Regulatory update – March 2019
Welcome back to our monthly newsletter which provides you with updates on compliance and regulatory issues.
Since last month’s, it has been an extremely busy time in relation to compliance and regulatory issues, with publications, announcements, decisions and changes from regulators, and issues we have helped our clients with.
SRA Enforcement Strategy
The SRA has published its long awaited enforcement strategy, which, whilst applying to the current Handbook, has been written to accompany the new Standards and Regulations (which, at the date of writing, still has no date for implementation). The aim of the updated strategy is to provide both the public and the profession with greater clarity regarding how the regulator will decide whether to become involved in a case, and what factors will be considered in deciding the seriousness of any misconduct and what action will be taken.
SRA Standards and Regulations
On the same day, the SRA published the Standards and Regulations, to enable firms and solicitors to start preparing for their introduction, as there will be no grace period to allow you to transition from the present Handbook to the new regulations, but you should note that a number are still awaiting approval from the LSB, including some paragraphs in the codes of conduct, authorisation of individuals regulations, Compensation Fund and Indemnity Insurance rules.
If you have not yet taken advantage of our fixed-fee compliance health check, which will review your compliance against key aspects of the current SRA Handbook (if you are compliant now, there will be less you will need to do to be compliant under the new Standards and Regulations), recommend gaps that need filling and provide tips on how best to prepare for the changes ahead, please get in touch for more details. We will also be providing face-to-face and on-line training.
SRA website sweep
One of the topic guides accompanying the new enforcement strategy relates to failure to comply with the SRA Transparency Rules, which have been in force since 6 December 2018. The SRA are concerned that firms are not yet complying with them and announced that it will randomly look at the websites of about five hundred firms in order to check they are meeting the new requirements. Firms that are found to have taken no steps to comply, deliberately refused to comply, or deliberately provided vague, misleading or meaningless information, will be in line for more serious sanctions, such as a rebuke or a fine.
If the work that your firm undertakes falls within the categories covered by the rules and you have not yet updated your website to include the relevant information, now is the time to do it! Please get in touch if you need any assistance.
In the conveyancing arena, there have been a number of publications, and forthcoming changes:
- CQS Core Practice Management Standards
The Law Society has published the new Core Practice Management Standards (CPMS), which will take effect for all CQS practices on 1 May 2019. By that date, CQS members must familiarise themselves with the three core values of CQS, together with the new CPMS, and make any necessary changes to policies, procedures and practices. Included within the CPMS is a requirement for a SDLT policy; specific reference to CQS training within a training policy; procedure for reporting matters to lenders, and a procedure for ensuring the SRA’s price and service transparency requirements are met. In addition, the CPMS says that firms must have an information management and security policy, ‘which should be accredited against Cyber Essentials’, but it then goes on to say in the general notes that ‘whilst Cyber Essentials is recommended, it is not a mandatory element of CQS’. The Law Society has said that it will be publishing an updated version of the CQS Toolkit in spring, which may clarify this apparent anomaly.
- Law Society Practice Note on Mortgage fraud
The Law Society has published an updated practice note on mortgage fraud. Due to the legal and regulatory framework surrounding fraud and money laundering in the UK, solicitors can find themselves criminally liable even where they are unaware of such a fraud or did not actively participate. The practice note highlights the warning signs of mortgage fraud and outlines how firms can protect themselves from being used to commit mortgage fraud.
- Law Society Code for Completion by post
The Law Society published the latest version of the Code for Completion by post, amended in response to the implications following the Court of Appeal ruling in Dreamvar. The Code will come into force on 1 May 2019 and has been published now to allow firms time to implement any required changes.
CQS members must use the Code in all conveyancing transactions but it is voluntary for non-CQS solicitors. If the Code is to be used, both buyer and seller’s solicitors must agree to use it. If they have agreed to use the Law Society Conveyancing Protocol, adoption of the Code is automatically implied.
- Stamp Duty Land Tax time limit reduced
The time limit to file a return and pay the SDLT tax due reduced from 30 days to 14 days from 1 March 2019, so client buyers will need to be advised, and processes and procedures updated. Over the years, we’ve seen a number of complaints and claims arising from missed/late payments, so ensure you have appropriate steps in place.
