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Regulatory update – November 2019

We are now only days away from the SRA Standards and Regulations which come into force on 25 November.

We are now only days away from the SRA Standards and Regulations which come into force on 25 November. There will be no grace period, and the SRA have already indicated that they will be carrying out a thematic review early next year. If you need any assistance with training, policies, risk management etc., please get in touch with the Compli team.

In the last couple of weeks, the SRA have announced that

  • they will be reviewing law firm websites to ensure compliance with the price and transparency regulations this month, and
  • they will be writing to the 7000 firms that fall under the scope of the AML regulations asking about the measures in place to combat money laundering for copies of the firms’ risk assessments, and are planning targeted, in-depth visits to firms.

If we can help in relation to either of these areas, please give us a call.

SRA Standards and Regulations guidance

Guidance around the new Standards and Regulations has been rather limited and released on a ‘drip feed basis’, which is not terribly helpful when trying to understand what the SRA expects from those it regulates. In the last few weeks, there has been some clarification of issues that have been of concern, including: the SRA’s position regarding firms operating a client’s own account, which was troubling those appointed as Court of Protection Deputy or Attorney, under a Power of Attorney, due to the wording of Rule 10 of the new SRA Accounts Rules; the prescribed circumstances in which you can withdraw client money from a client account to pay to a charity; what is meant by 'adequate and appropriate' indemnity insurance for those that want to practice as freelance solicitors, and solicitors in non-commercial bodies providing reserved legal activities, who are not covered by the minimum level of insurance for SRA authorised bodies, and representing clients who lack or lose capacity, AML firm risk assessments and, most recently, on conflicts of interest.  

We will be sending out emails with links to new guidance, as it is released, over the next few weeks.

Law Society advice and practice notes

In addition, the Law Society has been busy, producing new and updated advice and practice notes on a range of topics, including: ownership of documents; VAT treatment of disbursements and expenses, which replaces the previous practice note, following recent cases, with the caveat ‘We regret the continuing lack of clarity resulting from these decisions and would welcome guidance from the courts and an approach from HM Revenue and Customs (HMRC) that recognises and addresses it.’; mortgage fraud; dealing with complaints from prospective clients, and Code for Completion by Post.

Probate fees

It has been confirmed that the Government’s proposals to raise probate fees have been dropped. In claiming a victory, having been campaigning against the proposed fees, the Law Society noted that significant delays in grants of probate, partly caused by a rush of applications from those hoping to avoid the proposed fee increase, together with office closures and new technology, remain of concern. The Probate Registry update in mid-October said that delays were down to 4 weeks, provided everything is correct with the application, but there are reports of much longer delays.

BSB social media guidance

The BSB has issued guidance to barristers on their use of social media, warning that they could face disciplinary action even if they believe they are using it in their personal capacity, taking the same approach as the SRA, that ‘misuse’ could diminish the trust and confidence the public places in lawyers, could compromise the requirements to act with honesty and integrity and not to unlawfully discriminate.

SDT decisions

Delay in paying disbursements leads to suspension

A senior partner whose firm withheld disbursements from professional suppliers for considerable periods has been suspended for a year, following an agreed outcome with the SRA.

The SDT heard the firm would have 'significantly exceeded' its overdraft facility had all the unpresented cheques been presented for payment. The partner allowed a situation to arise whereby client money was misused, and in doing so failed to run the business effectively and in accordance with financial and risk management principles.

In mitigation, not endorsed by the SRA, the partner said too much reliance was placed on key personnel to look after accounting procedures.

Decisions in sexual harassment allegations

The SRA is apparently not satisfied with the SDT’s decision in relation to the proceedings against a former Freshfields’ partner, with concerns being raised about consistency.

The tribunal fined the former partner (who resigned after the decision was announced, but prior to the sanction) £35,000, without restricting his ability to practise, finding that he acted without integrity when he engaged in sexual activity with a junior female colleague. The full reasons for the finding and decision on sanction will be set out in the judgment, which will be published in a few weeks.

Earlier in the month, the SDT ordered that a Newcastle solicitor should be suspended for 18 months for sexually harassing a junior colleague.

Last year, the SRA estimated that there would be around 25 tribunal cases related to sexual misconduct to the tribunal in 2019 and there are due to be further hearings in the next few months as prosecutions reach the tribunal.

 As we approach Christmas party season, now is the perfect time to review your policies and any guidance to staff on behaviour outside the workplace and work social events.

Solicitor who lied about passing exams struck off

A solicitor claimed that he was too scared of the environment in his office and his supervisor to admit he had lied about passing an exam which the firm had paid for. The SDT heard that the firm had funded the solicitor to attend seminars and an exam. He did not take the exam at the end of 2016 as he was not confident he would pass due to not attending some of the training sessions, but kept up the pretence that he had passed for over a year. The tribunal heard that the solicitor came up with a series of excuses for not producing the certificate. Having initially misled the firm, he could not find a way to tell senior colleagues what had happened and said he ‘panicked’ when asked to update his website biography, in which he included the qualification. 

The SDT gave the solicitor credit for offering to pay back the money to the firm and self-reporting to the SRA, but found dishonesty was proved and the working conditions were not a defence. Even if, which was not accepted, he was working in a toxic and uncaring environment, it did not excuse his dishonesty and he was struck off and ordered to pay over £9,000 costs.

Case studies

Recently we have advised our clients in relation to:

  • The firm AML risk assessment
  • Assisting in recovery of payment from insurers in relation to client account shortfall
  • Responding to SRA in relation to a complaint from a third party regarding an alleged conflict of interest
  • Successor Practice Rules in relation to a proposed purchase of personal injury files from a closing firm
  • Regulatory issues arising from proposed acquisition of a law firm in conjunction with our corporate team which is drafting the Sale and Purchase Agreement.
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