MLRO & MLCO Thematic Review

Brian Rogers

Regulatory Director

According to the Solicitors Regulation Authority early 2021 we will see the start of a thematic review into the roles of the Money Laundering Reporting Officer (MLRO) and the Money Laundering Compliance Officer (MLCO); this review is in addition to the current rolling thematic review of general anti-money laundering compliance within law firms.

So, what are these two important roles?

Money Laundering Reporting Officer

The MLRO is a person nominated within your firm to receive disclosures and make disclosures, where appropriate, to the National Crime Agency (NCA) under the Proceeds of Crime Act 2002 (POCA).

Even if you are not required to formally nominate a MLRO (where your firm is not within the regulated sector) you should consider appointing one as POCA and the Terrorism Act still apply; you may also have clients moving between unregulated and regulated areas of work and AML compliance could fall between the cracks if you don’t employ a consistent approach to it.

Your MLRO should be of sufficient seniority to make decisions on reporting as this could impact on your firm's relationships with clients and exposure to disciplinary sanctions. The MLRO should also be able to have access to all of the firm's client files and business information, where appropriate, to enable them to make the required decisions on the basis of all information held by your firm.

The MLRO is responsible for ensuring that, when appropriate, the information or other matters leading to knowledge or suspicion, or reasonable grounds for knowledge or suspicion of money laundering is properly disclosed to the NCA. The decision over whether to report or not must not be subject to the consent of others within your firm.

One of the concerns the SRA has is in relation to whether firms are making enough suspicious activity reports to the NCA, so your MLRO will need to be able to justify their positions in relation to this, however, your MLRO should not be making reports just to ‘cover their back’ or ‘make up the numbers’!   

Money Laundering Compliance Officer

If your firm is within the regulated sector you should have already appointed a MLCO who is responsible for your firm’s compliance with the Money Laundering Regulations; they must either be a member of the board of directors (or equivalent management body) or senior management.

A member of senior management means an officer or employee with sufficient knowledge of your firm's money laundering and terrorist financing risk exposure and have sufficient authority to take decisions affecting that risk exposure.

The requirement to appoint a MLCO is additional to the requirement to appoint an MLRO, however, the same person could hold both positions; your Compliance Officer for Legal Practice (COLP) could also be your MLCO as long as they are senior enough.

The SRA’s recent thematic reviews into AML compliance have found significant failings in relation to firms’ policies, controls and procedures, which is probably why the review into the MLCO role has been planned, so your MLCO quite clearly needs to ensure that what they are responsible for is up to scratch!

Independent Audit Function

Although the SRA’s primary focus will be on the above roles it would not be a surprise if at the same time it looked at the independent audit function, which has to be established, where appropriate, to examine, evaluate and make recommendations regarding the adequacy and effectiveness of your firm’s policies, controls and procedures.

The independent audit function does not have to be external to your firm but must be independent of the specific function being reviewed, for example, a management board. The auditor(s) should have the authority to access all relevant material to be able to evaluate the adequacy and effectiveness of your firm’s policies, controls and procedures, make recommendations in relation to these, and monitor your firm’s compliance with these recommendations.

You should take a risk-based approach to determine how frequently an independent audit should take place, but if you are holding a partners meeting every month why not just add it as an ongoing agenda item so you can keep on top of things?

Communication

Communication amongst your firm’s AML and compliance officers is clearly key if the you are to satisfy the SRA that you are taking a holistic approach in this area, so you need to ensure that they are liaising closely on all anti-money laundering matters; your COLP is ultimately responsible for all compliance matters within your firm and should therefore be playing an integral part in such a potentially high risk area.

The future

Money laundering will always exist, so the fight against it will need to be as robust as it can be, the government and regulators will not relax their efforts to tackle this crime, and neither must you!

Keep your firm's knowledge up to date with regular training. Keeping all of your staff up to date with the latest training on how to spot financial crime will help to ensure that it is reported appropriately. Download our brochure and see what courses we have available.