Regulatory update - October 2018
I have been busy over the past month speaking at a number of conferences on topics including GDPR, the SRA Handbook changes and the COLP’s role…
I have been busy over the past month speaking at a number of conferences on topics including GDPR, the SRA Handbook changes and the COLP’s role under the new Handbook. In preparing for the COLP talk, I came across a You-Tube recording of Gilbert and Sullivan’s Pirates of Penzance and specifically the song A Policeman’s Lot is not a Happy One (happy one) so I played it at the conference to provide what I hope was a bit of welcome relief and humour for those responsible for such an important role. At the conference, I asked if anyone enjoyed being the COLP – only one hand went up in an audience of over 100! In a further survey, the vast majority didn’t know yet whether the planned SRA changes would make their life as COLPs easier or harder. Only time will tell but I remain to be convinced that time and cost is going to be saved as the SRA suggests. The LSB has extended the time it needs to consider the proposals until 5 November so we will know after that what will need to be done to prepare for yet another regulatory change. You never know, you might even get some helpful tips from the SRA at the COLP/COFA annual conference on 11 December, the registration for which is now open. If not, rest assured my Compli team will be on the road delivering training either face to face or via e-learning so do get in touch to discuss how we can help. Here is an update of what’s been happening in the past month or so:
Caution urged following £7m fraud
The SRA has advised Solicitors to thoroughly investigate the credentials of individuals approaching firms to offer business expansion. This warning follows two recent reports made to the SRA in which fraudsters approached law firms offering to expand the services they offered, with the sole intention of infiltrating the practice in order to defraud clients. These incidents have led to losses potentially exceeding £7 million for the firms involved. Fraudsters of this nature often target smaller firms and offer unusual proposals (such as the payment of a ‘salary’ to the partners) The SRA makes a number of suggestions regarding the carrying out of due diligence to ascertain if potential new colleagues are genuine. These include:
- Getting as much verification as possible from third parties such as banks and other professional firms. One check or reference from another firm is unlikely to be sufficient
- Internet searches
- Checks on official websites such as the SRA website and those of other regulators
Solicitors advised to check frozen asset list
The SRA has urged solicitors to check the ‘HM Treasury frozen assets review’ to ensure that they are not holding funds on behalf of a client who is the subject of financial sanctions. Anyone holding such assets has until 12th October 2018 to submit a report to the Office of Financial Sanctions Implementation (OFSI). The regulator’s Executive Director Crispin Passmore noted that becoming a “professional Enabler” is a very real risk for all solicitors and firms of all sizes.
Incoming changes to the insurance distribution rules
The SRA’s amendments to the Regulatory Arrangements (Insurance Distribution) Rules take effect from 1 October 2018 and implement the requirements of the EU Insurance Distribution Directive. The firms affected will primarily be those firms dealing with PI, conveyancing and probate. The SRA has said that it will continue to develop guidance in relation to the changes but in the meantime check out the Compli guidance note or get in touch.
In disciplinary news:
A solicitor who instituted a practice of “gross overcharging” in clinical negligence cases has been fined £30,000 by the Solicitors Disciplinary Tribunal (SDT). Rapid Response Solicitors set standard charge-out rates in its conditional fee agreements of £400 an hour (even for unqualified staff) and imposed a 100% success fee. The charging structure had drawn significant criticism from costs judges and also appeared in the national press, with the Sunday Times reporting the firm’s costs of £83,000 for a claim where damages were just £1,000. The SRA are also looking to recover costs in the region of £300,000 which are now subject to detailed assessment.
A partner who misled PI clients and his firm to show his department “in the best possible financial light” has been fined by the SDT. Musharaf Asharaf admitted to “making payments from cash-rich to cash-poor cases in order to disguise the true financial position on those files” and avoid scrutiny from partners in the firm who he considered to be opposed to the firm engaging in PI work. The SDT found that, as an “experienced solicitor”, Mr Musharaf had acted with a lack of integrity whether or not he intended to break the rules. He was fined £5,000 and ordered to pay costs of £17,200. The SDT also imposed conditions preventing him from practising as a sole practitioner, partner or member of an LLP, COLP or COFA.
An immigration lawyer who “wrongly claimed” £800,000 from the Legal Aid Agency (LAA) has been struck off by the SDT following a file review. The LAA accused Ziadies LLP of gross over-claiming for both disbursements and profit costs and stated that “billing sheets bore no resemblance to the record of work done on the files”. Ms Abeyewardene (the sole member of Ziadies LLP) admitted submitting claims to the LAA in immigration matters which she knew to be incorrect leaving her in breach of SRA Principles 2 and 6. The SDT said her improper claims had taken place over a three-year period and involved “at least £800,000 of public funds being wrongly claimed”. Although she had repaid the £800,000, they considered that the damage to the profession was severe. She was struck off and ordered to pay £17,200 in costs.
A solicitor who sought to keep a longstanding funder client happy at the expense of a litigation client has been struck off and ordered to pay costs of £35,700. In 2011, Mark Harvey Lorrell facilitated a longstanding client ‘S Ltd’ lending ‘Ms C’ (another client) £300,000 to help her continue High Court litigation. The short term loan was provided at an interest rate of 56%. Mr Lorrell argued that there was no conflict of interest between S Ltd and Ms C as the clients had a common interest in winning the case. However, the SDT found that there was a conflict as the clients had inherently different interests, stating that “The interests of Ms C were to obtain funding to take her litigation forward and win it, S Ltd wished to lend at a profit and be repaid”. Having previously been suspended for the breach of various accounts rules, the SDT considered that a further suspension would not prevent Mr Lorrell from acting in the same way again. They also found his behaviour to be “a classic example of a solicitor departing from the complete integrity, probity and trustworthiness expected of a solicitor”. He was struck off and ordered to pay £35,700 in costs.
Landmark Privilege Case
The protection afforded by professional privilege received a boost this month from a highly anticipated ruling. An appeal court ruled that in house legal advice prepared prior to court proceedings is protected by privilege to the same extent as advice given in defence of such proceedings. The original High court ruling in Director of the Serious Fraud Office v Eurasian Natural Resources Corporation proved damning for the in house legal community as the court held that a business under investigation by the Serious Fraud Office should turn over materials prepared for an earlier internal investigation. The Law Society (who intervened in the appeal) were delighted by the ruling, describing it as “a boost for the principle of lawyer-client confidentiality.”
Price Transparency in the Legal Profession
In the lead up to the price transparency rules coming into effect in December, recent research from both the SRA and the Bar Standards Board has revealed unexpected findings concerning price transparency within legal services. The SRA found that smaller businesses are actually less price sensitive than expected but do value price certainty (and not necessarily just fixed fees). The Bar Standards Board reported that the introduction of price transparency in certain areas of the Bar may be less arduous than initially anticipated but has expressed a “commitment to price transparency” by only making chambers’ websites tell clients that they can contact the set for a quote – a clear difference to the requirements being imposed on those regulated by the SRA!
A reminder that the SDT consultation on whether the burden of proof in disciplinary proceedings should be changed from the criminal to the civil standard closes on 8th October. This will be discussed at our next COLP and COFA forum to be held at Weightmans’ Manchester office on 3rd October between 8.30 and 10am. Thanks also to those who attended the consultation meeting to discuss the SRA’s reporting concerns consultation. A response will be submitted in advance of the deadline of 27 September.
See you next month!