The days are getting longer and the daffs are blooming… it must mean that spring is here. So, with that, here’s a roundup of new guidance that the SRA’s sprung on us…

New rules and guidance from SRA

After last quarter’s plethora of SRA guidance notes and Warning Notices, the SRA appears to have taken a bit of a break from these, which will hopefully mean everyone has a chance to catch up on reading the backlog, particularly after a comment in their Professional Obligations Thematic Review in December that they expect firms/ solicitors to read and understand the regulatory resources they publish. Other than a suite of guidance notes on how to practise in the UK as a Swiss, Registered Foreign Lawyer or European Lawyer, the main piece of guidance from the SRA this quarter is:

• Qualifying Work Experience: Meeting our standards for good qualifying work experience (QWE): The SRA updated this guidance note on 19/2/25 on how to meet their expected standards when offering QWE to individuals in their organisations. Two years of QWE is required for all candidates looking to qualify as a solicitor through the Solicitors Qualifying Examination (SQE) route, which has now replaced the traditional training contract. Any firms providing such opportunities needs to keep up to date with their obligations and this is a good place to start.
• SLAPPs: Whilst not formal guidance, the SRA released a statement on “Our approach to SLAPPs cases” on 24/3/25 in response to concerns raised that they had not taken enforcement action against a law firm last year for allegedly pursuing a “SLAPPs” (Strategic litigation against public participation) case, despite SLAPPs red flags being in evidence. The firm had brought a libel claim against a journalist who had suggested that their Russian client had connections with the Russian mercenary force, the Wagner Group, which their client (at the time) vehemently denied. It later turned out that the client had in fact been connected with the Group and therefore the libel claim could not succeed.  However, the SRA has clarified that having fully investigated the law firm in relation to this case, at the time of the firm’s instructions they had thoroughly investigated their client’s claims, and had no reason to believe that they were being asked to pursue a SLAPP.  The SRA concluded that the firm had not acted improperly and therefore they would take no action.  The SRA has clarified to the government that it is not the SRA’s role to define a case as a SLAPP or otherwise, but to help to ensure that solicitors are not facilitating abuse of the legal system by requiring them ensure cases they bring are properly arguable in fact and law and not bound to fail. They have also invited the government to find a “robust legislative solution” to give the Courts more powers in relation to SLAPPs cases and reminded firms about their Warning Notice on SLAPPs which “highlights the importance for solicitors of obtaining proper instructions and seeking to challenge and scrutinise what their client is telling them.”

Guidance from the Law Society

• SRA Powers of Investigation: Given the increased numbers of SRA visits to firms (whether on site or desk-based), including the increased number of thematic reviews they are carrying out, it’s perhaps worth a reminder that the Law Society updated its practice note in October 2024, SRA Powers of Investigation, which is worth a read if you find yourself on the receiving end of a SRA letter suggesting a visit/ access to client files. (The SRA also has guidance on How we gather evidence in our regulatory and disciplinary investigations from 2019).
• New AML-related Q&As: The Law Society Q&A page can be a helpful resource and is worth a search every now and again. The latest AML questions can be found here and includes questions (amongst others) about domestic PEPs (a member of a UK political party), policies on handling cash, when an MLCO is required as well as an MLRO.

Hot topics

Client accounts

• Client account interest: Hot on the heels of the SRA’s consultation into client money in legal services, which closed in February, the key message from this year’s Law Society Financial Benchmarking Survey (published in early March) is that law firms should ‘wean themselves off’ client interest. No doubt we’ll be hearing more from the SRA on this soon. To read the Law Society’s summary and the full survey itself, follow this link.
• With all the talk about client accounts and solicitors holding client money in recent months the Law Society has recently updated its Practice Note on Protection for client accounts, albeit it concentrates on the Financial Services Compensation Scheme (FSCS) and liability for client money following the collapse of financial institutions. It’s aimed at all solicitors dealing with client funds and client accounts and includes a helpful summary of firms’ obligations under the SRA Accounts Rules and the information to be provided to clients about how their money is held.

