New rules and guidance from SRA
Three updates for you from the SRA. The regulator has updated its Confidentiality of client information – Guidance. It gives some useful insight into the regulator’s thoughts about confidentiality in situations involving complex structures, mergers and acquisitions and outsourcing. It also continues to include some helpful existing guidance on when it might be reasonable to breach the duty of confidentiality, such as preventing someone from being harmed or the commission of a criminal offence.
Good news for any retired solicitors as the SRA has decided to extend the Solicitors Indemnity Fund (SIF) by another 12 months to at least September 2023. This will allow the regulator to consider the huge response to its consultation which had over 330 formal responses.
The SRA have refreshed its guidance for solicitors undertaking regulated claims management and immigration activities in response to questions its been asked (including by the charity LawWorks). Firms conducting claimant work such as in employment law, personal injury, financial claims and similar need to understand the SRA’s new approach to this topic. We have seen the SRA using this interpretation of what needs FCA regulation to investigate or refuse to authorise firms if work is being supervised by non-lawyers. It’s a very different approach to what has historically been market norms, whereby it was not out of the question that some claimant personal injury team leaders could be unqualified for example. For those working in this space you should be considering this guidance very carefully.
On your marks, get set and complete your SRA AML Questionnaire! Deadline is 31 July.
If your firm does work which falls within the scope of the Anti-Money Laundering Regulations your COLP should by now have received an email from the SRA asking you to complete a questionnaire. Follow the instructions provided and complete this by their deadline of 31 July. The questionnaire itself is fairly straight forward but here are a few tips to bear in mind:
- Question 1 – take care when assuming that all of your work is within scope of the Regulations. Remember we are typically talking about conveyancing, M&A / corporate structuring work, probate, tax advice etc. There is an option to say that you treat all work as being subject to the Regulations. It may be worth exercising some caution here. It’s not possible to predict with absolute certainty how the SRA will follow up from this point but it seems likely that this exercise will at least in part inform whether to follow up with a visit. I would not want the SRA’s starting point for a visit to be to choose to visit all firms that treat all of their work as subject to the Regulations unless that is strictly what you do, which frankly is unnecessary and depending upon your circumstances could be disproportionate. Take care to give accurate information;
- On all of the questions, rather confusingly, the SRA skips between multiple choice answers which are numbers and those which are percentages. We’ve seen a number of people accidentally answer percentage questions as if they were being asked for specific numbers and vice versa so look out for that one;
- Don’t assume that saying ‘no’ is a good thing. My strong suspicion is that the SRA will be looking out for firms who believe none of their matters are higher risk, they never act for PEPs and have made no suspicious activity reports. Based on earlier SRA commentary they will likely find this hard to believe and so may well follow up with a visit. The data is of course what it is but have a proper review of matters. It would indeed be unusual, though not entirely inconceivable, that a firm would be able to answer none for each of those questions;
- On question 7 I don’t believe it is common practice for small and medium sized firms to track how many matters they consider high risk / perform enhanced due diligence upon. If you’re not confident estimating the percentage with a reasonable degree of confidence you may have to answer ‘Don’t know’. I wouldn’t be afraid of answering ‘Don’t know’ if you don’t track this data and it’s not realistic to gather it – it’s the only realistic option you have.
The SRA has consulted on its SRA’s 2022/23 Business Plan. This covers their planned activities for the year, how they plan to allocate their budget and what that will mean for the practising certificate fee as well as Compensation Fund contributions. Can be a useful read to see what may be coming our way! Front and centre is our next topic…
Our talk of the quarter is……… once again AML!
“Digital identity technology has come on leaps and bounds in recent years and if used properly can be a good way of mitigating the risks of money laundering, fraud and identity theft. Technology is an increasingly important tool in the fight against financial crime.”
This is Colette Best’s view, Director of AML at the SRA in a recent joint statement from Lawtech UK and the Regulatory Response Unit in support of digital identity technology in the legal sector. Remember too that the costs of such digital checks can be passed onto your clients as long as this cost is clearly stated in your terms and conditions.
AML and financial sanctions
The SRA has started carrying out spot checks on firms named in parliament as working for Russian oligarch clients. The regulator’s Chief Executive, Paul Philip, also reported to the SRA Board that the SRA is performing spot checks on firms to ensure compliance with financial sanctions. We discussed these sanctions and the importance of ensuring you’re up to date in last quarter’s update. You can set yourself up to receive alerts about the most up to date information at the Office for Financial Sanctions Implementation Website. In addition to this, there is a series of helpful questions and answers prepared by the Law Society. If you are relying on an electronic ID provider for your sanctions checks make sure that their lists are updated daily.
