Compliance Update October 2024

Oct 15, 2024 | Compliance Update

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

New rules and guidance from SRA

It’s been a busy few months over at the SRA! Which in turn has meant a busy few months for us 😂

😎 We spent our summer assisting our retainer clients with their AML & Sanctions questionnaire which came out to all firms this Summer (we do hope you made the September 23rd deadline!). In addition to delighting law firms with this little treat, the SRA also published a number of warning notices & new guidance.

📆 Key deadline for October: don’t forget that the window for practising certificate renewals is now open and the deadline for renew firm and individual authorisation is 31 October 2024.

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SRA clampdown on claims work

The SRA’s new business plan for 2024/2025 has indicated that they are looking to focus more attention in the coming year on law firms undertaking large scale claims work such as financial claims, consumer claims claims and personal injury work. On the ground we’re already seeing this play out, including some direct liaison between the SRA and the respondent banks raising concerns.

In just 3 months the SRA has published no less than three guidance notes and warning notices targeted at firms suing banks and other large financial institutions: Claims Management Activity, Claims for Financial Services and High-volume financial service claims. There is considerable duplication between the different documents but several themes emerge.

The SRA is very concerned that, irrespective of conducting claims at a high volume and with a low price point, firms must still take care to:

  • properly identify clients and obtain clear instructions before submitting claims and subject access requests. There are understandable concerns about automated processes spewing out subject access requests and claims by individuals who have not been properly identified or have not clearly consented to all claims made on their behalf.
  • take account of each client’s attributes, needs and circumstances during their claim.
  • not make unreasonable demands on timescales to the banks to deal with large volumes of claims. This feels like an unusual interpretation of the SRA requirements to not take unfair advantage given that it is in the context of large well resourced businesses with recourse to the usual legal procedures for challenging such requests.
  • verify client instructions where these have been provided by third parties;
  • “not progress a claim on your client’s behalf if you cannot evidence a sound basis for that claim”. The guidance also states that in the context of personal injury claims “If you issue a claim when you know it is not valid or have not adequately considered the validity of a claim or your client’s testimony, you will leave yourself open to disciplinary action.” However, in many cases the firm initially will just have the client’s word to go by and it is necessary to ask potential opponents for the necessary evidence and their version of events. While there are rules against abuse of process and misleading the Court, it should be remembered that litigation is typically progressed to a judge or adjudicator precisely because there is not complete certainty as to whose evidence is to be believed. Elsewhere in the claims management activity guidance the SRA itself does accept that “The extent to which you should verify your clients’ testimonies and circumstances that underpin their claims is risk specific”. Historically that has been a relatively high bar. I am not aware of any debt recovery lawyer who insists on double checking X months of a business’ bank reconciliations for example before it will send a letter before action. Up to a point firms will typically rely upon the client’s instructions but law firms conducting claims work it seems will need to be especially careful if they are to avoid SRA scrutiny;
  • tailor the work on each case to the individual client. On the one hand the SRA has extolled the virtues of lawyers using technology which can address “unmet legal need by reducing costs and helping people find information.” The SRA has stated that “Many common legal situations are straightforward, and technology now exists to automate simple advice. Issues such as parking fine challenges, welfare applications or basic civil claims involve defined processes with limited options. These straightforward structures can easily be automated.” However, there are some indications on the ground that the notion of systematising and standardising may now be a cause for concern at the SRA. While standard processes certainly will need to pick up individual differences material to a matter, it’s not clear as a matter of principle why advice on identical legal considerations cannot be largely standardised. It’s very common to do so in many other areas of law including in debt recovery, conveyancing and will writing – with some law firms even offering entirely automated legal document production services. It’s not clear why this particular area could not be well suited to standardisation and technology when the SRA considers the work so simple as to mandate all firms to tell clients that they don’t even need a lawyer to make such claims. Nonetheless, the SRA stress that in the claims space “If you do not have regular, meaningful contact with each client throughout the different stages of their claims, you might fail to meet your regulatory duties.” and “You need to consider and take account of your client’s attributes, needs and circumstances throughout their claim to meet your duties in both Codes of Conduct.” These are not necessarily controversial statements in theory but in practice the approach could conflict with the SRA’s earlier stated desire to automate simple legal processes.