Anti-money laundering, sanctions & financial crime

• High Risk Third Countries (HRTC): A heads up that the list of High-Risk Jurisdictions for AML purposes changed on 21 February following the latest Financial Action Task Force (FATF) plenary. The updated lists can be found on the FATF website and now include Lao PDR (Laos) and Nepal, with the Philippines having been removed from the list. (At the time of writing, the Law Society hasn’t updated its list so please refer directly to the FATF list for the most up to date position. Don’t forget that Enhanced Due Diligence (EDD) is required where clients (and other parties) are established in a HRTC. Make sure you update your policies as appropriate, advise staff of the changes, and consider whether you’re already acting for clients (or dealing with other parties) with connections to the new countries added, as EDD will now be required on those. As always, please don’t assume that just because a country is removed from the FATF list, it is suddenly low risk… it’s just not considered as high risk by FATF (but may still well be by, for example, the European Commission, which is relevant to those still subject to EU regulation) as it was and EDD may well still be required or sensible.
• A good resource for risk assessing overseas countries which are not on the FATF list is the Transparency International Corruption Perceptions Index which was also updated in February. Their Highlights and Insights report states that Denmark is at the top of the rankings (for the 7 year in a row) (with a score of 90), followed by Finland and Singapore. New Zealand has fallen outside the top 3 positions for the first time since 2012 and is followed (in order) by Luxembourg, Norway, Switzerland, Sweden, the Netherlands, Australia, Iceland and Ireland (with the latter’s score being 77). Meanwhile, countries experiencing conflict or with highly restricted freedoms and weak democratic institutions occupy the bottom of the index, namely South Sudan (with a score of 8), Somalia and Venezuela taking the last three spots. Syria, Equatorial Guinea, Eritrea, Libya, Yemen, Nicaragua, Sudan and North Korea complete the list of lowest scorers. The UK has kept its ranking of 20 and its score of 71. Here at the Compliance Office, our general rule of thumb is that any country with a score of 60 or less should be treated as high risk and EDD carried out.
• SRA Sanctions webinar: The much anticipated (surely?!) updated webinar from the SRA on the latest information on the UK sanctions regime went out live on 18 March, covering recent trends and findings from their proactive work (which we mentioned in last quarter’s update), comparisons of the controls you should apply to AML and sanctions, and perhaps most importantly, the expansion of the sanctions regime, including in relation to trade sanctions, of which law firms are being encouraged to be increasingly mindful. It’s no longer just about financial sanctions! You can watch the recorded version on YouTube here.
• Trade sanctions: On the issue of trade sanctions, the SRA published a News piece on 5/2/25 relating to the Office of Trade Sanctions Implementation (OTSI) (as opposed to the Office of Financial Sanctions Implementation (OFSI)) new guidance detailing its enforcement powers. Just as with OFSI, OTSI can impose very high monetary penalties on parties who breach trade sanctions, or who fail to report such breaches, on a strict liability basis, and such breaches can also constitute a criminal offence. Legal professionals are now required to report suspected breaches of trade sanctions to OTSI. Areas of legal work that could be affected by trade sanctions include:
  • Legal advisory services – Providing advice on corporate structures, contracts, or transactions that could involve sanctioned entities or jurisdictions.
  • Trust and company services – Setting up companies, trusts, or other legal structures that may be used to evade trade sanctions.
  • Client due diligence and risk assessment – Ensuring firms conduct proper checks when dealing with high-risk clients or transactions.
  • Litigation and dispute resolution – Managing cases involving sanctioned individuals, entities, or assets, where compliance with trade sanctions is required.
  • Commercial transactions – Handling mergers, acquisitions, or financial arrangements involving restricted goods, technology, or services.

  Now would be a good time to review your Sanctions Risk Assessment, Policies and Procedures, including how you screen clients and third parties, which whilst not mandatory, are certainly strongly encouraged by the SRA in their recently updated Sanctions Guidance.  Do reach out to us if you need any help in this area.

