Compliance Update January 2025

We kick off as ever with the latest roundup of new guidance from the SRA. Grab a cuppa ☕ and take a deep breath as there’s a fair amount to catch up on…

New rules and guidance from SRA

SRA Anti-money laundering report 2023-24: The SRA’s latest annual report on AML was published in October, and is worth a read by all firms in scope of the Money Laundering Regulations. With increased SRA resources since the last report, they’ve almost doubled their proactive AML engagements with firms, leading to significantly increased levels of enforcement action, as we see every day in the legal press. The SRA has seen improvements in the quality of Firm Wide Risk Assessments (FWRAs) and the completion and effectiveness of client & matter risk assessments (CMRAs) but comments that there is still a lot of room for improvement (particularly given only 22% of firms inspected were fully compliant)! The usual issues remain of concern to the SRA, including inadequate policies & procedures (and them not being followed) and source of funds checks, as well as insufficient promotion of a compliance culture ‘from the top’, inadequate training and supervision, and lack of compliance with the sanctions regime.
SRA Guidance for in-house lawyers: The SRA has updated its suite of guidance notes (published in draft in March 2024) designed to help give clarity to in-house lawyers on their professional obligations, where issues, such as who your client is, managing conflicts of interests and ensuring client confidentiality, can be more complex than for those working in a law firm (prompted in part by the Post Office scandal and the SRA’s 2023 thematic review on working in-house).Although aimed at in-house lawyers, they also apply to solicitors in private practice who deal with internal issues, and are worth a read for all lawyers as they have wider application (particularly those relating to identifying clients and internal investigations):
Warning Notice: Marketing your services to members of the public: As if there wasn’t already enough to catch up on from the SRA over the Christmas break, they published another Warning Notice (you know, the really serious ones!) on 19/12/24. Whilst primarily aimed at firms carrying out high-volume consumer claims work (particularly those offering ‘no win, no fee’ work), it’s relevant to all firms who market their services in any way…The SRA rules prohibit law firms and solicitors from making unsolicited approaches (in person, by phone, online or by other means which target them individually, such as cold-calling and door-knocking) to potential clients (other than current or former clients), and publicity must be accurate and not misleading. This also applies to any client referred to you by a third party, such as a lead generator business or a claims management company, and the duty is on you to ensure that such clients have not been acquired in such a prohibited way, that the third party’s publicity has not been misleading, and that you really do have the client’s informed consent to act on their behalf. (There is no defence of ignorance of the third party’s practices or the argument that the third party is not SRA regulated!).The SRA also reminds firms to maintain records to demonstrate compliance with these obligations, such as documenting spot checks on new clients and the procedures and publicity of third parties. When it comes to ‘no win, no fee’ work, it’s vital to clearly explain what this means, particularly where clients may become liable for fees. The SRA is clearly concerned about misleading use of ‘no win, no fee’ publicity in the wake of the collapse of SSB law, where numerous clients were left with costs liabilities they thought had been taken care of by an after-the-event insurance policy. They’ve even published a Guide to navigating ‘no win, no fee’ agreements to assist clients.
Guidance: Sham litigation: There’s no stopping the SRA…New Year, new guidance note! Published on 13/1/25, the guidance warns law firms about the dangers of sham litigation, setting out what it is, how it works, warning signs to look out for, and what steps can be taken to protect firms from the risks. It also includes a case study showing a real life example of sham litigation in action, a helpful summary of which can be found here.Litigation generally falls outside the scope of the Money Laundering Regulations (MLR), meaning that firms conducting this type of work may carry out less stringent customer due diligence measures, making them attractive to criminals wishing to use sham litigation to launder money. It is important to remember that all firms have obligations under the Proceeds of Crime Act (POCA) and can still therefore commit money laundering offences, even if the work they do is out of scope of the MLR, and therefore need to be capable of spotting red flags. Sham litigation (as the name suggests) is where criminals orchestrate fake disputes and use lawyers to pursue court claims, using the subsequent settlement or judgment as a way to seemingly legitimately move illicit funds or assets.

