Are you being asked for ‘solicitor’ undertakings instead of firm undertakings?
There has been a recent Supreme Court case on undertakings which may result in LLP and limited company law firms doing property work in particular receiving requests for undertakings from individual solicitors personally rather than by the firm. The legal position does not seem to have changed – the potential for weakness in an entity undertaking has been recognised for a while. But in effect it seems that this new case has done much to publicise the arguably lesser protection afforded by an undertaking as an incorporated entity. Iain Miller of Kingsley Napley has done a good article on the issues here: https://www.kingsleynapley.co.uk/insights/blogs/regulatory-blog/harcus-sinclair-v-your-lawyers-another-nail-in-the-coffin-of-solicitors-undertakings
Anti-money laundering (‘AML’)
AML continues to be a Hot Topic & area of focus for the SRA. In July 2021 they published a report detailing their work in this area. It highlights the key findings of concern from their work to date as a lack of independent AML audits in law firms subject to the regulations (get in touch if you would like some guidance on or help with this), inadequate client due diligence and employee screening. In our own audits we are also finding record keeping is a problem and if you do not record your thinking and approach to source of funds or PEPs etc the SRA tends to assume it was never considered. Don’t forget training too. This is going to continue to be an area where we see a lot of work from the SRA so do make sure everything is in good shape.
On the topic of AML, note that in June 2021 the Crown Prosecution Service updated its guidance on prosecuting standalone “failure to disclose” cases under Section 330 of the Proceeds of Crime Act 2002 (POCA). It’s actually slightly reassuring reading!
Practising certificate renewals
SRA have made a few changes & “improvements” to renewal this year. Get ahead with the questions you will be asked at renewal (which was supposed to be open from 1st October 2021 to 31st October 2021 but has been delayed to between 11 October and 11 November)
There’s an article in Legal Futures about the use of NDAs by solicitors and Professor Julie MacFarlane is reported as indicating that it is “very difficult to get traction” without it forming part of the code of conduct.’ I think there’s been a misunderstanding there, there’s been a rule in the SRA Code of Conduct (7.5) which is targeted at the improper use of NDAs since 2019 (in addition to the principles which covers the behaviours of concern more broadly, backed up by the warning notice which will aid in interpreting the principles in future disciplinary action):
“You do not attempt to prevent anyone from providing information to the SRA or any other body exercising regulatory, supervisory, investigatory or prosecutory functions in the public interest.”
I wouldn’t make the mistake of thinking that this is a grey area. It’s also worth noting that SRA conduct rules have the force of secondary legislation so this approach is the law now.
Crypto currency to fund property transactions?
The prospect of crypto-currency being used to fund property transactions was the subject of a recent article in Legal Futures. The suggestion is that use of Stablecoin backed by the Bank of England (so-called ‘Britcoin’) would make the currency stable and reliable and would reduce the risk of property fraud to the extent that solicitors’ PII premiums could be significantly reduced.
This feels somewhat counter intuitive bearing in mind that solicitors who keep on top of AML regulation will know that use of crypto-currency is recognised as a feature of a property transaction that would flag it as being potentially high-risk, meriting enhanced due diligence. It is often reported that crypto is the currency of preference for organised crime.
It is unlikely that Crypto-currency is going to go away, but it is a largely unregulated market that very few people really understand. The use of crypto-currency in legal transactions poses challenges to the legal profession. This is something that practitioners are likely to see in the new increasingly often and something that they will need to stay on top of, and learn a little more about whether they like it or not. Apparently FATF will publish some guidance soon on crypto currency so we’ll keep you posted on that too. A very hot topic.
Law firm website compliance:
- the SRA has written to 8,000 firms demanding confirmation of adherence to the transparency rules. We have a free 16 point checklist available on our website to help you if you’re still struggling;
- More firms rebuked by SRA for failing to comply with SRA Transparency Rules
Tribunal trends and cases of interest
- Two sibling solicitors have been banned from the profession after making millions from scheme advice;
- Solicitor who lost an unencrypted USB stick with over 1,000 client documents has been rebuked by the SRA
- Partner who lied to SRA & her indemnity insurer has been struck off
- Two solicitors have been fined after a bogus lawyer, employed by their firm, perpetrated a £3.3million property fraud. The solicitor was based in the firm’s London office, while the two respondent solicitors were based elsewhere. The SDT found that they failed to adequately oversee the office, and that had they done so, they could have identified indicators of fraudulent activity. This case is a reminder to firms that regular file and accounts audits should be taking place, and regulators will hold the firm responsible for actions of individual solicitors if they could/should have picked up on or prevented the misconduct.
- A solicitor here has been fined for anti-money laundering breaches, among other things, and an unequivocal SRA criticism was a failure to google the client in 2018 which would have revealed political connections.
- Another lawyer to be removed from the profession for fear of owning up to a mistake / failure. So sad and unnecessary. Make sure all your junior lawyers know that they can come to you with that age old problem so many lawyers struggle with: being human! Nothing to be ashamed of. See the outcome of the Regulatory Settlement Agreement here.
- On the same theme, the number of SDT decisions featuring junior lawyers is a cause for concern, according to the current President of a prominent regional Law Society. There have been calls for junior lawyers to have access to greater support and assistance when they find themselves in regulatory hot water. Whether or not regulatory prosecutions hit junior lawyers disproportionately hard is a matter in dispute, but there is increasing noise about the pressure that junior lawyers are often under in law firms where the culture can be quite toxic.
- Junior solicitor fined for offensive tweets. Worth constantly reminding your solicitors of the need to maintain some basic standards even outside of the office. See the outcome of the Regulatory Settlement Agreement here.
- An experienced sole practitioner has been rebuked for creating a Deed of Trust for a client who was a fraudster and who used the Deed to secure a significant loan. The Solicitor had taken proof of identity, but had not delved far enough to check that his client did in fact own the property concerned. This was a situation in which a high street lawyer was duped by a client who came in without an appointment seeking assistance, and sadly it has resulted in a rebuke and reputational damage.
- Irwin Mitchell have been fined following criticism of how clients were switched to a CFA.
Important information about these updates
The copyright in this material belongs to the Compliance Office Ltd, a limited company, company no. 09133668, registered office: The Bristol Office, 2nd Floor 5 High Street, Westbury on Trym, Bristol, United Kingdom, BS9 3BY. 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.