• Sanctions fine: OFSI has taken enforcement action against a law firm for the first time since the invasion of Ukraine for breaching UK financial sanctions on Russia, fining the former Russian office of City firm Herbert Smith Freehills £465,000. Payments totalling £3.9 million had been paid to 3 sanctioned Russian banks in May 2022 as the firm wound down its Russian offices after the invasion, due to human error. The firm’s position was that the errors had been made in good faith and had hoped for a lower fine given they had self-reported to OFSI and cooperated throughout their investigation. The SRA is taking no action because neither the Russian office nor any of the lawyers involved were SRA regulated. After the case we referred to in last quarter’s update it does appear that fines from OFSI might become a regular feature in these pages. Please ensure your staff are trained on sanctions risks and red flags, and to report any concerns about sanctions breaches internally immediately.
• Sanctions on UK far-right group: On 8 January 2025, HM Treasury placed sanctions on a domestic far-right group, Blood & Honour (although it has various aliases), freezing their assets under the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019. This is the first time that these measures have been applied to a far-right group. For more detail, see here.
• Accepting cryptocurrency as payment: The SRA has updated its AML Q&A on this topic if you are ever considering accepting crypto as payment for your services for example. The overall conclusion is that whilst there is nothing in the Money Laundering Regulations or the SRA Standards & Regulations to stop you from doing so, it is clearly a risky business, not least for the firm given the significant fluctuations in value, but also for clients given such funds can’t be paid into client account and therefore won’t receive the same protections as fiat currency. There are also the money laundering, terrorist financing and proliferation financing risks to consider in terms of understanding the source of the funds which will be particularly relevant where funds for transactions or as part of a deceased’s estate include crypto assets.
• Requests for disclosure from law enforcement: This is always a tricky one. The police or some other law enforcement agency contacts you explaining they are investigating a potential crime and need information from you on an informal basis. The initial gut reaction to a such a request from a law-abiding citizen is often to cooperate. However, it’s important for solicitors/ law firm staff not to act immediately on that impulse and only ever disclose any such information if compelled to by the courts (and even then, you can’t be compelled to disclose privileged information). A recent helpful Law Society Gazette article explains that “a law firm must act with extreme care to ensure it does not breach its professional and regulatory obligations regarding client confidentiality and legal professional privilege (LPP)”, as such breaches may result in disciplinary action and could have significant consequences for clients, which could give rise to a civil claim against you. There is also the risk of ‘tipping off’ (a criminal offence) if you seek the client’s consent to disclose information or waive privilege. The best way forward is to take details of the request without confirming anything (including that you act for the client in question) and explain that you will speak to your MLRO/ COLP and someone will revert to them. Given the complex issues that arise in relation to the various competing obligations, specialist legal advice may be required before responding.