Gender and ethnicity pay gap reports published: The SRA published their latest gender pay gap and ethnicity pay gap reports in December, from which they concluded that the gender pay gap within the legal profession had narrowed and they saw some “welcome improvements in the ethnicity pay gap”. However, the picture in the ethnicity pay gap was less positive at senior level and the SRA remain committed to improving this and the gender pay gap. They also published their Equality, Diversity and Inclusion Annual Report 2022/23 in December and state that they continue to make sure that EDI is a clear priority in their strategic work. Part of this includes encouraging firms to publish their own gender and ethnicity pay gap reports even though it’s only a legal requirement to do so for organisations with more than 250 employees, and only in relation to gender pay gap data.
Professional indemnity insurance – renewal difficulties: The SRA issued a reminder in December that if firms struggle to renew their insurance and enter the Extended Policy Period (providing a further 90 days of cover by the firm’s last-named insurer) they must inform the SRA of this by emailing insuredreports@sra.org.uk and remember that during this period no new business can be taken on.
Conveyancing still high-risk for money laundering: In case anyone was hoping that conveyancing work would work its way out of the SRA’s spotlight, the Office for Professional Body AML Supervision (OPBAS), the oversight regulator for AML, has reiterated that such work should be considered as an area of persistent high-risk for money laundering, given the significant sums involved and their attractiveness to criminal activity. They also emphasised the danger of complacency where multiple AML supervised parties (e.g. lawyers, estate agents, financial institutions) are involved, with each party assuming that someone else will do the due diligence.

Hot topics

Solicitor CPD / Continuing Competence a new SRA priority

All solicitors and firms should be alert to an increasing number of requests from the SRA to view law firm’s training / CPD policy and their solicitors’ CPD logs. For a refresher on the requirements take a look at our video here. Retainer clients all have access to our app in the cloud to track solicitor CPD but we also have a Word document template if you need. Just reply to this email and ask for a copy. Here’s the latest guidance from the SRA on continuing competence:

SRA AML Training – Thematic Review/ Continuing competence: Following on from the SRA’s Annual assessment of continuing competence 2024, and released at the same time as the AML Report, the SRA released their report on their AML training thematic review at the end of October. The main observations from the SRA are that:
- Firms with good AML training programmes are much more likely to have good AML compliance;
- An annual hour’s generic e-learning AML course is no longer (if it ever was!) deemed to be sufficient (on its own);
- Training should be tailored to firms, with input from different teams/real-life examples of risks and issues;
- Specific (additional) training for MLCOs and MLROs is strongly encouraged;
- Keep records of all training provided (including the more informal ongoing training, such as hot-topic emails etc, as well as copies of presentations and attendance records). As the SRA are now asking to see training records as part of their various inspections, don’t let the only time you think about them be at practising certificate declaration time!

The SRA have produced a checklist for firms to use to help develop an effective AML training programme. We recommend that firms consider this and their current AML training arrangements. Please get in touch if we can assist with bespoke training.

Although ostensibly aimed at firms in scope of the MLRs, it’s likely to have implications for all firms in the future in terms of how the SRA address continuing competence.

