UK Conveyancers are leading the world with Source of Funds checks

When the revised LSAG AML guidance was first published in 2021, there was a sharp intake of breath from conveyancers around the country. One of the most challenging aspects was the detailed direction and guidance on more comprehensive checks on Source of Funds. As conveyancing has always been identified as high-risk with regards to AML, legal firms were left with no doubt from regulators that going forward, a robust and effective Source of Funds check was a necessity for property conveyancing.

Up to this point, the application and enforcement of Source of Funds checks had been patchy across all regulated sectors, not just legal. FATF guidance, statute and sector regulations had made only the occasional reference to them and where Source of Funds checks were prescribed and enforced, it was only for the very wealthy private banking customers, under prescriptive guidance from the Wolfsberg Group of global private banks.

When LSAG guidance was adopted in March 2022, as far I can see, UK conveyancing was the first mass market service in the world where detailed Source of Funds checks was mandated and enforced on the general public.

So nearly 2 years on from this world-first, how has conveyancing fared?

Well, I think a report card would read remarkably well. Just a few weeks ago I met with a senior legal regulator and whilst he was clear in saying that there was more work to be done, he acknowledged that within conveyancing, many firms had made significant improvements to their processes and that there were now many examples of highly effective Source of Funds checks. Yes, unfortunately I’m sure there will be more fines, but I left feeling that for a world-first, the conveyancing sector overall had done a good job.

We know that conveyancers can be their own harshest critics, but here they deserve praise. Source of Funds checks can be slow, laborious, and difficult. But from the beginning, many conveyancers actively engaged in creating best practice and developing new technologies around Source of Funds. From my own point of view, as a firm that operates compliance checks across many regulated sectors, the conveyancing sector is leading the way, with a knowledgeable and engaged population who are keen to implement the very best standards.

So where are we today?

Interestingly, other UK regulated sectors are now taking stock of the work conveyancing has done. For example, the Gambling Commission has now broadly adopted a similar framework as LSAG for Source of Funds. Within professional services, insolvency practitioners, accountants, and other legal disciplines are soon to be given similar direction to conduct more effective checks. Further afield it appears Australia will adopt a similar AML regime, including Source of Funds for property purchases.

With UK conveyancing leading the way and proving it is possible to do this effectively at scale, other legal disciplines, other sectors and even other countries are being inspired to follow.

Why does this matter?

Financial crime accounts for nearly 3% of world GDP. Until we start following the dirty money, we have little chance of stemming its flow. By conveyancing showing that it is possible to do this at one transaction point, other sectors are starting to do the same with others. The more extensive the protective net, the harder it is for illicit funds to be deployed in the UK.

We can finally make a dent in money laundering.

Author - Mike Ward - Chairman of Armalytix