Compliance Update January 2023

🔥 Hot Topics

Drum roll please!……..

• Will there ever be an update where we don’t bang on about AML?! Probably not 😂.But to apologise for always harping on about it, for the first time EVER we are offering a 10% discount on AML audits for bookings made by 28th February. Contact us here to discuss. We want everyone to start the year feeling confident & compliant! To reiterate how important it is that you and your firm are fully compliant with your obligations, here is the SRA’s Anti-Money Laundering Annual Report 2021-22. SRA Chair, Anna Bradley talks about how much they have stepped up their supervision in this area. That’s something of an understatement. There’s now a whole department committed to carrying out an ongoing programme of checks and one has to assume that eventually they’ll get to all firms subject to the Regulations. If you need some support with anything AML related and especially if you’ve not had an AML audit yet & would like to take advantage of our 10% discount offer, please get in touch, before they do! We have an AML guide available, please just reply to this email & we can send that over to you.
• The SRA have published further guidance on the financial sanctions regime to help the profession adhere to the fast-changing rules. There has been a number of changes to the regime in recent times & you can find the latest guidance here. The sanctions regime applies to ALL firms that provide legal services, not just those subject to anti-money laundering regulations, so this includes you!
• The Legal Ombudsman (’LeO’) has set the start date for the new one-year complaint limit. The current window to raise a complaint about a solicitor is 6 years from the date of the activity complained of**.** As of 1 April, this time frame reduces down to only 1 year. The LeO has said that further guidance will be published before the new rules come into effect but that it does expect law firms to convey this information to clients in the coming months. In addition, a proportionality / materiality test is being introduced. The LeO will be able to consider whether it is a proportionate use of resource and time to investigate a complaint where it is deemed that the detriment to the complainant is not significant.
• The SRA have published their latest gender pay gap & ethnicity pay gap reports. It’s not great reading. The gender pay gap appears to be widening not narrowing! They are encouraging others in the legal sector to do the same & publish their figures. Publication of this data is currently only a legal requirement for firms with over 250 employees
• The Solicitors Regulation Authority (SRA) has used its enhanced fining power for the first time, imposing a £15,000 fine on a solicitor who failed clients subject to deputyship orders. We reported in our last update about the proposed changes in SRA fining powers including the introduction of some fixed penalties for certain low level misconduct. By way of a recap, here’s where we’re heading:

Regulated person	SRA: ‘economic crime’ conduct	SRA: all other conduct	Tribunal fining powers
Traditional law firm, solicitor or employee in a traditional law firm	Unlimited	£25,000	Unlimited (first instance)
ABS entity	£250m	£250m	£250m (on appeal)
Owner, manager or employee of an ABS	£50m	£50m	£50m (on appeal)

📰 New rules and guidance from SRA

The SRA have been busy bees again in the last couple of months, here’s a breakdown of the key new rules & guidance you need to be aware of:

• What is a SLAPP anyway!? With increasing public concern that some solicitors are using SLAPPS (strategic lawsuits against public participation) on behalf of their clients**,** the SRA have issued a warning notice that tells law firms not to act for clients in this way and outlines some of the activities they would consider to be abusive litigation. A ‘SLAPP’ typically refers to some sort of legal threat or action intended to stifle public commentary or publication. The concern is solicitors being hired to inappropriately threaten and scare people from speaking up. Solicitors should only be labelling correspondence as ‘not for publication’, ‘strictly private and confidential’ and/or ‘without prejudice’ when the conditions for using those terms are fulfilled. The new guidance and warnings make clear that confidential markings cannot unilaterally impose a duty of privacy or confidentiality where one does not already exist. Similarly, making excessive or meritless claims or aggressive or intimidating threats will result in regulatory action. The SRA could not be much clearer that firms should not be hired simply to scare people off if there are no legitimate legal grounds to make any relevant claims or threats. The Bar Standards Board (BSB) is actually considering following the Solicitors Regulation Authority (SRA) in issuing guidance on strategic lawsuits against public participation (SLAPPs).
• New SRA expectations for quality assurance and staff supervision – this new guidance is sweeping with very significant implications for a lot of firms. So it’s slightly alarming that it seems to be largely going under the radar. I predict it being heavily referenced in future SRA disciplinary cases especially for litigation and claims firms. The guidance stresses the following:
  • firms and lawyers remain “accountable” for the work of those they supervise – there is a duty to supervise. In fact the rules arguably impose something skin to strict liability on managers;
  • no one size fits all approach – appropriate level of supervision will be determined by the risks involved in the work and the setup. Sadly this does read somewhat like an invitation to the SRA to set a moveable set of expectations depending upon whether it likes what it sees or not. If the SRA disagrees with the firm about the ‘risks involved’ in the work then the changes are that it’s supervision arrangements will be found wanting;
  • direct supervision by qualified and experienced individuals who are available who have “clear oversight” of all key stages and can provide “robust assurance”. In particular there are some potentially troublesome statements in this document for the first time seeking to greatly restrict the extent to which unqualified individuals can handle litigation and claims work. Essential reading for firms working in those areas.
  • checks and balances to ensure supervision is effective in practice must be in place.

