Inspections – Practical Guidance and Directions

Inspection findings continue to demonstrate that weaknesses in AML compliance most commonly arise not from the absence of policies and procedures, but from failures to ensure that documentation accurately reflects the practice and is applied consistently. Such weaknesses may increase the risk of money laundering indicators being overlooked and make it more difficult for a notary to demonstrate compliance with the Money Laundering Regulations.

In one case, an inspected notary advised that an associated solicitors’ firm had previously been sanctioned by the Solicitors Regulation Authority (SRA) for breaches of the Money Laundering Regulations. The penalty imposed was modest, and the SRA accepted that the firm had acted in the genuine belief that it was compliant. The notarial practice was not affected by the investigation. Following the regulatory findings, the notary reviewed the notarial AML policies and procedures and concluded that no amendments were required. This was a sensible and proportionate approach. Where regulatory concerns arise within an associated practice, notaries should consider whether a review of their own AML arrangements is appropriate, even where the notarial practice itself has not been implicated. Such reviews provide an opportunity to confirm that existing controls remain effective and continue to address relevant AML risks.

This case also illustrates the benefits of adopting and maintaining the current AML policies, procedures and templates made available by the Notaries Society. These documents are designed to reflect current regulatory requirements and expectations and can provide a sound basis for compliance when properly implemented and adapted to the circumstances of the practice.

A separate inspection highlighted the importance of ensuring that AML documentation accurately reflects the work undertaken by the practice. Where a notary carries out work that falls within the scope of the Money Laundering Regulations, appropriate client and matter risk assessments should be completed and retained, together with any other records necessary to demonstrate compliance. Policies and procedures should be tailored to the practice and should address all relevant regulatory requirements.

Where risk assessments are not completed or retained, a notary may be unable to demonstrate that appropriate consideration has been given to the risks presented by the client, transaction or jurisdiction involved. This increases the risk that higher-risk matters will not be identified and subjected to enhanced scrutiny where required. Risk assessments should therefore be regarded as an important tool for identifying and managing money laundering risks, rather than simply a record-keeping exercise.

Inspectors will consider not only whether appropriate AML policies and procedures are in place, but also whether they are implemented effectively in practice. Compliance

requires both adequate documentation and evidence that the procedures described have been followed.

Inspections also continue to highlight the importance of maintaining an appropriate level of awareness of suspicious activity and the obligation to make a suspicious activity report where required. Customer due diligence, matter risk assessments and ongoing scrutiny of transactions should be used together to identify unusual features, inconsistencies or other indicators of potential money laundering.

Failure to identify, investigate and document unusual features of a transaction may result in potential indicators of money laundering being overlooked. Maintaining an adequate audit trail of enquiries made and conclusions reached assists not only in demonstrating compliance but also in evidencing the exercise of professional judgement. Where concerns arise, notaries should ensure that appropriate enquiries are undertaken, that decisions are properly recorded and, where necessary, that quality reports are made through the appropriate channels.

Notaries are reminded that differing views as to the interpretation of the Money Laundering Regulations or the applicable guidance do not remove the obligation to comply with current regulatory requirements and expectations. Where there is uncertainty regarding the interpretation of the Regulations, any concerns should be raised through the appropriate regulatory channels. In the meantime, notaries should ensure that they maintain a robust and effective AML compliance framework.

Key lessons for notaries

Notaries should consider the following:

• Review AML arrangements where regulatory concerns arise within an associated practice.
• Ensure policies, procedures and firm-wide risk assessments remain current and reflect the work actually undertaken.
• Complete and retain client and matter risk assessments where required.
• Use risk assessments to identify higher-risk clients, transactions and jurisdictions that may require enhanced scrutiny.
• Maintain sufficient records to demonstrate customer due diligence, source of funds enquiries and ongoing monitoring.
• Ensure AML policies are implemented consistently in practice and not merely retained as documents.
• Be alert to unusual or suspicious features of transactions and make appropriate enquiries where concerns arise.