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Regulatory update - October 2020

Our latest update on compliance and regulatory issues.

Welcome back to our monthly newsletter which provides you with updates on compliance and regulatory issues, including some recent examples of issues we have helped our clients with.

We hope everyone is keeping safe and well as we unfortunately start to face the reality of a second wave of COVID-19. We have also seen some interesting debates on the importance of upholding the rule of law with government lawyers being criticised in relation to the Internal Market Bill breaching International Law albeit, they say, "in a very specific and limited way" and with the Lord Chancellor, Robert Buckland saying he will quit if he sees the rule of law being broken in a way that he finds "unacceptable". One of the fundamental principles as solicitors in the SRA Standards and Regulations is of course the duty to uphold the constitutional principle of the rule of law and Simon Davis, President of The Law Society has expressed his concern that the Rule of Law is under attack and is not negotiable. We hope that, politics aside, MPs who are solicitors will bear this duty in mind as they debate and vote on the Bill.

We have a bumper update for you in this edition covering a whole range of compliance issues but can we also refer you to our Weightmans' insights page with detailed information on a whole range of COVID-19 issues which will impact on all businesses, including law firms.

Can we also draw your attention to the 3rd edition of the Law Society’s COLP Toolkit which has recently been published, written by our very own Michelle Garlick.

Here is an update on what has been happening in compliance over the past couple of months.

Industry news

Dubious investment schemes

The SRA has issued a newly updated warning notice about becoming involved in dubious investment schemes, having reviewed a number of cases as part of a thematic project and which has led to closure of 7 firms by intervention, twenty being referred to the Solicitors Disciplinary Tribunal (SDT) and a number of others facing other regulatory action. This is a must-read for anyone involved in conveyancing as it highlights high risk factors/red flags which solicitors need to be alert to. We would also recommend that firms have an internal policy in relation to these schemes. If you need assistance with drafting, please get in touch.

AML thematic reviews

There is no sign of any slowing down of the SRA’s activity/reviews of firms’ AML processes, procedures and risk assessments so firms need to ensure that they are continuing to monitor these to ensure they are up-to-date and working effectively. We are currently working with law firms to carry out external audits so if you are interested in finding out how we can assist, please get in touch.

Cybercrime report 

The SRA has released its cybercrime thematic review warning that law firms must remain extra vigilant over the threat posed by cybercriminals as more people work from home. It warns that cybercriminals are indiscriminate and that no businesses are safe, with criminals targeting firms and transactions across all areas of legal sector. A worthwhile read to ensure that your systems and staff awareness of this important issue are up-to-date.

Financial sanctions check deadline looming

The SRA has reminded firms of the deadline of 16 October 2020 to check the latest HM Treasury Consolidated List of asset freeze targets to make sure they are not holding monies belonging to a client that is subject to financial sanctions. A report must be submitted to the Office of Financial Sanctions Implementation if you are holding frozen assets.  

SRA updates its guidance on orderly closures

The SRA, in response to the COVID-19 pandemic, has updated its guidance on how it will support firms facing financial difficulty to ensure an orderly closure. The message is understandably to engage with the SRA as early as possible.

With the 1 October PII renewal season just completed, we have been advising a number of firms who have faced difficulty in securing affordable PII cover and who sadly have had to enter the Extended Policy Period and/or are exploring re-structuring, or possible merger/acquisition options. As there are many regulatory and other issues which need to be considered, if you are in this position, please get in touch for legal, insolvency and compliance advice to ensure that all your options are carefully considered.

Compensation fund limits reduced

The SRA has confirmed that the maximum compensation fund payment to clients of dishonest solicitors will be reduced from £2m to £500,000 to reduce the financial burden on the profession. It will also stop covering barristers and other professional fees yet to be paid by their instructing solicitor. Large charities and trusts will no longer be eligible for payments from the compensation fund, and payments may not be made where the firm that caused the shortfall has indemnity insurance in place. However, it stopped short of limiting grants only to clients or beneficiaries of the legal services provided so parties on the other side of a legal matter can still make applications where it can be shown a solicitor had failed to use funds for the purpose intended to complete a transaction for their benefit.

