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Regulatory update – April 2019

Welcome back to our monthly newsletter which provides you with updates on compliance and regulatory issues.

Welcome back to our monthly newsletter which provides you with updates on compliance and regulatory issues, including some recent examples of issues we have helped our clients with.

New rule book worries for solicitors

At the forefront of compliance issues in 2019 are the new SRA Standards and Regulations. It has now been announced that the new rules will come into force on 25 November 2019, and in a recent survey almost two-thirds of solicitors said that they were concerned. Staff retention was cited by many as a reason for concern with some lawyers being “increasingly attracted to virtual firms/in-house roles” and more areas being dealt with by DIY outfits and unqualified lawyers.

There is also a concern about costs as firms try to change their practices to ensure compliance with ever-changing rules; the latest change being the fourth in 12 years.

The SRA have offered some reassurance that “firms and individuals who do not want to make changes to their current arrangements will in the main not have, or need, to do so”. This seems to confirm our view that if you’re compliant with the current rules, then you will be close to being compliant with the new Standards and Regulations. However, there are many changes which solicitors and COLPs will need to take into account to ensure that they and their firms do not breach the new Standards and Regulations inadvertently, so reviewing and training are essential!

If you have not yet taken advantage of our fixed-fee compliance health check then please get in touch for more details. We will also be providing face-to-face and on-line training.

Law Society takes action to promote gender equality

On International Women's Day the Law Society launched its report ‘Influencing for impact: The need for gender equality in the legal profession’ following the feedback from around 12,000 solicitors around the world. The report contains numerous recommendations on best practice to remove unnecessary barriers to gender equality. The Law Society has also produced two toolkits; one for men and one for women, which are designed to help people take action in their firms to promote gender equality.

The Law Society has also announced the imminent release of a pilot of a new accreditation scheme which will assist members in achieving excellence in equality, diversity and inclusion to a bronze, silver and gold standard. The accreditations will cover gender, race and ethnicity, disability and wellbeing, LGBT+ and social mobility. It is hoped that this new process will allow firms to identify areas of existing activity and where there is room for improvement. If you would like to get involved you can apply through the Law Society website.

As a profession it is vital that we keep moving forward towards equality for all so it is great to see the Law Society championing the cause and taking positive action - hopefully we will see the wider profession following the Law Society’s lead.    

Record fine for ABS

The SRA has imposed its biggest ever fine on ABS, which was fined £124,436 after admitting sending millions of letters containing misleading statements.

The letters were sent in plain envelopes on which it was printed: “Important information enclosed” and “Authorised and Regulated by the Solicitors Regulation Authority”. The letters claimed that PPI could not be hidden from the firm’s “professional forensic investigators”, but at the time the firm did not employ any investigators.

The firm also admitted to its procedures resulting in potentially misleading information being inserted into claim bundles and failing to carry out appropriate checks to verify potential clients.

The fine amounted to around 1.3% of the firm’s annual turnover, reduced by 20% to reflect mitigating factors including the firm changing its procedures and fully cooperating with the investigation.

Since the deadline for PPI claims is now less than six months away, we are likely to see a drive in marketing activity from claimant firms. This fine should serve as a warning that firms must meet the required standards or the consequences could be severe.

Transparency and the SRA

Following its failed prosecution of Leigh Day and in light of concerns about the apparently disproportionate number of ethnic minority solicitors appearing before the SDT, the SRA is to publish a report on its disciplinary track record. This will make very interesting reading for those of us who have concerns about the transparency and consistency of the disciplinary process. There are also indications that the SRA will reconsider the closure of its board meetings to the public and press following concerns raised by the Legal Services Board about the lack of transparency. Here’s hoping that we will have a little more insight into the workings of the SRA in the near future!

Planning for Brexit  

A survey of 176 solicitors has shown that 47% are worried about the economic and political instability caused by Brexit and the impact it will have on their business, but less than one in 10 has a contingency plan.

It is vital for firms to prepare for an outcome at some point, whatever it may be. Law firms need to consider and try to understand how the different outcomes of Brexit (including a ‘no deal’) will impact them and create plans to minimise risk and disruption. Key areas to consider are the impact on employees who are EU nationals, tax implications, clients and suppliers based in the EU.

UCL review of legal services regulation - Law Society response

The Law Society has released its response to the independent review of legal services regulation conducted by UCL last year which was critical of the regulatory framework. In short, the Law Society rejects the need for further legislative reform and considers that improvements can be made within the current framework as laid out by the Legal Services Act 2007. The Law Society has stated: “Put simply, we believe that the costs of a widescale regulatory reform, in terms of regulatory uncertainty, compliance burden, and international implications, would outweigh any perceived potential benefits.”

Reports from the SDT

Jeffrey Allan Jackson, a former sole practitioner, has been fined £3,750 as a result of failing to secure around 4,000 files, 300 deeds and 400 wills when his firm closed in November 2016. Mr Jackson had contacted the SRA in 2016 to advise them of his financial difficulties and indicated that he could not afford the disposal, safe collection or storage of his files, but this was not sufficient. Whilst it would be prudent for solicitors who are struggling to afford to safeguard their files to maintain a dialogue with the SRA, this case confirms that it is unlikely that they will be able to avoid their obligations.

Baljinder Hayre, a sole practitioner in Bradford, has been struck off and ordered to pay £7,270 in costs as a result of falsifying and relying on inaccurate notes to defend a negligence claim against him in which a former client was awarded £229,970. The negligence claim related to a purchase of land for £1.7 million in which Mr Hayre had filed the wrong plan with the Land registry, significantly reducing the value of the land. The SRA alleged that Mr Hayre had falsified file notes from years earlier to represent discussion, advice and/or instructions that had not taken place. Hayre denied these allegations and argued that Judge Saffman had found him to be negligent rather than dishonest. The SDT referred to findings of Judge Saffman that the integrity of the notes was “materially compromised” and that Hayre had misrepresented the true positon in his attendance notes. The SDT concluded that these findings “intrinsically involved deliberate concealment of the true position” and was satisfied that Hayre had falsified attendance notes.

Ending on a more positive note, a solicitor was recently restored to the roll following rehabilitation. Ahmar Hussain had been struck off in October 2010 after acting recklessly and failing to supervise staff within his firm. Six property transactions had been subject to fraud by others and, whilst Mr Hussain had failed to adequately carry out checks on new recruits, he was not found to have been dishonest. In 2014 Mr Hussain had been granted permission to work as a legal assistant and in 2016 he was allowed to undertake a limited number of hearings in the Immigration Tribunal. He has since been undergoing training, has received no complaints and his application for restoration was supported by references from the directors of his current firm. The SDT found Mr Hussain to be an ‘honest and credible’ witness, whose failings where exploited by convincing and determined fraudsters.

Case studies/FAQs

Our clients ask us to advise on a number of interesting areas. This month, we have been involved in:

  • Assisting a client with their application to become an ABS
  • Advising a client on their general accounting procedures and compliance with the Solicitors Accounts Rules
  • Advising a client on their obligations and procedures for new clients assessed as high risk
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