In terms of the guidance on costs and funding for financial services or products claims it is worth highlighting the following additional points from the SRA’s notice:

  • Client Information and Consent: Solicitors must ensure clients are fully informed about their options, including as noted above their right to handle claims without representation, before entering a contract. Clear, understandable information must be provided about services, fees, and the recommended approach.
  • Fair and Reasonable Charges: Charges must be reasonable and comply with the SRA Claims Management Fees Rules. Maximum charges apply unless exempt circumstances are present, and any deviation requires proper documentation and client consent.
  • Exemptions to Maximum Charges: Certain claims may be exempt from maximum charges (e.g., litigation or complex cases). Solicitors must clearly explain exemptions to clients and ensure their charges remain fair and reasonable in all circumstances.

Updated price transparency guidance

The SRA has updated its guidance on law firm website compliance and a member of our team has done the tedious job of comparing the two documents so that you don’t have to! It has to be said that the changes are not exactly life changing. The most noteworthy issues we could see were that the SRA has:

  • suggested firms consider making available pricing information to clients in a format other than online;
  • stressed that when publishing price information this should be:
    • in a prominent location, and in particular published in a place that is easy for members of public to locate and written in a way which is easy to understand;
    • clear on the specific VAT charges i.e. must confirm the amount as percentage or financial amount and state on website if the firm is not VAT-registered;
    • clear on what is included in price displayed including disbursements, which can easily be forgotten;
  • the phrase “best practice” has been replaced with “good practice” throughout, presumably in an effort to suggest that the guidance should not be so freely considered optional by firms (even though all guidance technically should be optional unless it directly replicates or extrapolates from a mandatory constitutionally made rule or regulation).

❌Sanctions❌

The SRA made some updates to their sanctions guidance back in August, oh the joy!

The key changes are:

❗References to the newness of the sanctions regime have been updated throughout to reflect its more established status.

❗ The document has been restructured to move key information relevant to all firms to the top, followed by specific guidance for firms operating under the sanctions regime.

❗Additional feedback showcasing good practices from recent sanctions inspections has been incorporated throughout.

❗Controls for all firms: A new case study has been added to illustrate how firms may inadvertently become involved in the sanctions regime.

❗Red flags 🚩for attempted circumvention of the sanctions regime: Updated red flags now include self-reporting responsibilities and the need to screen staff during onboarding.

❗ Reporting requirements: These have been clarified, and a new section has been added on when you must report to the SRA

❗Licensing: Further clarification on staying compliant with licence responsibilities has been provided.

❗Other resources: The SRA have updated links to external information.

More SRA guidance updates

In addition to the above the SRA has also published the following new guidance documents:

  • **Money missing from client account** – this warning notice highlights the professional, legal and personal financial risks of continuing to trade while there is money missing from a client account.
  • **Mergers, acquisitions and sales of law firms** – in addition to the obvious post Axiom Ince SRA concerns with rapid unstable accumulator firms this note highlights other common pitfalls in law firm M & A activity. The SRA specifically singles out the need for proper consent to file transfers including a reasonable amount of time for clients to make decisions on file movement.

Finally, the SRA has updated its Use of non disclosure agreements (NDAs) guidance. For those familiar with the previous SRA guidance on NDAs there will be little of great surprise in this document. Interestingly the SRA is specifically asking firms to consider whether a matter is suitable for an NDA at all in certain instances;

Hot topics

⭐🪪Let’s kick things off with an interesting AML case regarding the use of e-verification….

The Solicitors Regulation Authority (SRA) failed to overturn a tribunal’s decision that cleared solicitor George Fahim Sa’id of charges related to money laundering rule violations. Sa’id had assisted in high-value transactions involving a wealthy Iraqi family, where one member was a politically exposed person (PEP). The SRA argued that Sa’id should have performed enhanced due diligence due to the PEP status. Sa’id admitted shortcomings in certain anti-money laundering processes but had placed some reliance upon an external search service in incorrectly classifying the client as not being a PEP. The Solicitors Disciplinary Tribunal (SDT) found Sa’id’s due diligence adequate given his long-standing knowledge of the clients. The SRA’s appeal to the High Court was dismissed, with the judge noting that the SDT’s conclusion was consistent with the guidance and that the error was attributable to the external service, not Sa’id’s systems.

