Why do solicitors in conveyancing ask for 6 months bank statements from clients and donors gifting a deposit?
Why are Solicitors asking for Bank statements from clients?
While it may seem intrusive and clients may be reluctant to provide them, there are a couple of important reasons why Solicitors may ask clients for bank statements. Both relate to the solicitor’s or conveyancer’s duty to comply with anti-money laundering (AML) regulations and can become a major sticking point if clients do not comply.
First, they may be requested as proof of address for ID checks as part of the initial anti-money laundering process at the beginning of a case. Bank statements are just one type of document which can be accepted for this purpose and a utility bill (gas or electric) or Council Tax bill from within the last 3 months can do in their stead.
Second, a firm may request 6 months or more worth of bank statements from a client in order to prove or establish the source of funds for a purchase deposit. Again, this request will be made in order to satisfy and comply with AML regulations and legislation. These bank statements will typically be used to evidence a pattern of saving or income so as to satisfy the solicitor as to the origin of the monies used for a deposit.
Why are Solicitors asking for Bank statements from donors gifting a deposit?
Where a client is relying on a gifted deposit in order to purchase a property, solicitors will also need to perform AML checks on the person(s) providing this gift.
As a result, the firm will also request ID and 6 months’ worth of bank statements from the donor(s). The solicitor will use this for the same reason as requesting ID and bank statements from a client – they need to be satisfied that who they are dealing with is who they say they are and that none of the funds used in purchasing a property are the proceeds of crime.
Why do Solicitors ask for 6 months of Bank statements instead of just 3 months?
Solicitors are under an obligation to perform “enhanced due diligence” where there is a high risk of money laundering under the Money Laundering Regulations 2017. The large sums of money being transferred through conveyancing firms’ client accounts every day puts them at a high risk of being targeted by fraudsters and criminals meaning these enhanced due diligence checks are necessary.
While the regulations are not prescriptive in what is specifically required for these enhanced checks, standard practice is to request 6 months’ worth of bank statements. This is double the 3 months’ worth of bank statements recommended by the FCA and requested by most lenders and so may seem excessive to some. However, the Law Society recommends that solicitors verify the source of a client’s funds until they are comfortable that they understand where the client’s overall wealth has been derived from and (to the best of their knowledge) that it’s legitimate.
Failing to comply with these regulations can have serious consequences for firms including hefty fines or even criminal charges. As a result, 6 months’ worth of bank statements is standard industry practice as it is viewed as the best starting point that will provide a solicitor with satisfactory evidence of where a client’s funds originated in the vast majority of cases.
However, more evidence may be required if there are still questions to be answered. This may simply be more bank statements although it could be any other supporting documentation that serves to explain where funds originated.
Clients should always be prepared to provide this information as without it the solicitor will not be able to proceed with the transaction.
What are a solicitor’s obligations under anti-money laudnering (AML) regulations?
The Money Laundering Regulations 2017 contain most of a firm’s legal obligations when it comes to AML and the Law Society has also published guidance on how best to comply with these obligations.
Firms are required to take a risk-based approach to AML, under regulation 18, a firm must “take appropriate steps to identify and assess the risks of money laundering […] to which its business is subject.” Compliance procedures can then be adjusted to deal with the risks identified.
Regulations 27 and 28 require that firms conduct customer due diligence in various situations, including when “establishing a business relationship”, in other words when onboarding a client. The nature of these due diligence checks will vary depending on the risk of money laundering as assessed by the firm.
In addition, regulation 33 requires that “enhanced due diligence” be performed in any case where there is a high risk of money laundering. These checks must include “as far as reasonably possible, examining the background and purpose of the transaction”. As a result, these checks will ordinarily involve establishing the source of funds for the purchase. The Law Society recommends that the higher the risk of money laundering the more comprehensive and reliable the documents a firm obtains from a client should be.
A firm must carry out these AML due diligence checks or they will not be able to proceed with any substantive work on a file and must, under regulation 31, terminate the business relationship.
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