This might strike you as a relatively mundane topic, but in legal practice, file opening is something that everyone in a law firm should be familiar with. That is not to say that everyone in the firm will be entrusted with this important task, and it is often well-trained admin and support staff like Legal Secretaries who are required to do this work.
The first clue you might have about the importance of file opening procedure is the fact that it is known by so many different names – customer due diligence, onboarding, verification of identity, verification of funds, anti-money laundering (AML). These are all terms that are commonly used in relation to the humble task of opening a file.
The importance of carrying out the proper checks is further evidenced by the fact that the Solicitors Regulation Authority (SRA) in the findings of their 2020/2021 AML report found 83% of their enforcement outcomes featured failures linked to carrying out proper checks when opening files.
If you still need to be convinced, then consider the law on aspects of file opening which is crystal clear – if you do not do it correctly your firm can be fined, and individuals can be imprisoned.
As part of the file opening process firms must carry out written risk assessments. The law on this is found in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). The MLR 2017 outlines that a firm’s risk assessments should identify:
The clients the firm acts for – is the client who they say they are? What checks have been made? As a minimum a firm should verify a client’s identity based on a reliable independent source (such as a passport). If a client is also the beneficiary of a transaction, then reasonable measures should be taken to verify beneficiaries’ identities.
Links to other countries – does the work link to countries that have significant levels of corruption or are subject to sanctions?
Is the work “high risk” – there are some services that law firms offer which are deemed “high risk”. This would include any work where the firm might hold client money, e.g. conveyancing, probate and personal injury work.
Where has the money come from – with any work, particularly when it is considered “high risk”, a firm should check what the source of funds is.
The MLR 2017 also makes it clear that it is not only new clients that have to be checked. A firm should carry out client checks when dealing with transactions worth more than 15,000 euros or where the purpose of a transaction is not obvious. This means that in some cases you may have to manage a former client’s expectation that a firm can act when in reality you will have to run new client checks on them.
Given the importance and number of checks that firms now must make, you may find that you are using several electronic tools to help get the job done. Some of these tools are basic and limited to ID verification. More sophisticated systems also include the ability to digitally check someone’s identity, verify funds, secure digital signatures and even provide secure online portals accessible by clients – a virtual front office.
Whatever type of system a firm is using (paper-based or a “one stop shop” electronic portal) it is essential that you master the “onboarding” task. A Legal Secretary will often be responsible for conducting the searches and making sure that clients are able to provide accurate and valid data. Depending on how the firm is structured, it is normally a fee earner’s responsibility to evaluate the results of the searches and decide whether the client should be taken on.
Every firm will have induction training on how files should be opened. Do not be surprised if they call it one of several names we identified at the start of this article. The important thing is to recognise that this training is vital to your role and the safety (and success) of the firm, and by mastering the process you can easily make yourself indispensable.