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Regulatory update – May 2019

Welcome to May’s edition of our monthly newsletter, providing you with updates on compliance and regulatory issues, and some recent examples of issues…

Welcome to May’s edition of our monthly newsletter, providing you with updates on compliance and regulatory issues, and some recent examples of issues we have been helping our clients with.

Solicitors Disciplinary Tribunal response to the consultation on the standard of proof

The SDT has, as expected, confirmed that it will seek to change the standard of proof from beyond reasonable doubt to the civil standard, bringing it in line with other regulators, the BSB having changed on 1 April 2019. The Law Society described the decision as 'disappointing' and the SRA welcomed it. The President of the Tribunal rejected the idea that it will result in ‘easier’ prosecutions of alleged misconduct breaches, saying ‘The Tribunal will continue to scrutinise robustly all allegations brought before it, and will continue to look for and identify cogent and compelling evidence before finding allegations proved.’ We will have to wait and see the effect of the changes, but the SRA are recruiting for its Investigation and Supervision team and Legal and Enforcement team, and if, under its new Enforcement Strategy published in February, the SRA continues its present policy of disciplinary investigations and sanctions against firms and responsible individuals, they will be extremely busy. At the date of writing, the application had not been made to the Legal Services Board, but the intention is that, subject to the LSB’s decision, the new rules will come into force on 25 November 2019 to coincide with the SRA’s new standards and regulations coming into effect.

Professional indemnity insurance

Brokers are warning that the regulatory changes, together with other issues, could lead to difficulties at renewal. With fewer underwriters offering solicitors PI insurance, some insurers suggest there could be an increase in premiums of up to 15%, and those firms offering conveyancing could face additional difficulties with problems concerning ground rent clauses in residential leaseholds starting to filter through. While few, if any, claims have yet to be made, and liability is unclear, solicitors have been notifying insurers of potential claims, and the possibility that many thousands of properties are affected by the clauses which could render the houses unsaleable, is causing concern for insurers. Firms involved in conveyancing should be prepared to provide insurers with extra information in advance of renewal.

Concerns over price transparency and legal support during property transactions

The results of the SRA’s Residential Conveyancing Thematic Review has raised concerns over how open firms are about costs and whether they are doing enough to make sure buyers understand any potential contractual obligations.

While all the 40 firms reviewed gave quotes to clients, over a third were found to be charging additional fees or carrying out additional work which should have been anticipated at the outset. There were also issues with solicitors not properly explaining the long-term implications of complex contractual clauses, with around a quarter not explaining the difference between freehold and leasehold property. Six firms were referred to the SRA internal disciplinary process, with five referrals including concerns about failing to declare that TT fees included an additional charge/mark-up, with some firms billing 10 times the actual bank charge for processing the transfer.

Possible increase in costs challenges

Personal injury firms will be aware of the Court of Appeal judgment handed down on 3 April in Herbert v HH Law Limited relating to a 100% success fee which the firm have been unable to recover from the client, and will no doubt be considering engagement letters, terms of business and potential issues regarding costs implications.

New CMC regulator

As we indicated in a previous bulletin, from 1 April CMCs are regulated by the FCA and those firms working with CMCs will hopefully have checked, or had confirmation, that those CMCs have obtained the required temporary permission to be able to continue their claims management activities.

Stress in the legal profession

The issue of stress among junior lawyers continues to be of concern, with research showing that the proportion claiming to have recently experienced mental ill-health has risen considerably over the past year – and that 6.4% have experienced suicidal thoughts. These are among the recently published findings of the third Junior Lawyers Division (JLD) resilience and wellbeing survey. Of more than 1,800 respondents, 48% said they had experienced mental ill-health in the last month, up from 38% last year. Some 93.5% of respondents said they experienced stress in their role, with a quarter experiencing ‘severe/extreme’ levels of stress. This report coincided with findings from a survey of 1,000 British workers, produced by insurance firm Protectivity, which found that lawyers are the second most stressed professionals in the country.