Recent SRA Thematic Reviews: Staying with the theme of continuing competence, the SRA has published two new thematic reviews which came out of their 2023 continuing competence annual assessment and concerns about the number of reports to the SRA and complaints to the Legal Ombudsman (LeO) arising from probate and estate administration work.
- Probate and estate administration: Key findings for firms:
  - Do more in relation to costs information for clients, accounting for interest on client money, providing updates and dealing with complaints.
  - Treat beneficiaries more as “clients” – including providing them with costs and complaints information (NB. beneficiaries can make complaints to the LeO too).
  - Do more to guard against the risks of conflict of interests
  - Focus on regulatory and ethical training, not just legal training. ‘Compliance’ should not simply be treated as an “add on” to a solicitor’s job, but rather an essential part of providing a good client service.
  - Training records are vital! (see also SRA’s Probate training records review). Although the SRA do not require solicitors to keep a training record or document reflection, that is clearly what they’re looking for and expecting to see. We recommend that your staff keep a comprehensive record of all training activities in order to demonstrate compliance, including evidence of reflection of the training required, how the activity addressed the identified need and how the learning will be applied to your practice (not just a list of course names and dates).
- Professional Obligations: The review focussed on the obligations on solicitors and firms to maintain competence by maintaining their legal, ethical and regulatory knowledge and skills, with particular focus on knowledge regarding reporting obligations, continuing competence, Transparency Rules, cybercrime and anti-money laundering. Again, the SRA’s concern is insufficient focus on ethical and regulatory training and the link between client outcomes (i.e. good client service/ satisfaction) and regulatory and ethical compliance, with too much reliance on COLPs. Solicitors need to remember their personal responsibilities under the SRA Standards and Regulations which cannot be delegated, and should not buy in to the ‘negative narrative’ that regulation is a purely administrative burden, of no inherent social value.
The Thematic Review includes a link to the SRA’s continuing competency templates which may be a helpful starting point, or retainer clients have access to our Compliance Office in the Cloud portal.

Holding client money and accountants’ reports

As part of the SRA’s ongoing Consumer Protection Review (launched in February 2024 following the Axiom Ince fall out) the SRA is considering significant potential changes to how and when law firms hold and handle client money and how this money is protected. The underlying aim of the SRA appears to be to do-away with the client account altogether in the long run, and in the meantime to move away from firms retaining interest on client money and restricting money obtained in advance of work being carried out. To get involved in the consultation, which closes on 21/2/25 and which could have dramatic consequences for the legal profession, please see the link here.

One of the SRA’s immediate concerns is the falling number of qualified accountants’ reports being filed with them. The SRA are conducting spot-checks during January and February to make sure firms have obtained a recent accountant’s report. If you’ve been chosen, and need any assistance, please let us know. If you’ve managed to escape this time, it would be a good idea to review your firm’s position regarding accountants’ reports and to review current residual balances and ensure you have a client interest policy in place.

Anti-money laundering, sanctions & financial crime

High Risk Third Countries: Keep an eye out for any changes to the Financial Action Task Force (FATF)’s lists of high-risk jurisdictions for money laundering purposes at the end of January when the next plenary is due to take place. For a reminder of the current list of countries for which mandatory enhanced due diligence must be carried out pursuant to the Money Laundering Regulations, see the Law Society’s consolidated list (or go direct to the FATF source here).
Next SRA Thematic Review: Source of Funds/ Wealth: Our understanding from the SRA’s Business Plan (published 2/10/24) and Compliance Officers Conference in November is that this will be the next thematic review. In conjunction with the increase in on-site inspections and desk-based reviews, we can expect a significant rise in the number of firms being contacted by the SRA. Now is the time to really look at your AML Policies and Procedures, and what is happening at the coal face in your firm, to ensure that staff are carrying out adequate source of funds and wealth checks as appropriate. We’ve seen suggestions that the SRA are now specifically looking for summaries of such checks and the fee earner’s thought process in assessing the risks involved on relevant files. Please get in touch if you need assistance with this.
SRA Sanctions inspections: Following the SRA AML & Sanctions questionnaire in September the SRA appears to have ramped up its programme of on-site sanctions inspections of firms specifically in relation to sanctions (and separate from AML inspections). Don’t forget that firms are subject to the strict-liability sanctions’ regime. Be prepared for the email from the SRA by making sure you have appropriate controls in place. Although there’s no requirement to do so, the SRA very much expects all firms to have Sanctions Risk Assessments and policies & procedures in place (see their guidance). Do reach out to us if you need any help in this area.Sanctions are very much on the SRA’s radar and with the first sanctions penalty relating to Russia being imposed by OFSI in August last year it’s vital that firms take them seriously, particularly those serving high risk client bases. We understand that the SRA is currently preparing a new sanctions webinar which should go live soon, which will hopefully be a helpful addition to their guidance. Watch out for it on their website/LinkedIn.

