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Rule changes

The 15th edition of the SRA Handbook went live on 1 November 2015 and includes some very significant changes to the SRA rules. The amendments include the following:

  • well over one in ten law firms will no longer need to obtain or deliver an accountant’s report. Firms which, during an accounting year, hold an average client account balance of £10,000 or less and never in excess of £250,000, will no longer need to deliver an accountant’s report. In addition, accountants will no longer need to ‘qualify’ a report unless it is felt that the rule breaches put client money at risk. This is in addition to earlier changes which remove the need to deliver to the SRA unqualified reports and the removal of the report requirement where only legal aid client money is being held. The SRA has now comprehensively overhauled its guidance to accountants on accountant’s reports;
  • in a change which could have significant implications for how law firms provide their services, the SRA has removed the prohibition on law firms working alongside or investing in quasi-legal service providers. Instead, firms and partners involved in such ‘separate businesses’ will need to give certain information to clients about the status of the separate business to make clear that work with any connected business is not SRA regulated. This does nonetheless open up the possibility for firms to put some of their non-reserved work outside of the SRA’s regulatory regime.  The SRA has published detailed guidance on how firms should comply with the new requirements and highlighted that prior waivers of the separate business rule have ceased to have effect;
  • changes have been made to the Qualification and Provider Regulations which will pave the way for the launch of solicitor apprenticeships in 2016;
  • the SRA has relaxed the accounting rules which apply to ‘overseas practice’;
  • the SRA has repealed the Insolvency Practice Rules to give effect to the SRA’s decision to cease regulating insolvency practitioners from 1 November 2015.

There’s a more in-depth note of these changes available on the SRA website.

The SRA’s proposed approach to regulating consumer credit activities appears to be on track for implementation on 1 April next year, significantly reducing the number of firms which will require separate FCA authorisation under the new regime.  Transitional arrangements remain in place for the moment.

 Finally, the Law Society has provided some very welcome clarity in its updated practice note on the steps law firms need to take to satisfy the requirements of the new EU Directive on consumer alternative dispute resolution which came into force last month.  It has also updated its practice note on letterheads to reflect these changes.

Latest guidance, guides and warnings

  • the Land Registry has warned that some solicitors firms have received fake or “phishing” emails claiming to be requisitions or replies to requisitions from the Land Registry;
  • the SRA has warned that it continues to receive reports of fraudsters tricking firms into providing banking information which is then used to steal money from the client account.  One firm lost nearly 2 million pounds (of which only part has been recovered).  Under conduct rules the partners are obliged to replace monies missing from the client account however the shortfall arises. The SRA has provided a case study which demonstrates the very sophisticated and convincing tactics employed by fraudsters together with guidance on how to minimise the risk of being caught out.  The Law Society has also published a practice note on how to respond to such attacks;
  • the SRA has published some guidance on when in-house lawyers require indemnity insurance and that self-employed fee earners in a law firm should still be covered by the minimum terms for indemnity insurance;
  • the SRA has again highlighted its view that firms should not be charging clients for customer due diligence as a disbursement;
  • the Law Society has published a practice note on developing a whistle blowing policy. We’re currently giving away a free template whistle blowing / sharing concerns policy – just contact us and we’ll email it over to you;
  • the Law Society has published some new anti-money laundering FAQs;
  • the Law Society has published new guidance which summarises the key points of the SRA’s new approach to CPD and maintaining professional competence;
  • the ICO has published a very sensible, reassuring and practical blog post on a recent ruling which calls into question the ability of a businesses to rely upon US ‘safe harbour’ agreements when using cloud computing or similar services;

Tribunal trends

Two former partners have been fined at the Solicitors Disciplinary Tribunal (SDT) for exchanging ‘crass’ and ‘offensive’ emails.  Legal Futures also reports on SDT cases concerning a lawyer who was struck off after paying clients “compensation” from his own bank account and another case in which a lawyer fabricated advice and reports after becoming ‘panicked’.

In the case of Evans (SDT 11285-2014) a solicitor was struck off following a finding (among other things) that she had failed to disclose a conviction for driving with excess alcohol.

The SRA has published new research which indicates that the core duties of lawyers are under pressure and that the risks are being compounded by a lack of sophistication in how firms approach these risks. Examples include arrangements where clients are referred by third parties who may then influence how the work is undertaken and clients putting pressure on firms to write up ‘bad advice’ which can be relied upon for a particular purpose.  We explore these issues and how firms can tackle them in more depth in a recent blog post on our website.

The Treasury and Home Office have published a National Risk Assessment that identifies the issues of money laundering and terrorist financing within the regulated sector, such as law firms.  In publicising this report the SRA has also taken the opportunity to publicise recent strike offs and heavy fines at the Solicitors Disciplinary Tribunal in this area.

Key dates

The practising certificate renewal and diversity data collection exercises have now closed for the year.  Be sure to contact the SRA urgently if you have had difficulty meeting these deadlines.

Important information about these updates

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