⭐⚠️From 26 October, employers have to take “reasonable steps” to protect their workers from sexual harassment under the Worker Protection (Amendment of Equality Act 2010) Act 2023. The Equality and Human Rights Commission (EHRC) said it would have the power to take enforcement action against employers that fail to comply with the duty.  Further, employers who fail to take such steps risk a compensation uplift of up to 25% in the event of a successful harassment claim that involves sexual harassment.  Given there is no legal cap on compensation for such claims, this could be a significant amount.  The EHRC has published an 8-step guide for employers setting out practical steps illustrating the types of action employers can take to prevent and deal with sexual harassment in the workplace (here), which is worth a read.  The introduction of the new legislation fits into the SRA’s recent focus on law firm culture and the introduction last year of the rule on treating colleagues fairly and with respect (para 1.5 and 1.6 Codes of Conduct for Solicitors and firms respectively).

⭐⬆️💰The SRA have announced that that law firm and individual contributions toward the SRA Compensation Fund will need to increase for the first time in five years. Individual contributions to the compensation fund for 2024/25 will be £90 (£30 last year) while firm contributions will be £2,220 (£660).

⭐❌The SRA have recently been consulting on their proposals to update their approach to issuing financial penalties (consulting period ended on 28th September 2024.) They have proposed amendments to their band-based approach determining specific penalties, including the proposal to create two new fining bands for the most serious types of misconduct and minimum fines for each of the bands (from £5,000 for firms and £2,500 for individuals to £500,000 for firms and £100,000 for individuals).  There has been quite a backlash from various quarters, including the Law Society and the Solicitors Disciplinary Tribunal (SDT) regarding the proposals, including serious concerns over proportionality and process, legality, independence in the SRA’s decision-making process, and the possible undermining of the SDT’s jurisdiction, as well as concerns that the proposals are likely to have a disproportionately negative impact on smaller firms (and legal aid practices) and their employees and those from Black, Asian or minority ethnic groups.  Watch this space for further updates…

⭐❌ As we mentioned in our email to retainer clients in July, the Financial Action Task Force (FATF) Plenary took place in June with Venezuela and Monaco added to the list of high-risk jurisdictions, and Türkiye and Jamaica being removed.  As a reminder, the Money Laundering Regulations were amended in January 2024 to change the definition of high-risk third countries in Regulation 33(3)(a) to a country named by the FATF, rather than a country named by the UK Government, so as soon as FATF changes their list, those are the countries to be aware of.  The next FATF plenary is due to take place this month so keep an eye out for any further changes following that.  The Law Society’s consolidated list is a good place to look (although do be aware that it doesn’t always update its list immediately the FATF announce its changes).   It is also worth remembering that just because a country is removed from the FATF list, it does not mean it is suddenly low risk, just that it is not as high as it was!  EDD may still be required when dealing with a client with connections to such a country.

⭐❌ The SRA have been expressing concerns again recently that some solicitors may be failing to keep up their knowledge and skills.  It reported on its annual assessment of continuing competence in July 2024 stating that there had been an increase in complaints between 2022 and 2023, particularly in relation to family and landlord & tenant law. (Complaints in relation to neighbour disputes, immigration and residential conveyancing had reduced).  They concluded that they would carry out thematic inspections on a sample of family law and landlord & tenant solicitors and firms, including a review of supervision arrangements within these firms and a sample of training records, with findings to be published by the end of 2025.  Continuing Competence also features prominently in the SRA’s ‘Strategic priority one’ in its Business Plan & Budget (November 2024 to October 2025).  With October being practising certificate renewal month and the continuing competency year due to re-start at the beginning of November, now is a good time to think about whether your staff are complying with their obligations to maintain their competence.  As we reminded retainer clients in August, the SRA has updated the CPD declaration, which forms part of the practising certificate renewal process, solicitors now need to confirm that they:

  • are up to date with any legal, ethical, and regulatory obligations relevant to their role;
  • have reflected on their practice and addressed any identified learning and development needs;
  • are competent to perform their role.

