Ensure compliance in client onboarding to protect your firm

At the recent Minerva 'Grow Your Business Conference’, the breakout session with key speakers Kim Rawlings-Smith of Arete, Timothy Barnett of Credas, and COLP at Martin Tolhurst Solicitors, Richard Carter , highlighted how compliance needs to be a key component in client onboarding - and it is not just ID.

Onboarding is more than AML checks; it includes client engagement from the initial contact, quotes, and gathering information which not only includes ‘liveness’ ID, but source of funds, a thorough and clear evidence path to ensure you can demonstrate clear KYC/KYB process and other due diligence processes.

All three key speakers emphasised the importance of technology in streamlining this process. Here are some key takeaways:.

Firms still not adopting enough tech for compliance

The adoption of technology for compliance checks is growing, but many firms still lag behind in digitising processes like ID verification. The speakers pressed the importance of adoption, tools like biometric checks, AI-generated verification, and digital solutions help streamline processes, reduce risk, and meet regulatory standards.

Fraud and AI Risks - Fake documents are rising

AI-generated fake documents are an increasing threat. Firms need to use technology to spot these fakes. Those who don't adopt these tools are more exposed to fraud, and the regulatory bodies (like the SRA) expect firms to have strong verification processes.

Responsibility on Law Firms

Even with technology aiding the process, the ultimate responsibility for compliance lies with the law firm. Firms must ensure they’ve conducted risk assessments and checks, including sanctions and politically exposed persons (PEPs), and document everything properly, including the need to make the extra steps clear for all.

High-Risk Countries and Corporate Structures

Understanding high-risk countries and corporate structures is crucial for proper due diligence. Identifying where companies are based and tracing funds through potentially high-risk regions is an important step in ensuring compliance. In the everyday tasks being actively diligent can be hard. The panel suggested having the information needed easy to access. For example creating and updating the high risk countries lists and having these easily accessed on the firms’ intranet or even as ‘posters’ around the office.

Source of Funds vs. Source of Wealth

These are distinct but both are important in compliance. Source of funds refers to the immediate origin of money in a transaction, while source of wealth pertains to how an individual or entity accumulated their wealth over time. Both need thorough checks. Both need careful consideration and evidence for a true check. Much more than just bank statements, understanding the client’s position and having the ability to identify risk sooner are key requirements. Critical to doing SoF well:

• Understanding the financial position of the client
• Evidence collection
• Taking a risk-based approach
• File notes

Challenges with Corporate Entities

Verifying the legitimacy of funds in corporate entities can be complex due to inter-company transfers and high-risk countries. Understanding these structures is critical to avoid fraud and meet compliance standards.

Regulatory Focus

There is increasing regulatory pressure on law firms to ensure compliance, particularly around PEPs, sanctions, and enhanced due diligence for high-risk transactions.

Practical Compliance Tips

Ensuring staff are well-trained and have easy access to updated compliance resources (like high-risk country lists) is key. Firms must implement internal reviews and training to stay compliant with evolving regulatory standards.

The team from Armalytix were in the audience of this breakout session and Tom Lyes, Head of Legal, had this to say in relation to compliance and the overall theme of Grow Your Business.

"I was particularly interested in a comment made by Keynote Speaker Justin Urquhart Stewart regarding a no silo approach.

This concept of solving a problem across a law firm rather than multiple departments potentially trying to tackle the same challenge might sound obvious but there are lots of law firms out there doing just that. The benefits of a no silo approach are for me focused around better efficiency, improved communication and the reduction of risk.

I've seen some great examples of where this approach can make a real difference. In my world at Armalytix, I often see a lightbulb moment when people realise that it's not just Residential Property Lawyers who are increasingly having to trawl through client bank statements and other financial documents to establish a client’s financial position.

Family Lawyers have been doing this for years with Form E and Commercial Property and Corporate teams are also in a similar position but are presented with nuances in comparison to their Residential counterparts."

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