5MLD implementation costing legal firms nearly £1m each
Less than half (42%) of compliance professionals in the legal sector think that the Fifth Anti-Money Laundering Directive (5MLD) will have a positive impact on their ability to detect and prevent financial crime according to new research released today by LexisNexis® Risk Solutions, the global data and analytics provider. This is 20% lower than the overall research average of 60% across other regulated industries in the UK, including real estate, banks, lenders, wealth management, accounting and gambling.
Two fifths of compliance professionals (40%) in the legal sector also believe that the regulation will have no impact in mitigating risks, and 14% believe the regulation will have the opposite to its intended effect by negatively impacting their firm’s ability to detect and prevent financial crime.
Adding to the issue, the research found that it is costing the legal sector on average 12% more to implement 5MLD than for other regulated industries, at £940,200 per law firm, compared to an average of just over £836,000 across other sectors.
Nina Kerkez, director of UK&I Consulting at LexisNexis® Risk Solutions, comments: “From our substantial research into 5MLD implementation programmes across the UK’s regulated industries, it’s interesting to see that the cost of implementation in the legal sector is substantially higher than the average across other sectors. It is possible that the legal sector, by its nature, deals with clients of higher risk, which in turn require more due diligence performed on them, bringing the costs of onboarding up.
“Without adopting the right tech to streamline compliance checks and create a more flexible, risk-based approach to compliance, law firms face a difficult future in keeping up with changing requirements.
The research appears to reflect the perennial conflict within firms between fee-earners, who want to onboard clients quickly, with minimal friction, and compliance teams who try to minimise the firm’s exposure to risk – an area that 5MLD and the requirement to demonstrate a risk-based approach to compliance are putting additional pressure on.
The reality is, firms can have the best of both worlds; fast, frictionless and safe onboarding, alongside robust and ongoing assessment of client risk that protects the firm from exposure to financial crime, and therefore the reputational and financial damage that could come from dealing with the wrong client.
Given the constantly shifting global political landscape and our 24-hour news cycle, there’s no wonder that 56% of firms surveyed felt the biggest obstacle AML creates is the time it takes to collate the information. However, by automating processes using big data and smart analytics tools, legal professionals can slash the time taken to conduct checks, and reduce the possibility of error, leaving them free to focus on what’s important – keeping clients happy.