Consumer issues

• Consumer vulnerability: In early February, the SRA published an independent study into consumer vulnerability in the legal market, as part of their ‘ongoing commitment to improving access to legal services’ and their strategic aim of ‘enhancing confidence in legal services’. The research suggests that there should be a greater focus on making services accessible for all, rather than trying to make individual adjustments or define who is “vulnerable”. The SRA’s (current ) CEO, Paul Philip, commented, ‘Those who need legal advice and support should be able to access it without barriers or fear… It is clear that, in order to improve accessibility, build trust and reduce complaints, the legal sector could look at designing services that are accessible and inclusive for everyone. We will now consider how we and others might take this forward by bringing together experts in this field’. The full ‘feasibility study’, including the SRA’s proposed Next Steps, can be read here. Watch this space, but it appears likely the findings will impact the SRA’s next review of their Transparency Rules in terms of law firm website requirements.
• Complaints: We mentioned in last quarter’s update the SRA’s and Legal Ombudsman’s increasing concern about client complaints. No sooner had we made this comment than the SRA announced it had written to 750 randomly selected firms asking them to complete a questionnaire about their complaints handling procedures. The ‘lucky’ firms were asked to provide details on how their firm identifies and handles first-tier complaints by 28/2/25. Now that the deadline has passed, we will wait to see what guidance/ warning notices/ reports arise from it…watch this space!
• New charge for financial product mis-selling claims: The Financial Ombudsman Service (FOS) is to start charging a £250 fee for compensation claims made through ‘professional representatives’ from 1/4/25, although if claims are successful, there will be a £175 refund. (Further information can be found on the FOS website). This may well feel like another attack on volume litigation firms, which are coming under increased pressure from the SRA following the collapse of law firm, SSB, (on which the profession is still awaiting the LSB’s report into the SRA’s handling of the firm and its collapse). The SRA has made no bones about the fact it has significant concerns about such firms and whether they do enough to advise clients that they can make their own claims via the FOS portal (where no fee will be payable).
• High volume claims: On the same theme, (and again on the back of SSB’s collapse) the SRA has further reported on its work investigating high-volume claims firms and its concerns in particular in relation to no-win, no-fee work, including the incidences of unexpected costs for consumers (such as adverse costs bills in relation to defendants’ costs which clients thought would be covered by the After the Event (ATE) insurance policies taken out on their behalf), and unresolved claims. Any firms doing this type of work should remind themselves of the SRA’s guidance note from last summer, on Claims Management Activity.
• Streamlining Motor Finance Claims: In rather better news for high-volume claims firms, the High Court has ruled that motor finance claims can be brought for multiple claimants through single ‘omnibus’ claim forms, rather than each claimant having to issue a separate claim. As quoted in the Law Society Gazette, the MD of Barings (a Manchester-based claimant firm) said, ‘The High Court’s ruling means that instead of facing costly and time-consuming individual cases, claimants can now pursue justice as part of omnibus, making access to justice fairer and more efficient for everyone involved.’

Law firm management

• How law firms manage risk? The SRA published new research in December to better understand law firms and solicitors’ concerns around potential market-level risks, how they identify and tackle risks, and how they use SRA resources. The SRA rules compel solicitors to look at the way they work and assess what the risks to their clients’ interests might be, then take steps to mitigate these risks. The research looked at what the profession thinks are the major risks it currently faces and they will be using the findings, alongside the findings of their thematic review on professional obligations (referred to in last quarter’s update), to look at what more they can do to support firms in this space. The main risks identified were economic (uncertainty/ inflation); political and regulatory (fast-evolving geopolitical landscape); consumer (public trust in legal sector); firm specific (high staff turnover/ recruitment/ retention challenges) and technology (AI and cybercrime). The SRA’s research concludes that “it will be important for solicitors to learn how to recognise…gaps in knowledge or confidence in their own business and work together with the SRA to establish how they can be filled through communications or training.” Another ‘watch this space’ situation .
• New code of conduct for investigators: If you ever use investigators as part of your litigation services (or otherwise), this news that the Association of British Investigators (ABI) has introduced a new (albeit voluntary) code of conduct for members to make sure they uphold the UK General Data Protection Regulations (UK GDPR) will be relevant to you. The ABI reports seeing a few court cases emerge where personal data processing investigative techniques are coming under scrutiny, so only using providers who follow this code of conduct is likely to mitigate the risk of having the evidence you wish to rely on thrown out of court.
• Workplace recycling mandatory from 31/3/25: From 31 March 2025 (or 31 March 2027 for micro-firms, i.e. workplaces with fewer than 10 full time employees in total), all workplaces in England have a legal duty to separate their recyclable, food and residual waste in accordance with the arrangements with their waste collector. Failure to comply could result in receipt of a compliance notice from the Environment Agency. See the gov.uk website for further information. It is also worth noting the last section which states that the general public will be able to report workplaces that do not follow these rules to the Environment Agency…time to have a look at your current bin situation in the office!
• Professional Ethics: The Legal Services Board’s (LSB) (the oversight regulator for legal services in England & Wales) consultation on lawyer ethics we mentioned in our last update opened in early March and is due to close on 29/5/25. One of the LSB’s main concerns is a “disproportionate focus [of solicitors] on the duty to act in the best interests of the client to the detriment of other professional ethical duties” (such as the duty to act with independence and integrity and solicitors’ duties to the court) as well as a lack of understanding and/ or due regard for ethical duties. The consultation is looking at how these issues can be addressed by imposing new requirements on legal regulators (such as the SRA) to ensure that lawyers increase their focus in this space, namely through improved training before and after qualification, a cultural shift in firms, improved support for those trying to uphold their professional ethical duties when challenged (think the Post Office Scandal) and regulators taking effective action to address non-compliance. Whatever the outcome of the consultation, this is inevitably going to place an increased burden on law firms. Watch this space.
• File closures: There are many reasons why it is important to keep on top of file closures (even though it is one of the most tedious things for most solicitors!), but it is particularly important with the increase in SRA inspections. Having your files in order and not having long lists of matters which, in your minds are really closed, but will remain on an open matter list and therefore available for review by the SRA, is recommended. Also bear in mind that, in our experience, the SRA (for AML inspections in any event) generally ask to see all open matters and all matters closed in the preceding 3 months.

