How Should a UK Conveyancing Solicitor Conduct Client Due Diligence Under the Money Laundering Regulations?

Why Client Due Diligence Matters for Conveyancing Solicitors

Every conveyancing solicitor in the UK is a "relevant person" under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payment) Regulations 2017 (MLR 2017). This means you must identify and verify every client before you act on a property transaction. The SRA expects full compliance, and the penalties for getting it wrong can include fines, suspension, or even criminal prosecution.

Client due diligence (CDD) is not a box-ticking exercise. It is the first line of defence against money laundering in property transactions. Property is a favoured vehicle for laundering criminal proceeds because large sums can move through conveyancing transactions with relative ease. The National Crime Agency (NCA) reports that property remains a high-risk sector for money laundering.

This guide covers the practical steps a conveyancing solicitor must take to comply with CDD conveyancing obligations, including standard identification, enhanced due diligence, and ongoing monitoring. It applies whether you work in a high-street firm, a specialist conveyancing practice, or a multi-partner LLP.

What the Law Requires: The Three Pillars of CDD

The MLR 2017 set out three core obligations for conveyancing solicitors:

• Identify the client (the person or entity you are acting for).
• Verify their identity using reliable, independent source documents, data, or information.
• Assess the risk of money laundering or terrorist financing in the matter, and apply proportionate measures.

You must carry out CDD before you establish a business relationship or execute a transaction. In conveyancing, that means before you receive client money, issue a contract, or submit a search. The SRA Accounts Rules reinforce this: you cannot accept client money without first completing CDD.

If you cannot complete CDD, you must not act. You may also need to submit a suspicious activity report (SAR) to the NCA if you suspect money laundering.

Standard CDD for Conveyancing Clients

For most residential conveyancing clients, standard CDD involves:

• Obtaining a certified copy of the client's passport or photo-card driving licence.
• Obtaining proof of address, such as a recent utility bill or bank statement (dated within the last three months).
• Verifying the client's identity electronically using a recognised identity verification service (e.g., Experian, Equifax, or a specialist CDD provider).
• Checking the client against sanctions lists and politically exposed person (PEP) databases.

For a corporate client (e.g., a limited company purchasing property), you must identify the company's registered address, directors, shareholders, and ultimate beneficial owners. You need to verify the company's existence via Companies House and identify any person with significant control (PSC).

For a trust, you must identify the trustees, beneficiaries, and settlors. Trust structures are often used in high-value or complex property transactions, and they require careful scrutiny.

Enhanced Due Diligence (EDD)

Enhanced due diligence applies when the risk profile of the client or the transaction is higher than normal. Common triggers in conveyancing include:

• The client is a politically exposed person (PEP) or a family member of a PEP.
• The client is based in a high-risk third country (as defined by the Financial Action Task Force).
• The transaction is unusually complex or large, or involves multiple parties without a clear commercial rationale.
• The client uses a corporate structure or trust that obscures ownership.
• The client's source of funds is unclear or involves cryptocurrency.

When EDD is required, you must:

• Obtain additional identification documents, such as a certified copy of the client's birth certificate or a recent tax return.
• Verify the source of funds and source of wealth. This means asking for bank statements, payslips, sale proceeds documentation, or inheritance letters.
• Obtain senior management approval (e.g., from the COFA or a compliance partner) before proceeding.
• Take extra steps to establish the client's business and ownership structure.

For example, if a client is purchasing a £2m London flat through an offshore company registered in the British Virgin Islands, you should apply EDD. You would need to identify the ultimate beneficial owner, verify their identity, and obtain evidence of how the purchase funds were generated. You would also need to check whether the transaction has a legitimate commercial purpose.

Ongoing Monitoring

CDD is not a one-off event. You must monitor the business relationship throughout the transaction. This means:

• Reviewing transactions for consistency with your knowledge of the client.
• Updating identification documents if they expire during the matter.
• Checking for changes in the client's circumstances (e.g., a change of address or a new director).
• Reporting any suspicious activity to the NCA.

In conveyancing, ongoing monitoring is often straightforward because the relationship is short-term. But if a client instructs you on multiple property transactions over time, you should review their CDD file periodically.

Practical Steps for Conveyancing Solicitors

Step 1: Establish a CDD Policy

Your firm must have a written anti-money laundering (AML) policy that covers CDD conveyancing procedures. The policy should set out:

• Who is responsible for carrying out CDD.
• What documents are acceptable for identification and verification.
• How to assess risk and when to apply EDD.
• How to record CDD and retain records.
• How to handle failures to complete CDD.

