PEPS, sanctions and conflicts of interest: Is your firm confident at spotting risks?
To support law firms and legal professionals in maintaining their AML training and compliance to the SRA’s latest standards, Access Legal launches key updates to its PEPs and Sanctions and Conflicts of Interest courses
Global conflicts, evolving regulations and heightened responsibilities have created a ‘perfect storm’ for busy law firms, and those who can’t keep up risk becoming vulnerable to compliance issues.
Client relationships with high-risk individuals or cases with competing interests can quickly put law firms in hot water — but are firms confident in spotting these moments before they arise?
All firms, regardless of their size, must ensure staff are aware of laws relating to money laundering and terrorist financing as per anti-money laundering (AML) and Solicitors Regulation Authority (SRA) standards. But the regulations go beyond awareness, advising that it’s also the firm’s responsibility to train law practitioners on recognising and dealing with these transactions.
Practices should be completing firm-wide risk assessments (FWRAs) to help spot the risks they are or may be exposed to. Despite being an SRA requirement since 2017, only 52% of firms are producing fully compliant FWRAs. Furthermore, 10% of those assessed were entirely non-compliant — up from 7% in the previous year — prompting concerns that some firms may be missing potential risks.
Proactivity, not reactivity
Small and medium-sized law firms may be less likely to deal with high-risk entities and conflicting interests compared to larger counterparts. But with the former typically having much closer client relationships, failure to identify these risks early can have a much greater reputational impact on the firm and individuals involved.
A proactive approach to these issues can help mitigate the risk of improper practice and fines, as well as boost firm reputation. Yet recent SRA findings indicated that most firms respond reactively to regulatory issues, with an over-reliance on the compliance officer for legal practice (COLP).
Ensuring that compliance issues are understood more widely across the business is the first crucial step in building a more proactive compliance strategy. Professionals must be able to spot issues if they are to rectify them.
To assist firms with these challenges, Access Legal Learning has launched key updates to its PEPs (politically exposed persons) and Sanctions, and Conflicts of Interest training courses. Developed in accordance with the latest SRA regulations, the two courses equip legal practitioners with up-to-date knowledge of relevant legislation and feature real-world scenarios, interactive segments and practical tips, to help legal professionals develop their ability and confidence in handling different situations around PEPs and sanctions and conflicts of interest.
PEPs and sanctions
Politically exposed persons are typically people who are in a prominent position — or close to someone who is — such as those in government or senior military roles. Thanks to their personal connections, PEPs are generally classed as high-risk individuals, presenting higher risks of bribery or corruption.
Correctly identifying them is essential to comply with know your customer (KYC) and AML requirements. It’s worth noting, however, that not all PEPs will present the same risk and firms should assess on a case-by-case basis for the most accurate picture. The risk of each PEP can also shift over time.
Therefore, reviewing PEP statuses throughout the client relationship may be more beneficial than a single one-off check, ensuring firms always have the latest information for better decision making and increased protection.
High-risk individuals may also be found hiding in sanctions lists, which are published by governments and international bodies. And in today’s geopolitical landscape – for example, the continued conflict between Ukraine and Russia – adhering to the lists has never been more crucial.
For local operation, checks can be carried out by referring to the UK Sanctions List. Those working on a more global scale must, however, ensure they are checking the sanctions list of all relevant countries and their allies. These checks are again an essential part of the customer due diligence (CDD), KYC and AML processes.
With the right training, legal practices can understand their obligations when working with high-risk clients, and support early identification of these individuals to ensure they aren’t taking on more risk than they bargained for. It gives legal practitioners the confidence to recognise the best approach for dealing with PEPs, as well as complying with sanctions legislation and learning how to employ best practice for sanctions.
Conflicts of interest
Recognising and dealing with conflicts of interest is more vital than some may realise. In recent years, some law firms have made headlines for failures to identify and declare conflicting interests, facing hefty fines and damaging their reputations. In fact, the SRA’s review into probate and estate administration in December 2024 suggested that despite most firms being aware of the risk of conflicting interests in their cases, only half had additional measures in place to mitigate or avoid the risk.
Due to the sensitive nature of their work it’s important for practices to be able to recognise a conflict of interest before it arises, and just as much about knowing how to deal with one. The correct training can prepare legal practitioners for spotting the signs early, and knowing how to overcome them.
Putting a plan in place ensures matters are dealt with to the letter of the law, with no possibility of the conflict developing again further down the line.
Stay prepared
Ultimately, rather than relying wholly on one or two key members of a legal practice trained to recognise different risks, it’s beneficial for all practitioners to have the understanding to identify and handle potential compliance issues in each situation. It can support their personal development too, equipping them with the right knowledge to overcome the challenges in their role and adding to their skillset.
This proactive approach in training all individuals within a law firm protects them from compliance issues and reputational damage, while also boosting their productivity and efficiency, to ensure they maintain high quality standards and deliver the best possible legal services to their clients.
