rule changes, tribunal trends, new guidance, deadlines – tick

Hot topics

Cybercrime losses

Following a public consultation and discussions with insurer representatives as well as the Law Society, the SRA has issued a press release confirming that a new clause making it clear what cover will be provided for cyber losses will be added to the minimum terms and conditions of law firms’ professional indemnity insurance policies. This should be in place for current renewals as the SRA said it expected them to be in place by the end of 2021. Here is the full press release.

Anti-money laundering

The SRA has published its first anti-money laundering supervisor report. The report explains the work the SRA has carried out over the last 12 months to help firms ensure their processes are effective and being carried out properly.

The SRA undertook 85 firm visits and 168 desk-based reviews and the most common reasons for non-compliance with the anti-money laundering regulations was not having a proper risk assessment in place for AML matters. Get in touch if you’d like some help with yours. Other issues included poor client due diligence and checks on the source of funds, failures by staff to follow procedures, inadequate training and poor policies.

Along with this, check out the SRA’s report on Money Laundering Governance: The Three Pillars of Success. In it the SRA has set out what it considers to be the three main attributes needed to be a successful MLCO or MLRO. These are:

  • Authority
  • Independence
  • Resources

As ever, we are happy to discuss with you any AML training or audit requirements. Get in touch for a chat. Particularly if you have not had an AML audit yet. The lack of an independent AML audit seems to be a consistent criticism from the SRA feedback we have seen on the SRA’s random visits and they look set to continue given that they have now set up a whole department specifically for this work which seems unlikely to be going anywhere. This will continue to be a hot topic for the SRA!

Risk outlook

The SRA’s Risk Outlook for 2021/22 was published before the SRA Annual Compliance Conference. The article talks about what is the “new normal” as the legal market emerges from Covid-19. It identifies the key risks in the legal sector as well as highlighting what is high up on their agenda (so what we should be most alert to!)

SRA Price Transparency Rules enforcement approach

We have previously provided a 16 point checklist on law firm website compliance which took account of an, at times, rather picky approach by the SRA. Well, it needs an update! We have seen correspondence from the SRA rather vaguely alleging non-compliance with the price transparency rules and it transpires that the SRA were unhappy that the link on the firm’s website did not go to a specific page on the SRA’s own website (this one). In our view, there is no mandatory requirement to link to a specific page on the SRA website (indeed the SRA’s own template wording links to the Legal Ombudsman’s homepage and the SRA rules draw no distinction between the two). Nonetheless, who wants a grumpy letter from the SRA threatening further reviews and follow up action? So we’ll be working with all of our retainer clients in coming weeks to ensure that they link to the SRA’s preferred page. We’d recommend everyone check the link in their website complaints information.

New SRA Proposals / Consultations

First up, there is a consultation about post six year run-off cover and the Solicitors Indemnity Fund which ends on 15 February 2022. This has particular implications for unincorporated practices.

Secondly, the SRA is seeking views on its approach to financial penalties and proposing changes to its fining powers. Their aim is to resolve issues more quickly, saving time and cost for all involved. They are inviting feedback on the proposals by 11 February 2022. The SRA is proposing to double the percentage of turnover which it fines law firms for the most serious matters requiring a financial penalty. This could represent 5% of an ABS law firm’s turnover. This is serious stuff and we would encourage ABS’s with 7 figure plus turnover in particular to properly engage and test the SRA’s thought processes.

Tribunal trends and themes and cases of interest

Strike offs

A solicitor has been struck off for taking advantage of a vulnerable client. The tribunal heard that it was not in dispute that the solicitor had drafted, witnessed and ‘stamped’ a property sale agreement between the client and her own civil partner. The property had been valued at £450,000, a fact the solicitor was aware of, but the sale price was detailed as £200,000. The solicitor had facilitated the purchase. In addition, the solicitor had prepared a will where she was the sole beneficiary and executor without ensuring independent legal advice had been received.

A former in-house solicitor has been struck off after being convicted at Southwark Crown Court of three offences of making and distributing indecent images of children.

A solicitor has been struck off for dishonesty offences by the Tribunal who said his dishonesty was “deliberate, calculated and repeated”. The Tribunal found that he had continued to practise for two years without indemnity insurance and gave falsified bank statements to the SRA.

Two partners have been fined £7,500 after admitting that they allowed a non-qualified person employed as a business development consultant to have sole and unsupervised conduct of the ‘Cyprop’ litigation. This litigation was found to be highly complex and multi-jurisdictional. The partners also admitted allowing the same person control of funds held in the firm’s client account on behalf of investors.

Offensive communications

A solicitor has been issued with a rebuke for posting several inappropriate messages in a Whatsapp group with over 100 members. This is another reminder of the SRA’s approach to offensive communications in that it may take action for offensive comments on social media whether made in a business capacity or in your private life.

Anti-money laundering (again, sorry!)

A solicitor’s firm has been ordered to pay a penalty of £800 plus costs of £600 for failing to provide a compliant anti-money laundering firm-wide risk assessment as part of the Money Laundering, Terrorist Financing and Transfer of Funds (information on the Payer) Regulations 2017.