Failure to prevent fraud: This new offence, brought about by the Economic Crime and Corporate Transparency Act 2023 (ECCTA), is due to come into force on 1/9/25, following the government publishing its required guidance on 6/11/24. For the time being, the offence only applies to “large, incorporated bodies and partnerships across all sectors of the economy”. A ‘large organisation’ is one which meets two or three out of the following criteria: more than 250 employees, more than £36 million turnover and/ or more than £18 million in total assets. This is unlikely to apply to most of our clients but do get in touch if you have any concerns.
Adequate consideration defence: Following the Court of Appeal’s July judgment in World Uyghur Congress v National Crime Agency, which addressed the application of the money laundering provisions of the Proceeds of Crime Act 2002 (POCA) in the context of international supply chains, there has been widespread concern that this might impact the ability to use the ‘adequate consideration’ defence when receiving funds from clients to pay bills and the application of Bowman v Fels to funds received/ transferred during the ordinary conduct of litigation, which would lead to an unmanageable increase in the need to seek DAMLs (Defence against money laundering) from the NCA.However, such fears have been allayed by the Law Society updated guidance, “Adequate consideration and proceeds of crime” (5/12/24) which states that, having taken Counsel’s advice, which has been shared with the LSAG and HM Treasury, they are of the view that the Court of Appeal’s decision does not impose additional suspicious activity reporting obligations on solicitors and that the LSAG guidance 2023 remains Treasury-approved… which is certainly a relief!

Website compliance

Transparency Rules: This is always a hot topic as the SRA continue to trawl law firm websites to ensure they are fully compliant with the rules. We’re seeing more firms being contacted by the SRA about their websites. In December, the SRA announced that they’d issued more than 400 warnings and fines in this space since May 2023 (mostly relating to costs information). While costs information only be published on websites for certain practice areas, don’t forget the Code of Conduct obligation to provide clients with the “best possible information about how their matter will be priced and…the likely overall cost of the matter…”. This obligation applies to all practice areas and (as ever!) the SRA encourages firms to go further than the Rules require. Please do have a read of the SRA’s Transparency in price and service guidance, which includes templates, and get in touch if you’d like us to carry out a website review for you.

Axiom Ince report

The LSB finally published the independent review of the regulatory events leading up to the SRA’s intervention into Axiom Ince Ltd at the end of October after inexplicable months of waiting. The report concluded that in the lead-up to the SRA closing Axiom Ince in October 2023, “the SRA did not act adequately, effectively and efficiently, and nor did it take all the steps it could or should have taken and that the SRA’s actions and omissions in this matter necessitate change in its procedures to mitigate the possibility of a similar situation arising again”. (The Full story of what went wrong at the SRA is an interesting read). The LSB’s press release confirmed it would be initiating enforcement action against the SRA in the form of directions aimed at requiring the SRA to make changes to their processes.The SRA’s response to the LSB’s report was perhaps not the response the SRA would have welcomed from a law firm it was investigating… both its initial statement and its comments at the SRA Compliance Officers Conference in November were rather defensive, referring to “a lot in the report that we do not agree with, including the headline conclusions”. The lines, “With hindsight, the report has highlighted things that we could – rather than just should – have done. But in our view, it is unrealistic to expect regulation to prevent all harms” and “we do not understand the basis for its [LSB] decision to move to enforcement action” left many people flabbergasted. The comments from the SRA Chair at the Conference that they wouldn’t be answering questions about the Axiom Ince case/ LSB report because it was “old news” and things had been “tightened up” since went down even less well…How many firms are we seeing fined by the SRA for past breaches which have long-since been rectified…?!