In what the SRA describes as a ‘credible deterrent to others’ a Midlands practice has agreed to pay a £2,000 fine for failing to have a compliant AML firm-wide risk assessment in place. The firm had told the SRA two years earlier that its risk assessment was compliant. Its policies and procedures were also not compliant. The outcome is worth reading if you get time because it is a good checklist in some ways of unfortunately relatively common failings in busy small to medium-sized law firms.
SRA increased fining powers more than 10x
The SRA has won approval from the government increase regulatory fines from £2,000 to £25,000. The SRA also plans to introduce a new system of fixed penalties for lower level breaches, with the goal to reduce the number of cases passed on to the Solicitors Disciplinary Tribunal. The Law Society expressed its concern over the up to 1150% increase in fines, as the consultation response agreed a suggested increase of only £5,000 to £7,000. The MoJ has however agreed with the increase.
What’s been happening in the disciplinary decision world?
A bit of advice I never expected to have to add in here, think carefully before ending a work related event in a strip club! ******A former city partner was rebuked by the SRA last month for failing to have sufficient regard for the well-being of a female trainee solicitor, and by that failure caused her to experience discomfort and distress when a work related drinks event ended in a strip club. The trainee’s discomfort at being in the strip club was compounded by the partner placing his hand around her waist on two occasions. She felt unable to challenge his unwanted behaviour because of his seniority and the presence of clients.
A former Ashfords trainee solicitor has been fined £2,000 for slapping and grabbing a colleague’s behind on a night out after a work’s Christmas meal (among other unwanted actions). From the write up it looks as though the firm did a good job here on two fronts: sent a reminder to everyone about the standards expected of them on nights out and summarily dismissed the individual following an investigation. It’s telling to me that the SRA mentioned this in their write up and so if you don’t do this it’s worth looking at I think. As firms grow the probabilities are that at some point someone will do something stupid, or worse. The question is how you manage that risk and how you respond. Here the SRA seems to have been able to focus its attention purely on the individual in question which is about as much as you can hope for if put in this position.
A solicitor offered to settle a number of complaints received from a client. So far so good you might be thinking until you realise that the letter offering to settle the complaints contained a condition that the client would not pursue a complaint to any regulatory body. He has been rebuked by the regulator for failing to cooperate with the SRA and other regulators in their investigations of concerns in relation to legal services. Any effort to amicably resolve a complaint must never limit the right to take matters further.
I’m sure we are all aware of the case involving a junior solicitor who was struck off in March 2020 after leaving confidential documents on a train and then being dishonest to her employer about their whereabouts. The SRA have after a lengthy two year process applied to withdraw the allegations completely with no order as to costs and the solicitor is now allowed to continue to practise with conditions on her practising certificate.
A rather sad and shocking story where a law firm had to report a former employee (legal secretary) to the SRA after she was convicted for stealing a client’s collection of war medals and jewellery held by her employer for safe keeping. The SRA have issued a control order preventing her from working in the profession without their permission.
Client money, ‘chaotic’ finances and failing to carry out role as a COLP
A control order was also given to an employee of a law firm who was found to be dishonest by the SRA after he accepted a cash payment from a client and did not pay this cash into the client account. He then lied to the SRA and claimed he had not received the cash payment.
Two equity partners have been fined by the Tribunal for failing to notify the SRA that £327,000 from a property sale had been paid into the wrong account. This all happened whilst the firm was under investigation by the SRA for other issues. The firm acted for a couple in the sale of a property and received two emails from different addresses, asking for funds to be paid into different bank accounts. Payment was arranged to the second emailer, and when the client informed them that the money had not been received, the payment was recalled. The partners said to the Tribunal that the SRA was not notified because the money had been recalled. This issue was one of several rule breaches admitted by the partners about how the firm’s accounts were dealt with.
A solicitor and ‘COLP’ has been fined £18,000 for several breaches of the SRA Principles and Code of Conduct including failing to investigate and identify an own interest conflict, failing to inform clients of commission received by a connected business and failing to carry out her role as ‘COLP’.
If you are concerned about what and when you should report to the SRA or you need support in carrying out your COLP & COFA duties we can help and guide you. We provide support in analysing potential rule breaches and can offer regular compliance support and COLP & COFA training, just get in touch.
A solicitor who “undermined justice” whilst carrying out jury service has been jailed. The solicitor carried out her own online research into the case and shared what she had learned with other jurors, despite being told not to at the beginning of the trial. This led to the trial having to be abandoned at a cost of £30,000.
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