We would encourage everyone to make the time to read this (regrettably) rather cumbersome new guidance. I fear it could come back to haunt those who do not.

• Life after SIF (Solicitors Indemnity Fund) – further to our news last update that the SRA are taking over the SIF with their own in-house scheme, they have now opened a consultation. The consultation on the arrangements and rules of the future indemnity scheme is running for 12 weeks from 6 October 2022 until 3 January 2023, so if you want to have your say on this, now is the time.
• Scam Alert! One to watch out for folks… An email claiming to be from the Solicitors Regulation Authority has been sent from the email address lawyersdeligenceatsra.org.uk. (writing this without the @ so nobody does anything silly with the email address!)The email invites the recipient to open an attachment and respond. If you receive an email message from lawyersdeligenceatsra.org.uk, do not open the attachments. Delete the email message!

SRA Compliance Update Webinar

If you were unable to attend our recent SRA compliance update webinar we’ve published both the video and a ‘podcast’ audio only version. Hope it’s helpful!

Topics covered included:

💰 What the SRA’s increases in fining powers means in practice

🎄 Christmas parties and appropriate behaviour

🤐 Social media and other professional comms blunders

😫 SRA’s new expectations around office culture

👀 Hot off the press analysis of the SRA’s new guidance on supervising fee earners which will prove to be a hot topic!

😶 SLAPPs and new guidance on using ‘confidential’ & ‘without prejudice’ labels

🏢 Corporate undertakings – where are we now?

☁ A look ahead to the hot topics in 2023 – AML (brief update only as that is its own session!), Legal Ombudsman time limit changes, forthcoming thematic review & more

😳 Tribunal trends and cases of interest

SRA AML visits & website checks

• Solicitors: please be super cautious when declaring or stating anything to the SRA! We’re ALWAYS stressing how seriously the SRA take any solicitor declarations or statements. The SRA has prosecuted a solicitor to the Disciplinary Tribunal who had said that they had a “fully compliant” firm-wide anti-money laundering risk assessment in place but when subsequently asked for a copy, sent the SRA an uncompleted template. The SRA alleged that the solicitor had been dishonest. If successful that allegation would have no doubt resulted in the solicitor being struck off. However, the Tribunal found the solicitor to be a credible witness who had answered the SRA on the basis of a ‘genuinely held view’. The dishonesty allegation was not upheld. All allegations were dismissed it seems and, perhaps unusually, it is reported that the solicitor was not required to contribute to the SRA’s costs.

Increasingly the SRA is using declarations and questionnaires to regulate solicitors. Asking a solicitor to declare that something is “fully compliant” in such binary terms makes us very uncomfortable given the SRA’s approach here. Reassuring to see that the Tribunal is focusing on ‘genuinely held views’ when considering solicitors’ responses to these mandatory questionnaires but there’s a lot of stress, work and cost to get to an independent Tribunal.

So what should you do? Be really careful when answering mandatory SRA questionnaires or completing forms. If you feel uncomfortable answering an SRA question in binary terms we always encourage sending a separate contemporaneous note to qualify your statement. If there are any future problems then you can refer back to those qualifying statements.

Just in case the above hasn’t sunk that message in, here are 3 more firms who have been fined in the last couple of months for not having an AML practice (firm-wide) risk assessment in place (despite declaring otherwise…)

• **This firm got away fairly lightly with a £2,000 fine for not having an AML practice (firm-wide) risk assessment in place (despite declaring otherwise…)** They were also pulled up on not having compliant AML policies, controls & procedures, similar story for this firm. Here is another firm that also didn’t have a risk assessment in place (also despite declaring otherwise) when the SRA’s AML Proactive Supervision Team (yes that’s an actual thing now!) came calling. Get in touch and we can complete an AML audit to ensure you’re compliant.
• Yet another firm falling foul of the SRA Price Transparency Rules. This firm received a £1,500 fine for not having the correct costs & complaints information displayed on their website. The SRA have made it very clear they are actively checking all websites for compliancy with their rules & they are becoming increasingly picky. Their rules on website compliance change regularly, so we strongly recommend getting a website health check done to ensure yours is compliant. Get in touch for more details on this. It will cost you a lot less than the fine!

Overcharging

• It’s actually quite difficult to prove that a solicitor has overcharged but we see there’s been a recent case at the Solicitors Disciplinary Tribunal where a Mr S was struck off. The Tribunal found ‘excessive and unjustified costs’ in the handling of a deceased solicitor’s estate:

💰 £10k ‘commission’ on the sale of the deceased’s offices but a finding that no estate agency agreement was in place;

💰 £75k to store files but a finding that they were stored at no cost to Mr S;

💰 Charging the client for time spent dealing with SRA questions about his conduct of the matter.