Complaints

Complaints: Complaints and client satisfaction are always a hot topic for firms, both from a business perspective (happy clients generate more work) and a compliance perspective but are likely to be back on the SRA’s radar following the Legal Ombudsman (LeO) publishing its annual complaints data and insight for 2023/24 in December. This stated that a “cultural shift is needed in lawyers’ approach to complaints”, with complaints to LeO on the rise, poor communication, delays and failure to progress as the biggest complaint areas, as well as inadequate handling of the complaints themselves.The Law Society updated its Practice Note on Handling Complaints and What to do when a complaint goes to the Legal Ombudsman (LeO) in October which are worth a read by all those involved in responding to complaints and dealing with LeO.The Legal Ombudsman also published new resources in September regarding complaints about legal costs, following some high-profile court cases involving consumers successfully recovering legal fees (particularly in ‘no win, no fee’ cases) after showing they were unfairly high and/ or weren’t made clear. The resources provide guidance on how firms should respond to such requests for historic costs information and include helpful case studies. The resources also provide guidance on timescales for making such complaints and the calculation of success fees in CFA cases.

SRA crackdown on claims work

Volume litigation firms: It came to light in December (at the same time as the Warning Notice on marketing services to the public (see above)) that the SRA has opened dozens of investigations into such firms in relation to their conduct of volume litigation (following the fall-out from the collapse of SSB Law). They’re now investigating more than 50 such firms, in relation to financial products, housing disrepair and cavity wall insulation, with most cases involving conditional fee agreements and possible cold-calling or unsolicited approaches, practices which are prohibited by the SRA.
Motor finance mis-selling claims: For those firms lining up such claims, it’s worth keeping up to date on the latest court cases on the subject.

Professional ethics

Professional ethics/ lawyer behaviour – top of the agenda for 2025: The chair of the Legal Services Board (LSB) has revealed that they’ll consult in 2025 on how to ensure lawyers demonstrate and maintain professional ethics, presumably in light of the Axiom Ince and Post Office scandals, which have been held up as recent examples of professional ethics not being upheld.

Tribunal trends and cases of interest

Solicitors behaving badly (allegedly!)

An experienced Solicitor was given a rebuke after he prepared a client’s will which detailed that he was left a gift of £22,727. In this conflict of interest case, neither the Directors, COLP nor SRO were aware of the gift when it was being prepared or executed.
A Solicitor whose vehicle crashed into an empty parked vehicle while three times over the legal alcohol limit was arrested by the police and issued with a rebuke by the SRA. He was also ordered to pay fines and costs of over £1,700.
A partner who was struck off for backdating a document and trying to mislead another firm about a missed deadline has been ordered to pay £10,000 costs.
A solicitor and her mother received jail sentences for 5.5 years after a campaign of harassment against their neighbours ️️ following a dispute about a hedge, including the use of derogatory language, playing loud music and making loud banging noises 24 hours a day, 7 days a week for 3 months. The solicitor also served numerous purported letters of claim on her neighbours. The SRA does not appear to have taken any disciplinary action against her as yet.
£24,123 was the fine handed to a firm following an SRA inspection which didn’t have a documented assessment of money laundering and terrorist financing to which its business was subject to, in place.
A firm was sanctioned by the ICO after failing to ensure the robustness and confidentiality of its processing systems, leading to its clients’ personal data being intercepted by hackers and posted on the dark web ️. A third party had been managing the firm’s IT and the firm was apparently unaware of the security measures in place when the event took place.
The end of 2024 saw several firms hit with hefty SRA fines after failing to satisfy AML requirements, bringing the total number of firms being issued AML related fines in 2024 to almost 50 (not including those that went to SDT). The most severe financial penalty issued to a firm was £24,954 for AML non-compliance before and after the 2017 update to the regulations.
After the collapse of Axiom Ince and alleged misuse of £60+ million, leading to thousands of the firm’s clients to losses , the Serious Fraud Office charged five individuals, including two solicitors.
A solicitor was fined £12,500 and ordered to pay £19,970 in costs after acting in several conveyancing transactions where there was a significant conflict of interest between his lender client and himself. What’s more, he didn’t make it known that he was a relative of the borrower client.
After a 44 year (previously) exemplary career, a woman was struck off after forging her divorce client’s signature . The SRA was notified when the client’s husband received a notice of severance on which he didn’t recognise the signature and refused to sign it.
A law firm’s co-owner was removed from the profession and ordered to pay costs of £42,000 for unacceptable behaviour towards junior colleagues, who were subject to bullying and harassment ️️. Staff were told to work from home by a co-director to avoid the environment. Witnesses detailed how he’d intimidate staff, share inappropriate images and use vulgar language.
Zahawi solicitor who tried to stop publication of email has been fined £50,000 by the SDT and ordered to pay costs of £260,000. The solicitor involved was accused of improperly attempting to stop a tax commentator from publishing or discussing the former Chancellor’s tax affairs after the latter accused Zahawi on social media of lying about his tax affairs. The SDT concluded that the email, which included the threat of litigation, and misuse of the ‘without prejudice’ label, amounted to misconduct. There had been much talk about this being the first SLAPPs (strategic litigation against public participation) case before the Tribunal but the chair of the SDT panel said, ‘We should like to make clear that while much has been said to this being the first SLAPPs…case, the tribunal has found it is not.’ She went on to explain that there had been no attempt ‘to prevent scrutiny of Mr Zahawi’s tax affairs per se. It was not seeking to stop [the tax commentator] asking questions based on facts as he saw them’. There will no doubt be further commentary on this case in the legal press when the SDT’s full reasons for their decision are published.

