The Property Lawyers Alliance (PLA) has launched a campaign designed to speed up property transactions by cutting the mountain of red tape ‘suffocating’ conveyancing.
The PLA says it understands the necessity for the government to tackle money laundering. However, the vast panoply of Anti-Money Laundering (AML) guidance notes, laws, regulations, and sanctions in conveyancing and their enforcement now represents a serious impediment to the efficient working of the UK property market and a significant drag on the economy.
PLA estimates AML laws and official regulatory guidance notes, now exceed 1,500 pages in length, including:
• The Proceeds of Crime Act 2002
• Money Laundering and Terrorist Financing and Transfer of Funds (Information on the
Payer) Regulations 2017, and subsequent amending regulations
• The Terrorism Act 2000
• Many pages of guidance published by the Solicitors Regulation Authority (SRA)
• Legal Sector Affinity Group Guidance – (228 pages of detailed guidance for the legal sector)
• Other Anti-Money Laundering guidance notes, such as those issued from time to time by the Financial Action Task Force (FATF) and the National Crime Agency (NCA)
• Joint Money Laundering Steering Group guidance notes
• HM Treasury UK financial sanctions guidance published through the Office of Financial Sanctions Implementation (OFSI), including ‘Sectoral,’ ‘geographical’, and ‘thematic guidance notes.’
• Sanctions lists published by OFSI comprise individuals, organisations, and businesses. such as those issued by FATF countries.
The above are frequently updated.
The PLA states:
Crippling Burden of Red Tape
Property lawyers must acquire in-depth working knowledge of AML laws and regulations via extensive, regular training, which detracts from their core legal practice. They must also ensure their staff receive training. Property lawyers must devote significant amounts of their
precious time to creating and updating written AML policies, procedures, and other mechanisms (AML Controls) and verifying, recording, evaluating, and reporting on evidence gathered in compliance with AML Controls. This is on top of mastering the law in their chosen specialist areas and acquiring and developing the necessary commercial and other skills to run their legal practices successfully. There is no remuneration for such mandatory activity. Instead, substantial fines for non-compliance are paid. For small and medium law firms in particular, the burden of compliance is crippling. It takes up a disproportionate share of a law firm’s resources.
Who Supervises the SRA?
Individual professional bodies such as the SRA must meet the demands of the ‘Office for Professional Body Anti-Money Laundering Supervision’ (OPBAS).
OPBAS Report
OPBAS stated in a recent report (Report) that it supervises twenty-two professional body supervisors across the accountancy and legal sectors (plus three who have delegated their regulatory functions, for example, the Law Society) (PBSs)
OPBAS’s key objectives in the Report were set out as follows:
• Ensuring a robust and consistently high standard of supervision by PBSs; overseeing the legal and accountancy sectors; and
• facilitating collaboration, information and intelligence sharing between PBSs, statutory anti-money laundering AML supervisors and law enforcement agencies.”
The Report also reached various conclusions, including the following:
• “Although PBSs could demonstrate compliance with their obligations under the money laundering regulations (MLRs), there remained a lack of full and consistent effectiveness across the PBSs it assessed in 2024, with none yet fully effective.
• OPBAS’s assessments of nine PBSs and additional activities included ‘sub-sectoral deep dives’ on advocates, barristers, bookkeepers, and conveyancers.
PBAS stated that it had not seen any material improvement in the • effectiveness of PBSs in the core areas of supervision, risk-based approach, enforcement, and information and intelligence sharing.
• Problems applying a risk-based approach reduced the effectiveness of supervision by PBSs.
• Some PBSs demonstrated limited understanding and took little proactive action to
capture and address certain risks.
• Weaknesses remain in AML supervision, with a large proportion of the PBSs assessed as ‘partially effective’.
So, OPBAS wants PBSs to go even further with their enforcement of AML Controls, a prospect that fills property lawyers with dread and prompts many of them to say, ‘enough is enough.’
SRA Enforcement
Over the last year, mandated by OBPAS, the Solicitors Regulation Authority (SRA) has been investigating compliance with AML laws and regulations and issuing substantial fines to firms whose compliance measures were determined by the SRA to have fallen short, not just from today, but dating back to 2017, when the AML regime became operative.
Fear
Fines for small to medium firms range from £12,000 to £120,000. They are significantly higher for the largest firms. Solicitors are fearful of this punitive fining regime. Even firms that have worked hard to do their best to comply with the rules, if found wanting, are still fined, even where there is no evidence that any AML offences have been committed. This oppressive AML regime, so resented by solicitors, has driven the profession’s trust in the SRA to an all-time low. This is not conducive to a positive regulatory relationship.
Property lawyers must stop work if ‘suspicious activities’ are seen in a transaction and submit a Suspicious Activities Report (SAR). The reasons for the delay must be kept secret from the client, and so the solicitor gets blamed by everyone. The lawyer’s reputation is likely to be damaged. Why should the lawyer be in this position?
Cost of compliance
All law firms must have an independent audit of their AML Controls. This has created a whole new industry of compliance experts. The resources required to commission an independent audit for a small law firm with, say, three partners, are typically in the region of £3,000. In addition, days of otherwise productive fee-earning time must be dedicated to the audit. This extraordinary expense is on top of the regular costs of necessary training and the time spent implementing AML laws and regulations. It places a heavy burden on small and medium-sized law firms, whose client base is often unexceptional.
Excessive AML Controls
The AML regime has reached the point where it is choking conveyancing. Since the early days of just needing to verify a party’s identity, requirements have snowballed, way beyond all reasonable measures.
