There is an interesting debate surfacing in the light of the EU’s 4th AML Directive around how involved Senior Partners of law firms should be in carrying out Know Your Customer (KYC) checks.
Increased focus on Anti-Money Laundering (AML)/Counter-Terrorist Financing (CTF) regulation has escalated the importance of such checks within law firms, but at what cost? Fee earners are important because of their ability to generate revenue through winning of clients and servicing their needs. Is it an effective use of their time to be onboarding clients in what can be a time-consuming and cumbersome task?Who is best placed to onboard new customers in a law firm following #MLR17? #onboarding Click To Tweet
The flip side is that leaving it to juniors or secretaries can result in either them requesting more information from the client, delaying the process or at worst losing the client altogether, or the opportunity for errors to be made and opening the firm up to the potential for fines from regulators.
senior partners – taking responsibility?
From personal experience speaking with law firms there is a concern around evaluating a new client’s risk and who is best qualified to make this decision.
The argument for Partners to be onboarding customers is relatively simple. Having brought them on through their business development activities, they will know the client well and have built an existing relationship. It is therefore straight-forward for them to request the relevant documents and ensure that everything is in order before moving into the proposal stage.
junior colleagues – lacking responsibility?
There are equally solid reasons for Partners not participating in the KYC process. As I mentioned at the outset, the primary reason that they do not is that their time is valuable. Time spent looking at customer information on databases or spreadsheets is time that could be spent bringing in new business.
There is then an argument about who is best placed to undertake the KYC checks to ensure compliance to what is now, demanding and strict legislation. Because the process of onboarding customers through KYC checks has traditionally been about checking, and re-checking information traditionally held either in databases or spreadsheets, and because it is not the principal role of a Partner, there is then opportunities for manual error to occur because they are unfamiliar with the necessary checks to be made. That said, they should also be more familiar both with the client and the legislation than more junior colleagues and therefore better placed to execute a KYC policy. By contrast, junior staff members may not yet have accrued the expertise to evaluate risk correctly which could expose a firm to a potential breach of compliance. Their time though, is arguably not as valuable as a Partner’s however, and there is a strong economic case for having less senior colleagues undertake onboarding.Is a Partner’s time too valuable to be taken up with customer #onboarding? #MLR17 Click To Tweet
Today, many firms have found a compromise that recognises the value of the time of the senior member, while also ensuring that their sign-off is required before a client can progress. Often checks will be carried out through a combination of junior staff members and centralised compliance teams with high risk clients being escalated to the Money Laundering Reporting Officer (MLRO).
money laundering regulations
Whichever method your firm decides to use, whether it is a Partner in isolation, junior colleagues in isolation, or a hybrid that incorporates the use of both, it is imperative that is done correctly. The new Money Laundering Regulations 2017 that have just come into force are the strictest yet seen, with regulators having the ability to fine or sanction law firms in a similar vein to how the big banks have been recently caught out and penalised.
In order to stay compliant with MLR 2017, it is essential that all law firms have a flexible, formulated and verifiable Know Your Customer policy check in place that takes into consideration those that will require enhanced due diligence such as Politically Exposed Persons (PEPs). Critically, firms will not be able to discriminate against those that cannot be onboarded by simplified due diligence alone, thus bringing to the fore the efficacy of the policy.
the use of technology
For law firms who are looking to simplify and save time and effort in their customer onboarding, there are solutions. Using technology, Senior Partners or more junior colleagues can onboard clients with the greatest of ease. By utilising Software as a Service (SaaS) tools that can run policies without human interaction, it matters little as to who is running it.
“from three hours to thirty seconds”
One customer of encompass is law firm gunnercooke. Like many firms, they have traditionally had all their Partner’s perform client onboarding; now, with a software solution in place to perform the laborious searches, although the Partner’s continue to onboard customers their time doing so is reduced to almost zero. Chris Jones, a Senior Partner at gunnercooke, highlights the efficiency savings that the firm have gained by using a SaaS tool such as encompass:
“Just consider the improvement potential for this operational process: three hours of a senior lawyers’ time reduced to 30 seconds, while producing a result with significant improvement in accuracy compared to the long-established way of searching.”
The bottom line is technology provides firms with opportunity. There is the opportunity to involve senior lawyers in the KYC process thus leveraging their unique expertise with minimal impact to productivity.
Alternatively, compliance can be completely centralised without impacting vital communication of client details between compliance professionals and fee earners. Finally, it allows complete oversight of due diligence tasks being carried out by junior staff members. Applying automation to the KYC process provides assurance that your internal policy is fully adhered to irrespective of who conducts the search.
Find out more about how firms are using encompass to enhance client onboarding in our case studies.
From speaking to many firms of all sizes and specialisms across the country, I’m aware of some who like Partners to conduct the KYC checks, and others who like junior colleagues or central teams to undertake it. What I’ve undoubtedly experienced though, is that those who utilise the power of automation provided by technology save on time and money, and lower the risk of not complying with money laundering regulations down to virtually zero.
The consequences of not being in compliance with the new regulations is too great to leave in the hands of any one individual, or even team, and for that reason it is far more efficient to have technology undertake the process on your behalf. And in this regard, whoever you want to undertake KYC checks, technology cannot fail to get every facet of the process correct.
ABOUT RICHARD BEATTIE
BUSINESS DEVELOPMENT CONSULTANT
Richard is an experienced member of the encompass business development and sales team, with specialist knowledge of the role of compliance within professional service firms. He has attended and presented at industry events across the country, including the AIT Technical Meeting 2017, R3 Small Practitioners Group 2016, Future Lawyer Summit, and the LPM Annual Conference.
You can connect with Richard on LinkedIn.
Founded in 2011 by entrepreneurs Roger Carson and Wayne Johnson, and operating from the UK, encompass is the creator of unique, innovative KYC software for banking, finance, legal and accountancy that enable better, faster commercial decisions. The company is driven by the belief that the best decisions are made when people understand the full picture.
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