Financial Crime “THIRD PARTY SOF” risk

The Legal Sector Affinity Group (LSAG) has published an important update to its anti-money laundering (AML) guidance for the UK legal profession.

In the update it has offered guidance on

• Financial Crime “THIRD PARTY SOF” risk

LSAG SAYS

1. Further guidance on source of funds (SoF) In circumstances where it becomes known that the client has RECEIVED FUNDS FOR A TRANSACTION FROM A THIRD PARTY, you should also seek to understand and obtain evidence relating to the third party’s underlying SoF.
2. The extent to which you should obtain, review and evidence THIRD PARTY SOF is dependent upon the risk profile of the client or matter.
3. A third party’s overall source of wealth should also be considered in higher risk situations (see 6.18.3 for further guidance in establishing source of wealth).
4. Without understanding the source of funds of both CLIENT AND ASSOCIATED THIRD PARTIES to the transaction, you are unlikely to be able to carry out an effective risk assessment or ongoing monitoring under regulations 28(11) to (13).
5. You must also bear in mind your obligation under regulation 28(16) to demonstrate that the measures you have taken to carry out due diligence are appropriate, with reference to both your practice-wide risk assessment and the relevant sectoral risk assessment.

READ THE FULL UPDATE OF CHANGES

Law Society UK AML guidance changes to be approved by HMT

The Legal Sector Affinity Group (LSAG) has published an important update to its anti-money laundering (AML) guidance for the UK legal profession.

The addendum to the 2023 version of LSAG's guidance contains important legislative updates, along with changes in LSAG position and supervisory interpretation and expectations.

It covers several key topics:

1. Economic Crime Levy considerations for larger firms
2. Discrepancy Reporting Guidance
3. Registers of Overseas Entities update
4. Changes brought in by the Economic Crime Act, including a new POCA de minimis limit of £1,000
5. A definition of Supply Chain Risk, which is particularly relevant in the context of financial sanctions requirements
6. Supervisory expectations in respect of evidencing Third-Party Source of Funds involved in a transaction
7. LSAG-proposed amends to the Identification & Verification approach set out in existing LSAG guidance
8. Erratum regarding Beneficial Ownership thresholds.
9. Proposed amends to Identification & Verification approach

READ IT HERE

• https://www.lawscot.org.uk/media/375635/addendum-to-the-lsag-guidance-21-november-2023.pdf

It is important to note that LSAG has taken the step of publishing intended changes to the profession’s approach to the identification and verification aspect of client due diligence, as set out in the current LSAG guidance.

The intended changes do not supersede the current HM Treasury-approved LSAG guidance.

However, given how fundamental this aspect of AML control is, LSAG wishes to give advance notice regarding the proposals prior to HM Treasury approval, in a format that allows practitioners full visibility of the proposed changes.

These changes will only take effect should HM Treasury approval be granted and will then be written into the main body of the LSAG guidance.

Next steps

The changes have been submitted to HM Treasury and, if accepted, will be integrated into the text of the next iteration of LSAG's main guidance. This will be communicated as soon as is possible.
Full details as below:
https://www.lawscot.org.uk/news-and-events/law-society-news/updated-uk-aml-guidance-published/
https://www.lawscot.org.uk/media/375635/addendum-to-the-lsag-guidance-21-november-2023.pdf