CMA study on pricing and transparency

The Competition and Markets Authority (CMA) has launched a call for inputs into its review of the legal sector market to assess the extent to which its market study recommendations from 2016 have been taken forward and the impact that these changes have had on competition. The Law Society has been hosting discussion groups regarding the pricing and transparency rules introduced as a result of the CMA report to gauge the effectiveness of the rules/benefits etc.

The SRA has also issued a reminder of the importance of compliance with Transparency rules. COLPs should ensure that at least annually, they review pricing on their firm’s websites to ensure compliance with the rules and that the website is updated where necessary to reflect the accurate pricing information.

Practising certificate renewal period opens

The SRA latest update reminds firms that its renewal season again with the renewals window opening on 1 October through to 31 Oct.

SRA concerned over wellbeing of junior employees

The SRA has confirmed that it is investigating a number of (unnamed) firms over suspicions they are not protecting the wellbeing of their junior staff. Having been criticised for some time now over the SRA’s treatment in disciplinary proceedings of junior solicitors, Juliet Oliver, the SRA’s legal counsel, has confirmed that firms’ culture and demands on staff are being actively scrutinised.

SRA guidance

The SRA has also issued some recent guidance including the following:

Disciplinary decisions

Holding back disbursements

A former director of a struggling Manchester law firm has agreed to be struck off the roll for knowingly holding back almost £500,000 in disbursements. He also admitted failing to tell the SRA for five years that his practice was in financial difficulty.

The tribunal was satisfied that the conduct was reckless and that no reasonable solicitor of his experience and position would have acted as he did, or allowed his practice to build up such debts.

Private life sanctions

A couple of cases recently reported show the approach being adopted by the SRA in relation to misconduct arising in a solicitor’s private life. A City solicitor has been suspended for a second cocaine caution whilst another solicitor was fined £1300 for a drink-driving conviction.

Junior solicitor struck off for concealing court orders

A newly-qualified solicitor who concealed issues on a client matter for months and who felt she was ‘carrying the weight of an entire firm on her shoulders’ has been struck off.

This was another sad case where the evidence was that the newly qualified felt  ‘overwhelmed with work’, panicked when she received a number of documents needing her attention and had then purported to send emails to another firm and to her principal when she had deliberately used an incorrect email address and knew the emails would not get through. She then forwarded that email to her client in order to mislead him into believing it was sent properly.

Falsifying documents

  • A 40+ PQE Solicitor was struck off for falsifying the completion date of a transaction to avoid a late registration penalty of £100. He admitted dishonesty in what he described as an “isolated aberration” in an otherwise distinguished career.
  • Another solicitor falsified returns to HMRC to underpay Stamp Duty Land Tax (SDLT) and pocketed the difference to keep firm afloat.
  • PI solicitor struck off for forging client’s signature in order to meet court deadlines

Money laundering

  • Solicitor suspended for 15 months for dealing with matters outside of his expertise and failing to comply with money laundering obligations after getting involved in ‘red flag’ transactions with possible links to Mexican drug cartels.
  • Top-150 law firm fined for failing to carry out proper money laundering checks on millions of pounds paid into its client account when acting for overseas clients purchasing off-plan property plots.
  • “Cavalier” solicitor convicted of money laundering offences struck off. The solicitor had been instructed by a client in a property purchase and who was subsequently convicted of mortgage fraud in relation to the transaction. The client had raised the purchase funds from a commercial bank loan and from sums provided by a number of different third party sources. The solicitor was found in breach of money laundering regulations by failing to undertake appropriate due diligence for the source and origin of third party monies, with this failure facilitating a mortgage fraud and the dishonest acquisition of the property. 

Social media

Non-lawyer employee issued with s43 order preventing him from working in a law firm without the SRA’s permission for naming a client in a Facebook post, thus breaching client confidentiality, and also failing to act in client’s best interests having been found to have spent excessive time dealing with clients’ matters and recording billable time in excess of what was reasonable.

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