- Conveyancing Association Cyberfraud and Fraud Protocol
The Conveyancing Association published a revised version of its Cyberfraud and Fraud Protocol, providing members with practical information on how criminals operate in key areas and measures that can be taken to avoid being victims of fraud and cyber crime, including client identity; change of bank details; cyber insurance and actions when funds have been fraudulently redirected.
New regulator for Claims Management Companies
As you may be aware, from 1 April the FCA will become the regulator of CMCs, and it has said there will be a significant shift in the kind of regulation firms will face in the future.’
CMCs must register for temporary permission by 31 March 2019 if they want to continue trading after 1 April 2019, and there will be no automatic transfer to the FCA from the CMR. The FCA will not be assessing firms at the point of registration for their suitability to carry out regulated activities. In some cases, the FCA may set parameters around which regulated activities a firm is able to undertake whilst operating under temporary permission, and, once granted, firms must comply with FCA standards or risk facing action from the regulator. An application will have to be made for full authorisation and firms that fail to make the application within the correct period will have to stop claims management activity. We may well see a number of changes in the market over the next few months, and firms having to make changes to comply with the FCA standards. If we can assist, please get in touch.
Recent disciplinary decisions
One SDT decision that has received much attention and discussion was that concerning whistle blower Emily Scott, former paralegal and then trainee at De Vita Platt, prior to leaving the firm in November 2014, 2 months after qualification, when she notified the SRA of the misconduct of the firm. An investigation uncovered false bills, misappropriated client funds and the misleading of the regulator. Two partners were struck off by the SDT, finding that they had acted dishonestly and Emily Scott was also struck off. She admitted she had raised bills for work not carried out, and failed to initially report the misconduct, but told the tribunal that she had acted ‘under duress and under the instruction of [Platt] and not through choice’ as she feared that she would lose her job. The tribunal expressed ‘considerable sympathy’ towards her, but cited the High Court’s judgment in James and said that ‘The fact that [Scott] was under pressure and working in a horrendous environment could not excuse [her] dishonesty.’
The case has produced considerable comment, particularly on the Gazette website, about the position of whistle blowers and concerns that such decisions will deter people, and particularly more junior employees, coming forward for fear of losing their livelihood and potential for obtaining future work within the profession.
In a SRA regulatory settlement agreement, an experienced paralegal who was employed for 15 years by SAS Daniels, Stockport, has been banned from working for law firms without the permission of the SRA, having lied to both a barrister and legal expenses insurer “on instruction from her supervising solicitor”. She admitted that her conduct was dishonest, but stated that “as soon as she realised her mistake”, she reported the matter to the firm’s senior partner. The client settled his claim for £16,000 in compensation and costs. The paralegal was instructed to send an email to the barrister, who was operating under a CFA, saying the matter was no longer going ahead, and an email to the legal expenses insurer saying the other side was not prepared to put forward any offers of settlement, the case had a less than 50% prospects of success and had been discontinued. This would allow the client to claim on the policy but the insurer refused to pay on grounds that the claim had failed due to the client having exaggerated his injuries and it demanded payment of the premium. The premium was not paid and the file was closed. Only when the supervising solicitor was suspended for concerns about the handling of several matters did the paralegal approach the senior partner to discuss her concerns, and the firm paid counsel’s fees and the legal expenses premium.
The High Court upheld a SDT decision barring Anthony Gale, former partner at Maurice Smiths Solicitors, from acting as a compliance officer and sole practitioner over the way he dealt with five conveyancing transactions. The tribunal said he had been ‘sloppy, lazy and careless’ and found that he had acted on the direction of a third party without obtaining or confirming his client’s instructions, his actions amounted to gross neglect and carelessness, a breach of his duty to protect his clients etc., and he also acted without conducting due diligence on his clients or the transaction funds. Mr Gale appealed the restrictions on his practising certificate, but not the £10,000 fine, on the basis that the restrictions were disproportionate and unnecessary, the risk of loss was minimal and he was no future risk to the profession and had, until then, a long unblemished career. It was not accepted the misconduct was merely a result of failure of record keeping, but his failings were ‘more fundamental’.
Our clients ask us to advise on a number of interesting areas. This month, we have been involved in:
- Recognising a DSAR which was ‘hidden’ within a lengthy email and missed by a number of fee earners
- Advising a law firm on branding and obligations to clients in relation to their acquisition of an unregulated separate business.
- Advising a personal injury law firm on a compliant process for the purchase of files from an insolvent law firm in light of the Munir Majid SDT decision.