Regulatory update – June 2019
We are now at the halfway point of what has so far been a very busy 2019 in the regulatory world. The SRA are expanding their enforcement team to…
We are now at the halfway point of what has so far been a very busy 2019 in the regulatory world. The SRA are expanding their enforcement team to oversee compliance with the new Standards and Regulations which will come into force in less than six months and, amongst other things, there will be no let up in the SRA’s quest to ensure that firms take their AML duties seriously. It’s therefore safe to say that we’ll be kept very busy for the second half of the year and beyond. For those of you based in the North West, we hope to see you at the Manchester Law Society Regulatory Conference in Manchester on 25 June 2019 at which a range of speakers will look at current compliance issues including the new rules and AML issues.
Here’s a round-up of what’s been happening since our last update:
AML – SRA Warning Notice
In response to concerns about non-compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations), the SRA have recently issued a warning notice and have set up a new AML team with increased resources.
This comes after a thematic review in 2018 revealed a widespread failure by firms to update their AML policies as required by the Regulations.
Though no evidence of actual money laundering was found, the warning notice reminds firms that a “failure to have a money laundering risk assessment in place for your firm is a significant breach of the money laundering regulations and potentially serious misconduct”.
There are 160 live investigations into law firms and their compliance with the Regulations, and the SRA will be writing to a further 400 firms requiring evidence of compliance. It therefore continues to be crucial for firms to take their responsibilities seriously and ensure that they are fully compliant with the Regulations, failing which they are likely to find themselves on the wrong side of the SRA.
Solicitors unable to correct their own mistakes?
The recent SDT decision in relation to Howell Jones LLP has raised serious concerns that solicitors may be prevented from acting in their clients’ best interests by correcting their own mistakes at their own expense. Instead, it appears that if an error has been made solicitors will be required to send their client to a new solicitor.
The case arose from a divorce settlement which was concluded on the basis of poor legal advice. The firm and their professional indemnity insurer agreed that they should admit to their client that he had received poor advice, explain that he was entitled to seek independent legal advice and propose that they continue to act for him on the basis that they would seek to overturn the settlement at their own expense. This was agreed by the client but his wife challenged it on the basis that the firm’s continued involvement amounted to a conflict of interest.
The SDT judgment stated: “The firm’s misconduct was clearly moderately serious in that any situation in which a firm acted where there was an own client conflict was not a minor matter. The tribunal noted that the firm had not lacked integrity and had indeed taken a number of steps to try to resolve the matter to client A’s satisfaction. However it had not ceased acting when it should have done and this was fairly described as an error of judgment”.
In an article for the Law Society Gazette, Gregory Treverton-Jones QC set out the difficulties it would have created for the client if the firm had stopped acting for him: “The overall result for the client would have been disastrous: he would have had to pay the new firm’s fees together with the adverse costs incurred by Mrs A, and would have discovered that he had no claim for negligence against Howell Jones after all”. His view is that this case has put in doubt a longstanding practice which is in the best interests of both the public and the reputation of the profession, and that the own interest conflict was cured when the firm remedied the situation at their own expense, while giving the client the option of taking independent legal advice if he wished to do so.
Solicitors and insurers who find themselves in the same position would appear to have no choice but to send their client to another solicitor in order to avoid falling foul of the SDT. We hope that the issue created by this judgment will be considered by the SRA and some sensible guidance will follow so that responsible solicitors can do the right thing by their clients and help them avoid the potentially ruinous consequences of having to instruct new lawyers and pursue a negligence claim.
Social media users beware!
Ed Nally, President of the Solicitors Disciplinary Tribunal, has warned that practitioners who "vent their spleen" on social media risk impacting their professional lives. He referred to SDT cases where text messages or Facebook posts were used as evidence and said “you cannot leave the issue of your professional conduct safely behind the office door when you close it in the evening… if you go onto Facebook or Twitter or the media venting your spleen freely in a rather unattractive and unpleasant or downright illegal way in terms of some of the content, then just be careful because you cannot do those sort of things with impunity”.
Our advice is to assume that nothing you share on social media is private and that posts will be visible forever. A good rule of thumb is that if you would not be happy to stand up in a room and repeat a statement, don’t make it in the first place!
More bad news for claimant personal injury firms
Following on from the decision in Herbert v HH Law which was widely reported on recently, the High Court decision in Ferri v Gill is a further blow for claimant personal injury firms. In this case a claim that had settled for £42,000 was restricted to the fixed costs applicable to low-value road traffic accidents because it had begun in the portal and settled before being allocated to the multi-track.
SDT strikes off “too kind” solicitor
The SDT have ruled that a specialist wills solicitor consciously and deliberately created an invalid document and that any kindness on his part was not sufficient to make dishonest conduct exceptional.
A power of attorney had been backdated to 2003 in 2010 because legislative changes between those years would have invalidated an enduring power of attorney executed after September 2007. The solicitor was apparently trying to avoid the registration fee for a new power of attorney for his elderly client who had “winced” when told of the cost. He admitted that he had gone too far in trying to help her and was “too kind” and “too helpful”.
The solicitor described his conduct as a one-off isolated incident and a “singular departure from habitual adherence to strict standards of integrity and ethical propriety”. He was nevertheless struck off and ordered to pay £7,942 in costs.
Solicitor paid over £1.5m in salaries from client account
A solicitor who was the sole partner and COLP at a firm has admitted to allowing improper payments totalling £1.56m to be made from client account to cover staff salaries as well as payments for conveyancing software fees totalling £26,000 and bank charge payments totalling £61,000.
In mitigation she argued that payments were made inadvertently and without her knowledge. The payment of salaries through client account arose following the installation of new salary software which it transpired had been incorrectly set up and separate errors of which she was unaware had led to the other payments being taken from client account. The solicitor contended that at all times there were sufficient monies to meet salaries and office overheads and the firm had not had an overdraft facility for 15 years.
The SRA entered into a Regulatory Settlement Agreement with the solicitor in which she agreed to remove herself from the roll of solicitors and not be employed “in connection with the provision of legal services” by a solicitor or law firm for three years. She was fined the maximum fine that can be imposed by the SRA, £2,000, and agreed to pay costs of £2,200.
Lawyers fined for LASPO breaches
Two solicitors from a Manchester personal injury firm have been fined £10,000 each for continuing to break the referral fee ban for four years post-LASPO.
The defendants contended that the payments were reasonable, within the regulations and that many other firms pay comparable fees. The SDT considered the pair's evidence to be "evasive and contradictory". In addition to their fines the defendants were jointly ordered to pay £11,800 in costs.
Our clients ask us to advise on a number of interesting areas. This month, we have been involved in:
- Advising an LLP on its SRA application for incorporation
- Setting up an ABS including preparing all SRA forms, creating/advising on all client care documents and advising on compliance issues
- Preparing an AML policy and risk assessment