Tribunal trends and cases of interest

When solicitors slip up… big and small-time

• ChatGPT making up cases again! (And the image above, by the looks of it!) This time it was an Australian lawyer who used ChatGPT to summarise cases for him in his submissions for a judicial review matter. The bot ‘hallucinated’ cases and the lawyer didn’t check them before submitting them to the court. This did not go down well, especially with wasted time spent by the judge trying to find the fake cases. This is another warning that if you are going to use AI to help you, you must always check it carefully for accuracy.
• Using a false invoice to repay a personal loan using client money led a self-employed conveyancing executive to be banned from working for a solicitor’s firm and ordered to pay £1,350 in costs. She’d directed the payment of client money, in unpaid disbursements straight into her business account.
• And another on a similar note… a firm’s head cashier was banned from working for solicitors (without the SRA’s prior approval) after she sent money to her personal account from the firm’s one, while disguising the payments as legitimate transfers under “charges” or “interest”.
• Not checking anti-money laundering rules because of his “implacable belief that he was right” landed a solicitor with a £45,000 fine. The SDT found that he “simply believed that [the rules] did not apply to him, and he adopted a cavalier approach to them”. Other failures later transpired like incorrectly confirming to insurers that all staff over the past six years had taken part in formal anti-money laundering, and he did not have a FWRA in place for a number of years when he said he did.
• A solicitor for over 47 years was fined over £15,000 in relation to a property transaction where he’d failed to run due diligence checks on the third-party account that did not have any connection with the real owner of the properties. An investigation later found various other instances where he’d failed to adhere to money laundering regulations.
• Oh, and look, it’s another AML related story… £23,596 was the fine handed to a firm after an SRA desk-based AML review which showed areas of concern in relation to the firm’s compliance with the Money Laundering, Terrorist Financing (Information on the Payer) Regulations 2017 (MLRs 2017), the SRA Principles 2019 and the SRA Code of Conduct for Firms 2019. Historic breaches pre MLRs 2017 were also found.
• And another big one! A leading US law firm has been fined £300,000 for failing to have AML risk assessments and procedures in place in its London office during the period June 2017 to March 2020 as part of an agreed outcome with the SRA and approved by the SDT. This is despite the fact that by the time the SRA referred the firm to the SDT in November 2023, the firm was fully compliant and there was no suggestion that money laundering had actually occurred. The firm was also ordered to pay the SRA’s costs of £62,000.
• Firms rebuked for residual balances on client account: Rather topical in light of the SRA’s recent consultation into client money in legal services, one of the focusses of which was concerns about law firms’ residual balances, are these recent cases of two law firms that between them retained £425,000 of client money for many years. One firm had 369 client balances totalling nearly £290,000 (most of which had seen no movement for almost 2 years) and the other firm had balances in excess of £135,000 accumulated in client account for 20 years. Please do keep on top of your residual balances and remember that the SRA rules allow firms to donate unclaimed funds of up to £500 to charity without its permission.
• A solicitor was fined £8,500 and ordered to pay £25,000 in costs after it was found that he’d inadvertently made irregular transfers of billed time between different client matters to the value of over £1m. The client was overcharged by £472,000 which was reimbursed by the firm he worked for. The solicitor described the transfers as a misguided attempt at internal ‘housekeeping’. This was reported to the SRA in 2019 and the hearing at the SDT didn’t happen until a whopping six years later, in February 2025. That’s a rather long time for the matter to have been hanging over him⏳.
• Stalking his ex-partner led a solicitor to be suspended from practice for six months by the SDT and ordered to pay over £2,000 in costs. He said that he regretted the impact of his behaviour which included frequently contacting and sending them things. The SDT judgment said that his behaviour had been ‘planned and had continued over a period of time’. The tribunal declared that ‘there was a need to protect the public and the reputation of the profession from future harm but that such protection did not necessitate [him] being indefinitely suspended from practise or being struck off the roll.’
• A solicitor has been struck off after fabricating five client letters and trying to pass them off to the SRA as genuine. During an SRA inspection the solicitor provided letters, which turned out to be fake, in an attempt to defend his position in light of allegations. He also created a fake attendance note to make it look like the case belonged to another fee earner to avoid a regulatory sanction against him. He was also ordered to pay almost £27,000 in costs.

