Regulatory update - August 2020
Here is an update on what has been happening in compliance over the past month or so.
I hope you are all keeping safe and well? No doubt you will be exploring your options for returning to office working and can I refer you to Weightmans' insights for detailed information on a whole range of COVID-19 issues which will impact on all businesses, including law firms. Whilst lockdown starts to be relaxed, those responsible for compliance cannot afford to do so. Issues of supervision, health and safety of staff, data protection, cyber attacks and increases in AML risks continue to be at the forefront of risk managers/COLPs minds. If we can help in any way, please don’t hesitate to get in touch.
Here is an update on what has been happening in compliance over the past month or so.
SIF extended for another 12 months
Probably the biggest news story this month is the agreement by the SRA to agree to extend the Solicitors Indemnity Fund by a further year. The SRA had previously been determined that SIF would close on 30 September 2020 but it has bowed to pressure as a result of the pandemic and the scheme has now been extended until 30 September 2021. With the hardening insurance market and the SRA recognising that there was limited alternative cover available at present, this extension will, according to Simon Davies, President of the Law Society, provide some breathing space to “enable the SRA and the law Society to work with insurers to try to find a practical solution that will protect former principals and their clients once SIF finally does close to new claims”.
SRA AML visits
In the SRA’s recent consultation seeking the profession’s views on its 2020/2021 business plan, it announced its intention to visit all high-risk firms in relation to money-laundering on a three year rolling basis, along with visits to a sample of lower risk firms. They will be calling in and analysing firms’ AML policies, procedures and controls and risk assessments and will also be undertaking a thematic risk review into tax advice.
Having had the benefit of seeing some of the detailed findings from visits/audits already carried out by the SRA’s AML team, some of which have resulted in firms being referred on to caseworkers in the enforcement team, it is very clear that the SRA means business! One of the key areas that they are focussing on is the need for firms to carry out an independent audit of their firm’s compliance with the regulations. Whilst the audit can be done by someone internally at the firm rather than an external audit, the SRA is stressing that it needs to be independent. How will you comply with this requirement? The Compli team can help, so please do get in touch for a free, no-obligation discussion about our AML audit service.
On a separate AML issue, HM Revenue and Customs has recently confirmed that the requirement to be imposed on solicitors to report cross-border transactions bearing the hallmarks of aggressive tax planning to the authorities has been delayed by six months as a result of the passing by the EU of an amendment allowing member states to defer the DAC 6 reporting regime because of the pandemic.
HMRC is expected to publish wider DAC 6 guidance shortly.
The Law Society has advised that this extension is a delay only and not a cancellation of reporting requirements so law firms “may be well-advised to continue their work preparing for DAC 6 compliance'.
We do of course still await the Legal Sector Affinity Group’s (LSAG) guidance on the 5th Money Laundering Directive. The reason for the delay according to sources at the Law Society is that as the LSAG covers representatives from across the legal sector, not just solicitors, it is taking longer for the drafting to be agreed. It is hoped that it will be released “in the summer” but it could be a long summer!
Law Society issues Return to Work Toolkit
During the crisis, the Law Society has been issuing regular practice notes and guidance on practical issues, a recent one being a Return to Work toolkit which includes a risk assessment template, posters and a useful flowchart to help employers decide which employees should return to work when re-opening offices. It is well worth looking at if you haven’t done so already.
SRA reports increase in sexual harassment investigations
The SRA has reported that it is investigating 117 cases of allegations of sexual misconduct with 36 new incidents reported since November 2019. One cannot help but wonder whether the increase is due to the changes in the reporting obligations of COLPs introduced in the new Standards and Regulations and of course Christmas party season. It will be interesting to see how these investigations play out given the recent decision in the Baker Mckenzie SDT case reported in our disciplinary section.
SRA to review solicitor competence
The SRA has also announced a review of its approach to solicitors' continuing competence following a call for evidence by the LSB. Its intention is to review three "key questions", namely whether there was evidence of "issues around compliance" with existing competence arrangements, whether the current approach was "effective and targeted where it needs to be", and what could be learnt from other sectors.
SRA updates its IT system
Anyone who goes on to the SRA’s website every so often may have spotted some changes and, according to the SRA, improvements in its IT infrastructure with the first phase being an upgrade to the mySRA portal. It means that application forms for e.g. applying for a change of entity/new ABS etc. are now to be submitted by uploading the forms on to the mySRA system. The SRA’s telephone lines including its contact centre and ethics guidance helpline have also now re-opened.
SRA research into views on Transparency Rules
The SRA has announced that firms will be contacted by researchers shortly with an invitation to take part in an independent review into the impact of the Transparency rules.
Failure to supervise
The principal of a law firm has accepted a rebuke for failing to properly supervise a consultant solicitor who worked for her and who had paid £2.25 million of property sale proceeds to a third party in addition to a number of other issues of misconduct in conveyancing transactions (for which the consultant had previously been suspended by the SDT for 2 years). The regulatory settlement agreement stated that the firm’s “systems and lack of effective supervision allowed [the consultant’s] misconduct to occur”.
Supervision is an important aspect of a solicitor’s obligations under the new Standards and regulations. Myself and Pearl Moses from the Law Society’s Risk and Compliance service discussed the issue in a recent webinar which you can watch again on demand.
Strike off for fabricating grants of probate
A director in a law firm has been struck off after admitting misconduct including authorising unwarranted bills of costs and fabricating grants of probate. She admitted authorising the misallocation of £1.27 million in client funds, giving rise to a shortage of £422,000 in the client account, and misappropriating £4,365 to buy herself jewellery.
Jailed money launderer struck off
A solicitor in Cheshire jailed for seven years last year for three money laundering offences has been struck off for helping fraudsters develop a multi-million-pound property portfolio. He was the gangsters’ ‘go-to’ solicitor who would carry out property transactions without asking questions about where the money had come from. He was responsible for more than 80 property transactions for various criminals, all of whom were subsequently convicted of offences including money laundering and fraud and he was fully aware that transactions were being made to launder criminal proceeds and was deliberately dishonest in facilitating them.
Baker McKenzie sexual harassment decision
Probably the biggest SDT case since the Leigh Day Tribunal has reached a conclusion, with the case against Gary Senior, the former Baker McKenzie London Managing Partner, for professional misconduct for attempting to kiss a junior associate found proved. He was fined £55,000 and ordered to pay the SRA’s costs. The firm itself, a partner involved in the internal investigation of Senior and the former HR director were cleared of the charges against them. Whilst arguments were put forward that the SRA pay their costs (of an eye-watering £3 million) given the failure of the allegations against them, the tribunal made no order as to costs.
Solicitor’s failure to warn of off-plan property risks results in fine
Firms/solicitors acting for clients in high-risk property development schemes, often involving buyers from abroad paying high deposits of between 40-80% of the purchase price for as yet unbuilt units, should take note of this disciplinary case which found a solicitor in breach of his professional obligations in a number of respects for failing to adequately advise purchaser clients of the high risk of investing in such schemes. The solicitor reached an agreed outcome with the SRA to pay a fine of £10,000 and £15,000 costs.
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