The SRA expects the COFA to oversee the policy. If you are a sole practitioner, you are the COFA. If you are a partner in a larger firm, the COFA should review the policy annually.

Step 2: Use a Reliable ID Verification Service

Electronic identity verification (eIDV) is now standard in conveyancing. It is faster and more reliable than paper-based checks. Most eIDV providers integrate with case management systems and check client data against credit reference agencies, electoral registers, and sanctions lists.

Choose a provider that is registered with the Information Commissioner's Office (ICO) and complies with the General Data Protection Regulation (GDPR). Your eIDV provider should also offer a "confidence score" that tells you how reliable the verification is.

If you use eIDV, you still need to obtain a certified copy of the client's passport or driving licence for your file. The eIDV check is supplementary, not a replacement for document verification.

Step 3: Verify Source of Funds and Source of Wealth

For every conveyancing transaction, you must understand where the client's funds come from. This is not the same as verifying the client's identity. You need to see evidence of the source of funds, such as:

• Bank statements showing the funds in the client's account.
• Sale proceeds from a previous property (with a completion statement).
• Gift letters from a family member (with evidence of the donor's identity and funds).
• Loan agreements (with evidence of the lender's identity and the loan's terms).
• Inheritance documentation (grant of probate and estate accounts).

For high-value transactions or where EDD applies, you may also need to verify the client's source of wealth. This means understanding how the client accumulated their overall wealth, not just the funds for this transaction. Source of wealth checks are intrusive, but they are necessary when the risk is high.

Step 4: Record Everything

The MLR 2017 require you to keep CDD records for at least five years after the end of the business relationship. In conveyancing, that means five years from the date of completion. You must retain:

• A copy of all identification documents.
• The results of any electronic verification checks.
• Records of source of funds and source of wealth evidence.
• Risk assessments and any EDD measures applied.
• Copies of any SARs submitted.

Your records must be accessible to the SRA, HMRC, or the NCA on request. If you cannot produce them, you risk a fine or regulatory action.

Step 5: Train Your Team

Every fee-earner and support staff member who handles client due diligence must receive regular AML training. The SRA expects training at least annually. Training should cover:

• How to identify red flags for money laundering.
• How to carry out CDD and EDD correctly.
• How to use your firm's eIDV system.
• How to recognise and report suspicious activity.

If you use locum solicitors or temporary staff, ensure they receive training before they start work. The COFA should maintain a training log.

Common Pitfalls in CDD Conveyancing

Even experienced conveyancing solicitors make mistakes. Here are the most common ones to avoid:

• Relying on the client's estate agent or mortgage broker to verify identity. You are the regulated person. You must carry out your own CDD.
• Accepting expired documents. Passports must be current. Driving licences must be valid. Utility bills must be dated within the last three months.
• Failing to verify source of funds for a cash purchase. Cash purchases are high-risk. You must see evidence of how the funds were generated.
• Not checking beneficial ownership of corporate clients. You must identify every person with significant control, not just the named director.
• Ignoring red flags. If something feels wrong, it probably is. Submit a SAR if you have suspicions.

When to Seek Specialist Advice

CDD conveyancing is a regulatory requirement, but it is also a professional skill. If you are unsure about a particular client or transaction, speak to your COFA or a legal-sector-specialist accountant. They can help you assess risk, structure your procedures, and ensure compliance with the SRA Accounts Rules.

For more detailed guidance on the SRA Accounts Rules and how they interact with CDD, see our SRA Accounts Rules Essentials guide. If you need support with your COFA responsibilities, our COFA compliance support service can help.

For firms considering a merger or acquisition, our post-merger integration guide covers how to harmonise CDD policies across merged practices.

If you are a locum solicitor working in conveyancing, our resources for locum solicitors include guidance on CDD responsibilities when working at multiple firms.

Finally, our SRA client account reserve calculator can help you ensure your client account balances are compliant with the rules.

Conclusion

Client due diligence is a non-negotiable part of conveyancing practice. The MLR 2017 and the SRA Accounts Rules require you to identify, verify, and monitor every client before you act. Enhanced due diligence applies when the risk is higher. Record-keeping is mandatory for five years.

By following the steps in this guide, you can protect your firm from regulatory action, financial penalties, and reputational damage. If you have any doubts, consult a specialist solicitor accountant who understands the conveyancing sector.