SRA Warning Notice on Client and Matter Risk Assessments
Does your team complete a Client and Matter Risk Assessment (CMRA) for every matter that is within scope of the MLRs?
In its recent Warning Notice the SRA complained of ‘a persistent level of non-compliant client/matter risk assessments’. Common issues in SRA file audits (and that we also see in our independent AML audits) include the absence of a CMRA, a tick box approach, no reference to the firm’s Practice Wide Risk Assessment, and making inappropriate risk assessments.
Key observations to help remain compliant with your Client and Matter Risk Assessments
The legal requirement
Law firms are required to identify and assess the risks posed by an individual client, and any additional risk factors associated with a matter (Reg. 28(12, 13) Money Laundering Regulations 2017). These should be recorded in a written risk assessment and used in deciding whether to accept the client, what level of due diligence to conduct, and any additional steps needed to mitigate the risk. They can also help determine any financial sanctions risk. The Warning Notice also reminds firms that Reg. 28(11) requires firms to monitor client and matter risk, including source of funds where appropriate, throughout the course of the business relationship.
Common issues identified by the SRA thematic review
In its recent Client and matter risk assessment thematic review, the SRA found that whilst most firms had a process to assess clients and matters, these processes were not consistently followed by fee earners, and 47% of files reviewed did not contain a documented client/matter risk assessment.
Key concerns included:
- no client/matter risk assessment on the file
- a ‘tick box’ approach, where the form had no space for the fee earner to record their rationale for determining a particular level of risk, any unusual features of the client or matter, or any steps they propose to take to mitigate the risk
- not reflecting or taking into consideration the firm’s Practice Wide Risk Assessment (e.g. assessing a conveyancing matter as high risk when the PWRA determined all conveyancing matters as high risk)
- omitting key areas because of over-reliance on a template which isn’t bespoke to the firm
- no process for identifying high risk matters or highlighting when enhanced due diligence is necessary
- a scoring system which makes no sense, is not understood by fee earners, or which cumulatively levels out the risks and ignores factors such as PEPs or clients based in high-risk jurisdictions which are automatically high risk.
The Warning Notice is clear that failure to comply may lead to disciplinary action.
How should law firms respond to the SRA Warning Notice?
- Review your firm’s Practice Wide Risk Assessment to be sure it identifies all the risks for your clients, matter types, geographic focus, and delivery channels
- Check your approach against the SRA’s Firm-wide risk assessment guidance (updated September 2023)
- Review your AML Policy, Procedures and Controls to ensure they reflect and link with the Practice Wide Risk Assessment, and that they comply with the Legal Sector Affinity guidance (2023)
- Review and amend your client and matter risk assessment to address all the SRA’s concerns and to comply with the Warning Notice
- If you don’t have a client and matter risk assessment, introduce one immediately. If you don’t know where to start, you can use the SRA template client and matter risk assessment, but be sure to tailor it to your firm
- Train your fee earners. Be sure they are familiar with the firm’s Practice Wide Risk Assessment and are able to apply it to their client/matter risk assessments. Train them on the firm’s AML PCPs, and on how to complete a client and matter risk assessment.
Do you need some help with this?
If you’d like some help with reviewing or re-drafting your Practice-Wide Risk Assessment, AML Policy and Client/Matter Risk Assessment, please contact us. We can also train your team and give them confidence when completing the client and matter risk assessment.
