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Regulatory update – January 2020

In this update, we look to see how our 2019 predictions fared, and take the opportunity to look ahead for 2020.

‘The times they are (still) a-changin’

‘The times they are a-changin’ – what’s in store for 2019?’ was the title of the January 2019 bulletin, and I thought it might be worth looking back to see how our predictions fared, and take the opportunity to look ahead into that crystal ball for 2020.

SRA Standards and Regulations

Our predictions in relation to the SRA Standards and Regulations were correct. We didn’t have a name then, but it looks as though STaRs is going to stick, if only because it’s quicker to type, although the SRA do not like it. Whilst they were expected to be in force ‘in or around Summer 2019’, which eventually became 25 November, we do now have shorter codes and a considerable number of new and re-issued guidance which was released over the months beforehand. They were all, rather unhelpfully, then re-dated 25 November, together with 13 warning notices, with no indication of what, if any, amendments had been made over and above the references to the previous Handbook, outcomes etc. being amended to the paragraph numbers of the new codes and new rules. The Law Society has also taken the opportunity over the last couple of months to release new advice and practice notes, with over 40 being released since 25 November. It’s becoming a full time job just keeping up with the ‘new’ information!

SRA Transparency Rules

The Transparency Rules have caused difficulties for some firms, particularly with the need to keep updating them as hourly rates, scope of work etc. change. As well as dealing with those firms whose websites were not compliant in the first review, the SRA ‘web sweep report’, also dated 25 November, confirms that it will “conduct regular six monthly web sweeps, reviewing 600 law firm websites on each sweep.” The SRA has gone on to say that “while generally these sweeps will continue to look at a representative cross-section of firms, we will also target a higher proportion of firms providing immigration services, until we are satisfied that firms providing services in this high-risk area are complying with our requirements.” The SRA also plans to conduct a thematic review during 2020. You have been warned!

Do not forget that even if you do not carry out work that falls within the pricing information requirements, all firms need to display the SRA digital badge and complaints handling procedure.

Disciplinary issues

My prediction in January 2019 was that the burden of proof in SDT proceedings would be changed to the civil standard. It wasn’t a difficult prediction to make as that would bring the SDT in to line with most other professional regulators, and on 25 November the new Solicitors (Disciplinary Proceedings) Rules 2019 came into force. They will only apply to those cases certified as having a case to answer from that date, and the 2007 rules will still apply to those certified before 24 November, but heard after then. Unlike the changes to the SRA Handbook, the new rules are longer, with the emphasis on the overriding objective to progress matters quickly and proportionately. It is more than likely that with the change in the standard of proof there will be an increase in referrals to the SDT, with cases listed more quickly than previously due to the additional sitting days available. We have already seen this with a number of our cases. Last year we advised, in light of the Leigh Day costs, that if you didn’t already have insurance cover for regulatory defence costs, or your existing cover would be inadequate, it would be the time to speak to your broker/insurer. If you didn’t do it then, you should certainly do so now.

Data Protection/ICO

As predicted, 2019 has seen a focus on internal systems and procedures, and an increase in individuals making data subject access requests. The ICO has published draft guidance for DSARs, which updates the previous code of practice which was last issued in 2017. The draft guidance takes the relevant provisions of the GDPR and Data Protection Act 2018 into account and the ICO will be consulting on this draft guidance until 12 February 2020. The guidance explains when a request might be considered complex (the volume of data on its own isn’t a reason), what to do when the request involves information relating to another identifiable person, and guidance regarding DPA exceptions, including negotiations and management information.

AML Regulation

Last year, we noted that the SRA had warned that firms can expect no let-up in scrutiny, following a large percentage of firms, who were the subject of the SRA thematic risk project on AML in 2018, being investigated and disciplined for not having robust enough systems and procedures in place to prevent money laundering facilitation. The SRA announced that in 2019 it would concentrate on trust and company issues as well as conveyancing. True to its word, on 7 May, the latest AML Thematic Review focusing on firms offering trust and company services was published, which indicated that while many firms were fully compliant with their AML obligations, the SRA had substantial concerns about a significant minority and referred 26 firms into its disciplinary processes. The referrals were for breaches of the MLRs and no evidence of actual money laundering or intentional involvement in criminal activity was found at any firm. In the last five years, the SRA has taken more than 60 cases to the SDT, resulting in over 40 solicitors being struck off, suspended from practice or voluntarily coming off the roll.

The SRA wrote to 7,000 COLPs in firms subject to the AML arrangements in December 2019 and responses have to be submitted by 31 January. Firms should be ready in the coming year to have risk assessments called in as part of a rolling programme of checks.

10 January 2020 saw changes introduced by the EU’s fifth money laundering directive (5MLD) being implemented in domestic law, and 31 August is when the first batches of reports required under the EU directive on cross-border tax arrangements must be made. On its website, the SRA says this will mean firms need to update their processes to bring them up to date with new legislation and it will also be changing its processes with changes to how the SRA approves some individuals under the regulations. Under the new AML regime, a listing on the roll will no longer suffice to show that a solicitor is not a criminal. The international Financial Action Task Force is requiring the SRA to inspect ‘evidence of suitability’ when approving appointments to key roles, which will include a basic DBS check to show that individuals have not been convicted of an offence that would bar them. The roles affected are so-called ‘BOOMs’ – beneficial owners, officers and managers. There is guidance on the SRA website relating to definitions of positions. The main changes introduced include the requirement for firms to inform Companies House of any discrepancies they find in records of beneficial ownership (other than those subject to legal professional privilege; new requirements to register trusts, and more situations where enhanced due diligence must be carried out.

At the date of writing, full guidance from the Legal Sector Affinity Group has not yet been produced, but it issued interim guidance on 10 January regarding the key changes in the new AML regulations https://www.sra.org.uk/globalassets/documents/solicitors/firm-based-authorisation/interim-legal-sector-affinity-group-guidance.pdf?version=48dd5d.

Case studies

Recently we have advised clients in relation to:

  • The firm AML risk assessment and responding to the SRA AML letter
  • Compliance ‘health check’ review and report
  • SRA investigation in relation to acting where there was a conflict of interest
  • Updating policies and procedures in light of the new Standards and Regulations
  • Application for authorisation as an ABS
  • Change of compliance officers.

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