Traditionally, law firms have spent hundreds of hours managing anti-money laundering risk to meet regulatory obligations. But now there is a new breed of law firm - one which uses technology to turn managing this risk into a competitive advantage.
Former director of the Solicitors Regulatory Authority and legal market consultant, Crispin Passmore, takes a look at how managing AML risk presents firms with a business opportunity in his blog.
The SRA places “know your customer” (KYC) and anti-money laundering (AML) obligations on law firms. Failure to comply has big consequences - reputational damage, fines and even prison time.
“AML has become a focus for the SRA on a scale I do not think that I have seen before” says Passmore. And with the SRA ramping up its activities to tackle money laundering, many small and medium sized firms have reported feeling the pressure with the costs of compliance mounting.
And herein lies the opportunity. As Passmore says using technology to standardise and automate processes is not only more cost-efficient, but more effective: ”Standardising and automating client on-boarding for example might not come free but it is probably cheaper than the lawyer, finance and compliance team handling things manually. Manual and imprecise workflows are less consistent, more expensive and vulnerable to third party intervention and corruption.”
Complying with regulatory obligations is a cost of doing business for law firms. And those firms which find a way of doing it more efficiently and more effectively than their competitors immediately have the advantage.
Passmore gives examples of how firms can do this, including Legl Payments - the only online payments solution built for the legal industry.
What's stopping the legal industry?
The legal industry lags behind other heavily regulated industries, like financial services, when it comes to creating efficient processes to comply with regulatory obligations. Shockingly, an SRA Review revealed that 78% of firms were still relying on physical documents to complete checks.
There also appears to be a misunderstanding on how the SRA views firms which seek to use technology to improve processes. As Passmore says, “Bizarrely, I hear firms say that they do not know if the SRA would allow them to use a third-party firm to help with KYC. I hear of firms saying that the SRA wouldn’t allow them to use just one payment processor or on-boarding system. That’s absurd. In my experience, the SRA is looking for firms to understand their business and work in ways that are consistent with their regulatory objectives.”
Those law firms which are continuously looking at new ways to improve their business practices, and their clients' experience, are those which will succeed in the coming years. As Passmore concludes: “Perhaps AML will be the thing that tips your business over the line. It may be the cost that sinks you or the opportunity that improves your business. It’s your choice.”