include obtaining seniormanagement approval, conducting additional verification checks, and obtaining independent sources for sourceoffunds information.

5. RecordKeeping

All records related to CDD, EDD, risk assessments, internal policies and suspicious activity reports (SARs) must be retained for a minimum of five years after the business relationship ends or after the transaction is completed. Records must be:

• Accurately reproduced (original documents, electronic copies or certified copies).
• Stored securely to prevent unauthorised access, alteration or loss.
• Available promptly for inspection by the Solicitors Regulation Authority (SRA) or the Financial Conduct Authority (FCA) where applicable.

6. Training & Awareness

Training is a statutory requirement. It must be:

• Relevant to the role frontoffice staff need practical CDD training, while senior managers focus on oversight and policy.
• Delivered at least annually, with additional sessions when new risks emerge (e.g., after a change in regulations).
• Documented, with attendance logs and training materials kept for five years.

Effective training covers the legal framework, typologies of money laundering and terrorist financing, how to recognise red flags, and the procedures for filing a SAR.

7. Reporting Obligations

If a solicitor has reasonable suspicion that a transaction or activity may involve money laundering or terrorist financing, they must file a SAR to the National Crime Agency (NCA) without notifying the client. Key points:

• The SAR must be filed as soon as practicable, and certainly within 30 days of forming the suspicion.
• There is a legal protection from civil liability for making a SAR in good faith.
• Confidentiality is paramount disclosure of a SAR to the client or any third party is a criminal offence.

Where an SAR is not required, the solicitor must still maintain a written record of the decisionmaking process and the reasons for not filing.

8. Compliance Programme

A robust compliance programme must be proportionate to the size and risk profile of the firm. It should contain:

• A written AML/CTF policy approved by senior management.
• A designated Money Laundering Reporting Officer (MLRO) with clear authority and responsibilities.
• Procedures for CDD, EDD, ongoing monitoring and transaction screening.
• Internal controls to ensure policies are followed, including periodic internal audits.
• Clear escalation routes for suspicious activity.

Technology can support compliance e.g., clientonboarding platforms that automatically screen names against sanctions lists and perform risk scoring.

9. Penalties & Enforcement

Failure to comply with the 2020 Regulations can result in severe consequences, including:

• Criminal sanctions unlimited fines and/or up to 14 years imprisonment for individuals.
• Professional sanctions the SRA may suspend or strike off a solicitor or firm.
• Reputational damage loss of client confidence and public trust.
• Compensation claims victims may seek restitution for losses caused by negligent AML controls.

Regulators adopt a riskbased approach; firms that demonstrate a strong compliance culture are less likely to face enforcement action.