…and the SRA’s been behaving badly too …

There’s been a recent run of cases where the SRA’s decisions have been overturned. This is surely rather embarrassing for the SRA (particularly hot on the heels of the Axiom Ince report) but also a concern for the profession in terms of the costs it has to foot by the SRA pursuing such claims (and the consequent adverse costs orders)… not to mention the stress and financial implications for those solicitors subject to these ultimately unjustified enforcement actions (particularly given the SRA’s desire for even greater fining powers), and leaves us wondering whether the SRA is learning any lessons about the cases it’s (unsuccessfully) pursuing. Here are some (but not all!) of the recent cases…

High Court overturns SRA’s decision to intervene in law firm: At the end of last year, the High Court took the almost unprecedented step of withdrawing a notice of intervention into a law firm issued by the SRA. The SRA had intervened in a firm, run by a solicitor with an unblemished record of 40-years, after he was duped by a disbarred barrister, previously convicted of fraud offences, into selling his firm so that he could retire due to ill health.
SRA ordered to pay £184k costs after botched prosecution of City lawyer: The case appears to have centred around due diligence (or alleged lack thereof) on a single client from more than 10 years ago and had been pursued by the SRA despite the SRA’s own investigations officer having changed her mind about the merits of the case.
Solicitor wins appeal against SRA’s harsh rebuke: The SDT revoked the SRA’s decision to rebuke a solicitor for responding to a letter before action from a former client with a ‘without prejudice’ offer of settlement, which included settlement of any regulatory actions, such as a complaint to the SRA or Legal Ombudsman, concluding that the rebuke was a disproportionate punishment for a minor infringement. Interestingly, this appears to have been another case where the SRA’s own investigations officer had recommended the punishment be overturned (before the £16,000 + costs had been incurred by the SRA in the SDT – not to mention the costs of the accused solicitor himself!).

Important information about these updates

The copyright in this material belongs to the Compliance Office Ltd, a limited company, company no. 09133668, registered office: 20 Grosvenor Place, London, SW1X 7HN. You may not distribute or commercially exploit the content and you may not transmit it or store it in any other website or similar system. The Compliance Office Ltd and its authors do not offer solicitor or legal services, are not a law firm and do not provide legal advice. This material is general in nature and is intended to assist the reader by drawing some relevant regulatory provisions to his or her attention. The material is not exhaustive and is not a substitute for considering the relevant provisions directly or for legal advice on an individual’s specific circumstances. In particular, it does not include every new rule change, decision, deadline, guidance or other material which may be relevant to you. While care is taken to ensure the complete accuracy of the information as at the date of publication, this cannot be guaranteed. The Compliance Office Ltd, its author(s) and administrators will not be liable for any loss or damage of any nature arising from the use of this material and such liability is excluded to the fullest extent permitted by law.