…and the SRA hasn’t been on its best behaviour either…

• “Accusation without evidence”: In 2020, a firm had self-reported an historical matter of providing advice to a company between 2014 and 2016 relating to loan notes under a subscription agreement. Earlier this year, in what the SDT said ‘could rightly be characterised as a shambles’, the SRA began an investigation into the partner without interviewing them first. It was also found that the SRA’s case had changed numerous times even during the substantive hearing. Luckily, the respondents were in a position to have counsel to protect their position,’ said the ruling. ‘The tribunal noted with concern what injustice could have resulted in a similar situation where respondents were not represented.’ The ruling outlined a series of serious failures by the SRA, so much so that the regulator was ordered to pay some defence costs.

…but it’s not all bad news for the SRA…

• SRA overturns Dentons acquittal in AML case: Early last year, the SDT found in favour of Dentons following SRA allegations that it had breached the money laundering regulations between 2013 and 2017, on the basis that the breaches were ‘inadvertent’ and therefore did not amount to professional misconduct. The SRA appealed the SDT’s decision and in March this year the High Court overturned the SDT’s decision remitting the SRA’s original case to the SDT for re-consideration by a different panel. (It was also ordered that the SRA should recover its costs of the appeal and the original SDT hearing). The high court judge concluded that ‘there is no universal requirement that breaches of the principles and the outcomes [SRA Standards & Regulations now] can only be established where the requirements of seriousness, culpability and reprehensible conduct are met. Such requirements only arise where they are inherent in the rule in question.’ As such requirements were not inherent in the SRA standards at the time (or indeed now) the judge concluded that the SDT should have limited itself to considering whether the Money Laundering Regulations had been breached, which it concluded they had. Accordingly, the conclusion that the SRA obligations (to comply with legal and regulatory obligations and relevant legislation) had also been breached was inevitable. In effect, breaches of AML rules are strict liability offences, due to the fact that breaching legislation is a breach of the SRA STARs for which there needs to be no further fault on the part of a firm. It will be interesting to see what happens next for Dentons.In the meantime, there’s concern in the profession that this ruling has removed “from the SDT the ability to determine whether a breach was so minor that it did not represent professional misconduct” despite arguments that the SDT is best placed to make such decisions.  Further, there is concern that the argument made by the judge that ‘over-zealous enforcement’ by the SRA would be reined in by their guidance that only serious breaches of the AML legislation would progress to disciplinary proceedings, is not particularly reassuring for the profession.

 

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