Don’t forget that our Compliance in the Cloud app has a CPD tool you can make use of. For staff members, particularly solicitors, it helps you quickly and simply plan and log your CPD activity such as training. Your firm can then use the app to see who has done their CPD and who has not. More information, including a video on how to use it can be found here. Clients on retainer with us can also ask us for a good old fashioned Word document too if they prefer! Just contact us and ask for a copy of our Word CPD Plan & Log.

Tribunal trends and cases of interest

😖 Solicitors behaving badly (allegedly!) 😖

  • A law student faces potential 🗝️ jail 🔒 time after using racist language in an online message targeting England footballer Bukayo Saka. Following Arsenal’s defeat in May 2023, Mr Ali posted an audio message on X, where he used offensive racial slurs against Saka. Despite admitting to sending the message and acknowledging its inappropriateness, Ali argued the comments were not intended to be racist but rather a result of his frustration with the football match. The prosecutor categorized the offence as severe due to its racial hostility. Ali was sentenced in October to a 12 month conditional discharge with £111 costs.
  • A solicitor was fined £6,500 by the Solicitors Disciplinary Tribunal (SDT) for making false statements about law firm Mishcon de Reya on a programme aired by Iran’s Press TV. 📺 Akunjee wrongly accused the firm of money laundering and acting for General Pinochet. Although he was not accused of making antisemitic remarks, the SDT found the programme’s tone to be antisemitic. Akunjee apologized for his errors, stating they were unintentional. The SDT concluded that whilst his comments did not show a lack of integrity or moral soundness, and was not reckless, they had undermined trust and confidence in the profession and caused harm to Mishcon de Reya. In deciding the level of the fine, the SDT took into account that he had a prior record of misconduct on social media. He was also ordered to pay £30,000 in costs.
  • Spitting, shouting, swearing and damaging a neighbour’s front door while under the influence of alcohol led a Solicitor to be sentenced to 80 hours of unpaid work, a 36 month restraining order in relation to his neighbours, an alcohol treatment order for six months and an order to pay £2,000 in compensation… plus costs.
  • A solicitor who pleaded guilty to sending a malicious text to an ex-partner was fined £1,269 and ordered to pay £212 costs by Harrogate Magistrates’ Court. He received a written rebuke from the SRA with a further £300 costs to pay to them.
  • An IT Service Desk Analyst at a large Law Firm removed two laptops 💻 from the IT Storeroom** (without the Firm’s knowledge or consent) and swiftly sold them to a local business owner for £500. Investigations found that one of the laptops had been logged onto with the same Wi-fi connection the analyst used for his own work device. He denied having any knowledge of the missing laptops and couldn’t explain why they’d been traced to a local business. In an agreed outcome with the SRA, a section 43 order was made preventing the analyst from working in a law firm without the SRA’s permission. He’ll also be covering the costs of the investigations, during which he was found to be dishonest and to have given false and/ or misleading statements to the firm.
  • A Solicitor who was disqualified from driving for 27 months and ordered by the Magistrates’ Court to pay a fine of £1,057 after he was convicted of drink driving while picking up his wife from the train station, has also received a rebuke from the SRA for breaching Principle 2 (upholding public trust and confidence in the solicitors’ profession) and will pay costs of £300. Police Officers were initially alerted to him when he pulled up to the station as his MOT had expired. This rather more lenient approach to drink driving taken by the SRA than we have seen in recent months appears to be in line with the SRA’s proposals to change their stance on convictions for drink driving in their recent Financial Penalties consultation.
  • A Firm’s (non-solicitor) employee has been made the subject of a section 43 order (preventing him from working in a law firm without the SRA’s permission) and is to cough up costs of £675 after he inappropriately touched two colleagues during a summer party at nightclub. A report was made to the police and after a criminal investigation, he was charged with (and pleaded guilty to) two offences of assault by beating. He was sentenced to 50 hours of unpaid community work, to attend a rehab programme, to keep clear of alcohol and pay his victims £500 each.