So:
• AML Risk assessments must be in writing at the beginning of a case and thereafter updated continuously.
• Sanctions checks must be carried out on all parties.
• The identity of all lawyers involved in a transaction must be verified.
• Sources of funds and sources of wealth must be investigated, as must ownership and control of trusts and companies.
• Discrepancies in Companies House records must be reported.
• A specific risk assessment must be created for every residential property transaction.
• If a ‘stop’ arises on a transaction subject to an exchange deadline because of a SAR, the transaction could fail. This could trigger the referral of a complaint, for what would be perceived as poor service, to the Legal Ombudsman. At this point, the property lawyer will become enmeshed in yet another bureaucratic process that soaks up precious time and demands payment of a case fee of £400. This is likely to take
several years to run its course, for which there is neither remuneration nor recognition.
Parties to property transactions are highly critical of the time conveyancing takes. This is ironic, since they have no idea of the vast number of AML Controls in place to ensure that property lawyers fulfil the duties imposed on them by the government and other bodies to
help discover and root out criminal activity.
Property Lawyers’ Anger
The government is openly critical of how long conveyancing takes, so it claims it will ‘speed up’ the home moving process, using law tech products and facilitating greater ‘digitalisation’.
However, when excessive, government-imposed AML and sanctions obligations are at the root of so much of the delays experienced in conveyancing, it is little wonder that property lawyers across the country are angry. They receive little recognition for the AML Controls
they must implement, only criticism and blame. Moreover, where is the evidence that such lawyers facilitate money laundering in the UK? One eminent regulatory lawyer has observed that the number of solicitors prosecuted for money laundering is ‘vanishingly small’.
The Client’s Perspective
From a client’s perspective, not only are clients unhappy about the intrusive investigations and the time and additional costs involved in their lawyers having to comply with AML controls, but they become irritated that they are ‘made to feel like criminals.’ It hugely undermines the relationship between a solicitor and their client. Moreover, because regulators are forcing lawyers to be de facto forensic accountants, some lose business because they must turn clients away if they cannot verify all sources of funds/wealth. So, depending on the level of the risk, property lawyers must obtain credible documentary evidence for all sources of funds/wealth used on a transaction, sometimes if necessary, dating back for decades, as well as finding out generally where the client’s wealth comes from, periods up to 20 years. If a client doesn’t have this evidence, lawyers must terminate the business relationship. The source of funds evidence for funds derived from overseas
may well be in a foreign language, making this particularly problematic.
Compliance with AML Controls has become so onerous that, at times, it prevents the normal person on the street from being able to buy or sell a property. The time needed to cover all AML requirements can add around 1-2 months to an average transaction. Law tech products
do little in practice to reduce such timelines. Clients can side-step requests for information so that no information is uploaded by way of bank statements.
Costs of Unstable Transactions
The hurdles identified above cause numerous delays in transactions and give rise to wasted costs in the property market, even more so if evidence is produced late in a transaction, causing it to fail at an advanced stage. When transactions fail, everyone involved suffers, not only the parties themselves, but also their estate agents and property lawyers; they will all suffer the cost of abortive work. The huge delays created mean that transactions become unstable and vulnerable. Delays increase the risk that, because there is increased potential
for parties to change their minds, deals fail.
Scapegoats
Solicitors are among the most highly qualified individuals in homebuying but are shackled to a bureaucratic AML regime that undermines their business, their transactions and their clients’ trust in them. And all the while, they are scapegoats for delays in the home-buying
process. Inconsistencies by OPBAS
Enforcement by OPBAS differs significantly between the SPBs. This highlights how difficult it is to regulate SPBs consistently. Moreover, this lack of consistency puts solicitors at a commercial disadvantage.
Cost/Benefit Analysis Needed
Solicitors are fined significant sums for technical non-compliance with the AML laws and regulations, even though no money laundering has been committed. PLA argues that if the measures imposed on the SRA by OPBAS, with their consequential impact on the housing market, were subject to a credible ‘cost/benefit analysis’, based on the total lack of evidence of solicitors being involved with MLA, the existing AML regime in terms of its enforcement could not be justified.
Government Priorities
The Prime Minister and the Chancellor have made clear their government’s ambitious plans for economic growth through new housing. The Prime Minister has also said that he would not allow red tape to frustrate his government’s plans, so his government would ‘slash red tape.’
How is the current AML regime consistent with these aspirations?
Law Firms Undermined
Excessive AML laws and regulations not only damage the housing market by slowing down and impeding property transactions but also undermine the viability of law firms and, with it, reduce the provision of other vital legal services law firms provide to communities up and
down the country.
Collateral Damage
The public, wanting speedier homebuying and access to justice, has become the unintended victims of an oppressive AML regime. Solicitors have, unfortunately, become chastened, fearful, overburdened, overstretched, and demoralised. Many struggle to make a living in a highly competitive market for their legal services. So, because of an oppressive AML regime, are solicitors now ‘fish in a barrel’?
Concluding Comments
OPBAS and/or the government must enter meaningful discussions with property lawyers concerning the above issues. Such discussions might include:
• The commissioning of an independent cost/benefit analysis of the impact of the existing AML Regime on homebuying and the wider economy
• An investigation into why the approach by OPBAS to PSBs is so inconsistent.
• The establishment of an independent commission to advise the government as to which AML laws and regulations fail the test described above and so could be repealed.
Read the orginal article: https://propertyindustryeye.com/new-campaign-seeks-to-speed-up-homebuying-process-by-reforming-aml-regime/