Top London law firm Mishcon de Reya have entered into a Regulatory Settlement Agreement ~(RSA) with the SRA and have been fined £232,500 over multiple breaches of anti-money laundering regulations and will pay the SRA’s investigation costs of £50,000. Breaches included failing to have a written, practice wide risk assessment in place, failing to return client due diligence and failing to conduct adequate enhanced due diligence. The firm also admitted permitting their client account to be used as a banking facility.

Breach of confidentiality

The owner and manager of a law firm has been fined £6,000 for failing to ensure that client information was kept confidential when 242 wills and the names and addresses of over 11,000 clients were removed from the firm and not properly secured. He also failed to ensure that all the firm’s dealings with client money were appropriately recorded and that compliant client account reconciliations were undertaken.

Failing to cooperate with the SRA

In an exceptional case solicitor Soophia Khan has been jailed for contempt of court for breaching two High Court Orders which had required her to deliver up client files to the SRA. Mr Justice Leech said Khan’s conduct amounted to a ‘serious, contumacious, flouting of orders of the court’ and he imposed a three month sentence for the breach of each order to run concurrently and three months to secure compliance with the orders in question.

A solicitor has also been fined £2,000 for failing to co-operate with a an SRA investigation.

Failing to provide a competent service

A partner at a law firm , following an investigation by both the Office of the Public Guardian and then the SRA, has been fined £1,700 and has been prevented from carrying out any form of attorney work. The solicitor signed a pre-completed Lasting Power of Attorney for Property and Financial Affairs for a walk-in client not previously known to the firm. The client attended the office with his son who was the attended attorney. An OPG report established the client lacked capacity at the time of the execution of the document and did not want his son to look after his money. His son used his attorney status to misuse £5,000 belonging to the client.

Use of client account as a banking facility

In two recent cases solicitors have been fined for using their client account as a banking facility.

A solicitor has entered into an RSA and has been fined £2,000 for using the firm’s client account as a banking facility allowing £20,000 to be sent directly from the firm’s client account to an unconnected third-party business associate which was reflected on the client ledger as a loan.

A solicitor has been fined £24,000 by the Solicitors Disciplinary Tribunal for providing a banking facility to his client for a two year period. In an agreed outcome he admitted providing banking facilities for his client, allowing funds to remain in client account without proper reason, and that his conduct was reckless. 53 payments totalling over £1m went through the account .

Misleading clients and backdating documents

A former non-qualified employee of a law firm has reached entered into an RSA with the SRA and a Section 43 control order has been imposed on him

Accounts Rules breaches

A solicitor and COFA has been fined £2,000 for various breaches of the SRA Accounts Rules 2011. These included failing to carry out client account bank reconciliations, failing to keep accounting records for the firm properly written up as well as causing or permitting a client account cash shortage in the sum of £21,553.12.

A licensed body has entered into an RSA with the SRA and has been fined £4,000 for three breaches of the 2011 and 2019 Accounts Rules including failing to maintain client ledgers, making duplicate payments leading to a cash shortage and failing to carry out client account reconciliations.

A solicitor has been rebuked for breaches of the accounts rules 2011 and 2019.

New Rules and Guidance

Hot off the press!

The SRA is concerned about the advice that clients are receiving on onerous clauses in leases. It has published a brand new piece of guidance to help those dealing with leasehold conveyancing understand what the Standards and Regulations require when advising on leasehold provisions including ground rent clauses.

Some highlights from the new guidance are:

  • The SRA emphasises the need to ensure that your client is fully and competently advised that they are purchasing a leasehold interest in the property concerned and that they understand the implications of this and any material clauses. The guidance is clear that this includes explaining to your client the effect over time of clauses which increase the rents payable.
  • The guidance sets out the SRA’s view on what providing competent advice in this area of work looks like and advises that it may, in this field, extend beyond describing the “current” rent charges, referring to the wording as being a “standard clause” and telling clients to read the lease clause.
  • The guidance discusses other risks and consequences which you may need to advise on in order to satisfy the SRA that you have provided competent advice.
  • The guidance also includes a reminder about referrals and the obligations under the Codes of Conduct regarding conflicts.

Updated guidance

The SRA been busy updating their guidance and they have recently updated their guidance on:

  • Preparing to become a sole practitioner or SRA- regulated freelance solicitor
  • How they regulate non-authorised persons. The main change to this guidance is a clarification of the SRA’s view on who it considers to be an employee of a solicitor or recognised body. The guidance states it will look at and consider the conduct of employees who are employed through corporate vehicles such as service companies when these companies are providing services to solicitors or recognised bodies. It also consider whether the service company is owned by the law firm itself or its directors. There is an expectation from the SRA that solicitors and recognised bodies who use such service companies will report serious breaches by them or their employees of the SRA’s regulatory arrangements in accordance with our Codes of Conduct.
  • Making decisions to investigate concerns. This guidance explains in detail the three-stage Assessment Threshold Test which the SRA uses to assess reports and complaints made to them to help them decide if they should investigate. You can also take a look at the Law Society’s recently published practice note on SRA Powers of Investigation.



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