⏰ Timekeeping (tick tock tick tock…) ⏰

  • A partner at a law firm, was rebuked by the SRA (and agreed to pay costs of £600) for failing to provide competent and timely advice to a divorce client, leading to adverse costs orders against the client, herself, and her firm. She admitted to failing to ensure that the service she provided was competent and timely, failing to discharge costs orders promptly, delays in transferring her client’s file to his new solicitors, failure to act in a way that upheld the public trust and confidence in the solicitors’ profession and to act in the best interests of her client, and to not addressing concerns about the client’s mental capacity early enough. In mitigation, she cited personal difficulties and had since paid the outstanding costs orders against her client, herself and the firm. This may sound surprising but historically speaking the SRA has not appeared to be overly interested in the timeliness or, dare we say it, technical competence of the solicitor service. This seems to be a sign of things to come;
  • Separately, another solicitor was also rebuked for failing to promptly (we’re talking a number of weeks) deposit £300 in client funds, leading to a temporary deficiency in the client account. Both solicitors were fined for their misconduct.
  • A firm that failed to “promptly notify the SRA of a material change to the information it had previously provided to the SRA about its COLP” was found to be in breach of paragraph 3.8(a) of the Code of Conduct for Firms. The firm continued to breach this requirement after the SRA directed it to pay a fixed financial penalty of £750, landing themselves with a further fine of £1,500.

❌Anti-Money Laundering ❌

  • Firm fined £3,711 for failing to have a documented FWRA at all between 2017 and 2020 and between 2020 and March 2024 failing to have an appropriate FWRA that identified and assessed the risks of money laundering in accordance with Regulation 18(2) following a desk based review by the SRA’s AML Proactive Supervision Team

💰 Money Matters 💰

  • Failure to have an accounting system has landed a sole practitioner in hot water with the SRA. He failed to conduct timely reconciliations, and a longstanding credit balance of £39,480 remained unresolved. Although he attempted to address the issue, the SRA noted that remedial actions were delayed and only occurred after a forensic inspection. Despite breaches of accounts rules, the SRA found no lasting harm to clients & issued a written rebuke and ordered him to pay £300 in costs. (The firm had already been closed down by the SRA following an order for its winding up, a relevant insolvency event)

And the rest…..

  • A newly qualified Solicitor was issued with a rebuke for failing to advise clients adequately or at all about high risks in schemes involving the purchase and subsequent subletting of leasehold rooms and/or suites in care homes. A more serious sanction was not considered as she was newly qualified, there weren’t any allegations of dishonesty / lack of integrity and she hadn’t acted intentionally in breach of her regulatory obligations.
  • Solicitor suspended for misleading court, client, and firm. A junior solicitor has been suspended for 12 months after failing to inform her law firm and client that their defence and counterclaim in a personal injury case had been struck out. She also acted recklessly by filing a misleading witness statement in an application for relief from sanctions, incorrectly stating that her client had no prior failures. She admitted to the errors, which occurred in 2021, citing a “careless mistake made under pressure.” The Solicitors Disciplinary Tribunal (SDT) recognised her inexperience and accepted her genuine remorse, but emphasized the seriousness of her misconduct. She was also ordered to pay £2,469 in costs.
  • A Partner was hit with a fine of £1,198, plus costs of £1,350, after he acted for both sides of a property transaction where there was a conflict of interest as one party was relinquishing their beneficial ownership to the other. He “did not have instructions from the client relinquishing their beneficial ownership and did not ensure the service he provided was competent. He failed to consider the individual needs, attributes, and circumstances of his clients.” The SRA also found that he hadn’t been acting in the best interests of his client. The SRA considered a financial penalty appropriate and would send a message to the profession “with the aim of preventing similar behaviour by others”.
  • Mistakenly handling clients without professional indemnity insurance earned this solicitor a rebuke by the SRA. The firm failed to renew its insurance for 2022/23, requiring closure by 29 December 2022. However, the solicitor continued to handle live client files and receive payments after this date, wrongly believing he was covered by run-off insurance. The firm finally closed in March 2023. The SRA deemed a rebuke appropriate due to the undermining of public trust in solicitors.

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