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Regulatory update – October 2019

Hopefully you are all ready for the new SRA Standards and Regulations (STaRs) and Accounts Rules which will come into force on 25 November. There is…

Hopefully you are all ready for the new SRA Standards and Regulations (STaRs) and Accounts Rules which will come into force on 25 November. There is no grace period so you and your firm will need to take steps to prepare for the changes if you have not already done so. We still have places available on our last couple of seminars in Newcastle on 4 November and Cambridge on 6 November. We hope to see you there!

If you feel your firm would benefit, we can also deliver training at your offices – please get in touch to discuss this.

Standards and Regulations resources launched by the SRA

On 12 September the SRA launched a new 'one stop shop' web page aimed at providing solicitors and law firms with access to resources designed to help them to prepare for the introduction of the STaRs on 25 November. The new web page includes 'Key New Guidance' within which you can find sections containing 'Authorisation guidance', which includes several subsections for firms and individuals, and 'Other guidance’, which includes subsections on various issues such as equality, diversity and inclusion, client care letters, acting with integrity and representing people who lack mental capacity.

In response to concerns raised by solicitors in relation to the implications of new Solicitors Accounts Rule 10.1, the SRA has also published ethics guidance on its position on firms operating a client’s own account. Rule 10.1 states that if a firm is operating a client’s own account then they must, amongst other things, obtain relevant bank statements and carry out reconciliations every five weeks. The guidance acknowledges that not all law firms will keep ledgers for a client’s own account and will not have access to monthly bank statements in order for reconciliations to be carried out at least every five weeks. It confirms that the SRA will not regard firms as being in breach of the SRA Accounts Rules if they cannot meet these requirements but take reasonable steps to record and satisfy themselves that clients’ money is not at risk.   

All of the new guidance becomes effective on 25 November 2019. You can access the new web page now.

Law Society guidance notes

September was also a busy month at the Law Society with various guidance notes being released. Some are aimed at those who may be considering new ways of working as a solicitor that are permitted by the STaRs including working freelance or within a business not regulated by a legal services regulator.

Guidance has also been published on the seemingly always hot topic of Property Fraud in response to the ever-increasing and changing ways criminals target property. The note includes information on the techniques used by criminals, the different types of property fraud, warning signs, recommended due diligence and advice on how property fraud can tie in with money laundering. It is a must read for those who deal with property transactions.

Disciplinary decisions

Importance of compliance with terms of authorisation and notifying the SRA of relevant changes

The SDT has ordered that a solicitor should be struck off for providing misleading information to the SRA in respect of a formal response provided during an investigation.  Perhaps of more interest in this case is the fate of the second respondent, which should serve as a warning to all to ensure that the SRA is notified of material changes that affect a firm and that firms strictly comply with the terms of their authorisation. 

The second respondent was suspended from practice for 12 months, suspended for two years, subject to compliance during that period with a restriction order preventing her from being the owner or manager of a firm, after she was found to have breached the SRA Authorisation Rules 2011 in that she had failed to notify the SRA of a material change at the firm, namely that the first respondent had become a director. The SRA was eventually notified of the change just under 12 months after the event.

The second respondent had also conducted reserved legal activities when not authorised to do so and without adequate professional indemnity insurance in place. She was also responsible for a website relating to consultancy and mediation services which contained misleading information giving the impression that that company was authorised and regulated by the SRA when it was an unregulated company. She avoided being struck off because it was found that she had not deliberately misled the regulator; the breaches, although significant, had been inadvertent and there had been no finding of dishonesty or lack of integrity. 

In addition to the heavy sanctions imposed, the first respondent was ordered to pay costs of £35,474 and the second respondent was ordered to pay costs of £42,228.

Duplicate expenses claim

The SDT ordered that a solicitor who had submitted duplicate receipts and claims for taxi journeys to his employer should pay a fine of £2,500. It was agreed between the parties by way of an agreed outcome, and accepted by the SDT, that, while the respondent’s misconduct had arisen as a result of errors, members of the public would not expect a solicitor to duplicate claims for expenses, nor would they expect the claims to be made against the wrong client’s file. The respondent had therefore failed to behave in a way that maintains public trust. There was no order as to costs.

Fine for misleading the court

A solicitor who made untrue statements to the court that the solicitor acting for his opponent in a personal injury claim had agreed an extension of time to file and serve a defence has escaped with a fine. Notwithstanding that the respondent had included untrue and misleading information in his file which he knew or should have known would be relied upon by his employer/colleagues as confirmation that he had agreed an extension to file and serve the defence, and this had led to inaccurate statements being made to the court, it was accepted that the respondent’s misconduct was as a result of an error on his part. It was found that the respondent had been frank and open from the outset and that, while his conduct had caused harm, the impact was minimal since matters had been settled prior to trial. The respondent had a previously unblemished career and had displayed genuine insight into his conduct. He was fined £5,000 and ordered to pay costs of £7,000.

The standard of proof is to change from beyond reasonable doubt to the balance of probabilities from 25 November 2019. The cases reported above may have had different results if they had occurred after November.

Case studies

Recently we have advised our clients in relation to:

  • The ethics culture at firms by reference to our bespoke Ethics Barometer
  • Advising on changes required to clients’ policies to adapt to the STaRs
  • Undertaking onsite Compliance Audits
  • Advising on the departure and replacement of a COLP
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