Disciplinary issues

In this month’s round up, there have been a number of interesting reports, and some salutary lessons.

Referrals to the SDT

The SRA has confirmed that a solicitor from magic circle firm Allen & Overy has been referred to the SDT over the drawing up of a non-disclosure agreement in 1998 involving film producer Harvey Weinstein, but no details have yet been given about what allegations he may face.

The SRA have also confirmed that they will be prosecuting Fiona Onasanya, Labour MP for Peterborough, for failing to uphold the proper administration of justice, act with integrity and maintain public trust in her and the profession, following her conviction for perverting the course of justice and unsuccessful appeal of her three month prison sentence.

High Court strikes off overcharging solicitor

A solicitor has been struck off by the High Court for overcharging in clinical negligence cases by setting standard rates of £400/hour with a 100% success fee in the conditional fee agreements. This decision overturns a SDT ruling that he should only be fined £30,000. Giving the ruling, the judge identified five “clear and obvious errors of principle”, particularly in the way the SDT “simply overlooked” the serious findings of knowledge and deliberate misconduct which it had made. He added that, even if he had not found him to be dishonest, he would have upheld the other limb of the appeal, namely that the sanction of a £30,000 fine was excessively lenient.

High Court overturns strike off

The High Court has overturned the strike off of a solicitor who was banned last year by the SDT after acting for a litigation client and her litigation funder, creating the risk of a conflict of interest. The matter had occurred six years earlier and had already led to his suspension in 2016 for allowing his firm’s client account to be used as a banking facility. The judge agreed the tribunal was right to find misconduct allegations proven, but in relation to the sanction he said the solicitor had not had a chance to learn from the SDT’s earlier finding because the misconduct in question pre-dated these proceedings. He ruled that the lack of integrity and probity was not at a level to justify striking him off, and the failure to ensure that the client had independent legal advice had caused no harm. The strike-off was reduced to a two-year suspension but the £35,700 costs order was not overturned.

SRA regulatory agreements

Two equity partners have escaped tribunal proceedings by admitting to multiple account rule breaches. They were rebuked and fined £2,000 and £1,500 respectively and ordered to pay £600 each towards the SRA’s costs. Among the breaches was a shortage on client account of £144,776, incorrect use of a suspense ledger, overdrawn ledgers ranging from periods of 18 to 1,339 days and delayed payment of money into client account. Whilst one acknowledged his strict liability for the misconduct, he had no personal knowledge of many of the breaches, and the other partner said in mitigation that the problems were caused by changing accounts system and a new accounts manager, the glitches had been resolved and he acknowledged steps needed to remedy the issues were not taken soon enough.

This reminds us of the importance for partners to ensure the firm’s handling of accounts is correct, and how early admissions can result in a preferable outcome when being investigated by the SRA.

Non-solicitor associate barred for falsifying entries

A non-solicitor associate who logged more than 90 false entries into the case management system over more than two years, ‘to increase her time recording to meet targets set by the firm’, has been barred from working in the legal profession without SRA permission. A regulatory settlement agreement published by the SRA said the false entries recorded calls that had not been made and she admitted that her conduct had been dishonest. She was ordered pay £300 costs.

Solicitor suspended for growing cannabis

A solicitor whose husband grew cannabis in a room in the family home has been suspended for six months, having previously pleaded guilty to permitting production of a class B controlled drug. She told the SRA that she played no part in the growing of the cannabis, and had not stepped into the room. She had not been previously been before the tribunal, they found her remorse genuine and decided a fixed suspension would be reasonable and proportionate.

Case studies/FAQs

This month, we have been involved in:

  • Advising clients on changes required to retainer documentation and risk assessments following the CA judgment in Herbert v HH Law Limited.
  • Following a client’s new accounts recruit viewing the Compli on-line SRA Accounts Rules course, setting up a conference call with our Financial Controller to answer any queries and arranging ongoing support.
  • Providing SRA regulatory advice to a client on their obligations and procedures in relation to providing disbursement funding.




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