Alarmingly Mr S seems to have concluded that the client would not be bothered to challenge the charges because the costs were being paid by estate funds.

Distressing to read the impact this has had upon the widow who felt that Mr S targeted her because she was “a vulnerable woman, a widow with a young child who spoke very little English”. She stated that she could no longer trust solicitors and that her perception of them had changed. Regulators are never popular but this is why we need them, for this appalling 0.1%.

Also a scary lesson on the importance of proper estate planning for solicitors – it can be really difficult for others to step in without legal qualifications (easier if an ABS but still needs though).

Conflicts of Interest

• A solicitor’s firm was rebuked and fined for acting on behalf of both the buyer & seller in a property transaction without the clients’ consent. Kind of obvious right? Acting for the Buyer and the Seller in the same conveyancing transaction meant that the Firm’s separate duties to act in the best interests of the Buyers and the Seller conflicted. As the Buyers and the Seller had a substantially common interest to buy and sell, respectively, the Property to each other, the Firm would have been permitted to act, despite there being a conflict of interest, if the following circumstances applied:
  1. the firm had explained the relevant issues and risks to the clients and you have a reasonable belief that they understand those issues and risks
  2. all the clients have given informed consent in writing to the firm acting;
  3. the firm is satisfied that it is reasonable for them to act for all the clients and that it is in the clients best interests; and
  4. the firm is satisfied that the benefits to the clients of the firm doing so outweigh the risks.

If you’re ever unsure about a potential conflict of interest please do get in touch. Our retainer packages are there not only to help with outsourcing your COLP duties, but also to provide ad hoc advice whenever you need it.

• A solicitor’s firm was fined £2,000 for acting on behalf of both a developer and a landowner who were likely to have opposing interests and competing priorities.

The conduct had the potential to cause significant harm in that there existed the potential for confidential information which the firm possessed about the land owner to be used against it. The firm also put itself in a position where its respective duties of confidentiality (to the land owner) and of disclosure (to the developer) were potentially in conflict.

The Firm had disregarded the risk of harm in that it realised there was a risk in it acting for the developer (in circumstances where it had previously acted for the land owner) and it knew the land owner was unrepresented. Notwithstanding that clear risk, at the time it was drawing up the development agreement the Firm failed to take sufficient steps to mitigate that risk.

The Firm stated that no breach of confidentiality occurred because no confidential information relating to the landowner passed to those acting for the developer. However, the SRA found the risk of disclosure of the confidential information remained.

Client Account Handling

• A solicitor has been fined £5,000 following findings of weaknesses in the client account bookkeeping, which led to a temporary shortage on the client account. The solicitor seems to have been criticised for relying upon the work of a bookkeeper who had been qualified for 3 years. It’s difficult not to have a little sympathy for small firms who rely upon the work of a qualified bookkeeper but the SRA have shown time and again that they expect solicitors to be able to have proper oversight of the work. Queries and questions were raised by the lawyer but the bookkeeper provided assurances that all was in order. Due to various errors the client account had a shortfall of £41,000 when the SRA inspected the firm which it appears to have taken some months to fully rectify.
• The complaints partner at a law firm was fined £4,000 when he “frustrated the Legal Ombudsman (LeO) in carrying out its function” by failing to respond to requests and also failing to pay money to clients as ordered by the LeO.
• A bookkeeper at a law firm is no longer allowed to work for any law firm following an investigation after the SRA received various reports about the firm, including its failure to settle professional disbursements from funds it was holding on behalf of its clients.

Driving offences

• A solicitor has been fined £10,000 for driving the morning after a party with MDMA and cocaine in her blood which exceeded the prescribed limits and for possessing cocaine, MDMA, cannabis and diazepam.
• Driving whilst under the influence of alcohol got this solicitor a 12 month driving ban, a rebuke from the SRA & £350 costs.
• Another case of driving under the influence, but this solicitor also made things worse for himself by choosing not to stop straightaway, resulting in a heftier fine from the Crown Court.
• To continue this theme on motoring, this solicitor intentionally drove a motor vehicle at a member of the public in order to scare them. This fairly horrific act disqualified them from driving until another test was passed in addition to fines from the SRA & the Crown Court.

And finally…

• A solicitor who gave 115 clients the wrong advice about the ground rent provisions in the leases of properties they were buying – because of an incorrect precedent – has been fined £15,000. Templates can be great for the bottom line but make sure you have checks and balances in place. The regulator took a very dim view of this failing.
• Fine for solicitor who failed to register clients’ interests. A conveyancer who failed to register her clients’ interests at the Land Registry within the time limit, in breach of undertakings, has been fined £10,000 for her misconduct.

 

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