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Regulatory update – September 2019

While many have been enjoying a relaxing summer break, the world of risk and compliance continues to turn and the clock continues to count down to the…

While many have been enjoying a relaxing summer break, the world of risk and compliance continues to turn and the clock continues to count down to the introduction of STaRs (as the new SRA Standards and Regulations are being referred to!) on 25 November.

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

ICO timescales for responding to a subject access request amended

The ICO have updated the guidance on timescales for responding to a subject access request, as well as other individual rights requests. The day of receipt becomes ‘day one’, rather than the day after receipt, and the time limit should be calculated from the day the request is received (whether it is a working day or not) until the corresponding calendar date in the next month e.g. the deadline for responding to a SAR received on 3 September is 3 October. As a reminder, if the corresponding date the next month is a weekend or bank holiday, the deadline is the next working day, and where the following month is shorter, the deadline is the last date of that month e.g. a request received on 31 May will have a deadline of 30 June. When updating your policy, you may want to consider key dating responses for 28 days in any event, possibly from ‘satisfaction as to identity of requestor’.

SRA struggling to recover costs

The SRA is struggling to recover costs awarded at SDT hearings. Whilst costs being spent on successful cases are at an all time high, the SRA is owed more than £21 million in costs from individuals or firms it has prosecuted. Over the past three years there has been a continuous shortfall between costs awarded and costs recovered. This is leading some to question whether the SRA disciplinary approach is proportionate.

In light of the changes to the burden of proof, which may result in an influx of referrals and more prosecutions, lawyers are right to be concerned about the mounting costs incurred. From November, it is likely to be even more important for the SRA to strike the right balance when deciding to prosecute cases and ensure their response is proportionate.

Law Society issues guidance for regulation and compliance in property practice

The recently published guidance provides an overview of the main regulation and compliance issues that solicitors working in property need to be aware of, including: price and service transparency; conflicts; client funds; consumer protection regulations; confidentiality and disclosure; AML; fraud and tax avoidance, and provides links to relevant practice notes, Law Society and SRA guidance etc. While there is nothing ‘new’ in the guide, it will be useful to practitioners to have the information in one place. Hopefully, this may be the first of many such guides, particularly as we approach the ‘brave new world’ of Standards and Regulations.

Run-off cover after SIF closes

With only 12 months to go until the SRA closes SIF, solicitors in firms which have closed without a successor practice are being warned to give “careful thought” to buying additional run-off cover. Under the minimum terms and conditions (MTCs), solicitors are required to buy six years of run-off cover when closing a firm with no successor practice, and SIF has, until now, covered any claims which arise after then. Once SIF closes, no future claims will be handled or paid and solicitors of closed firms will be liable for any claims. While there is a mandatory requirement under MTC to provide run off, insurers are not obliged to provide additional cover beyond the six years. As a first step it would be worth confirming what cover your previous firm had and consulting your current insurance provider to see if they would offer additional protection against these claims.

Law Society produces NDA guidance

The Law Society has published a guide to inform the public about NDAs which will be made available through organisations such as Citizens Advice. This guide advises employees asked to sign a confidentiality agreement to get a solicitor to help them understand precisely what they are agreeing to and what their rights are. The Society is reviewing its NDA practice note of January 2019, following a recommendation from the House of Commons women and equalities committee in its June report on NDAs in discrimination cases. The updated version is expected at the end of the year.

Judge warns against solicitors providing secondary evidence

A High Court judge has warned against solicitors providing secondary evidence in the form of witness statements that are irrelevant or badly sourced. A statement was drafted by a defendant lawyer in response to an application for summary judgment, and the judge made clear that, as a general rule, evidence should be given by a witness who has first-hand knowledge of the events in question. However, he accepted in some cases it was convenient for evidence to be provided by the party’s solicitor based on instructions. In this instance, the solicitor had made assertions of fact “he could not possibly know about without stating the source of his information”. The Master said: ‘If a party chooses in response to an application for summary judgment, or indeed any application, to provide evidence through a solicitor, strict compliance with the CPR is required if that party is to avoid the risk that limited, or possibly no, weight is given to the evidence.’

Solicitors ought to be mindful when filing any witness statement that the contents are within their knowledge or properly sourced. Failure to do so may result in the witness statement being struck out. This will not only have a negative impact on the case for the party in question, but is likely to reduce the credibility of the solicitor in the eyes of the client, opponent and the court, and could, depending upon the circumstances, result in referral to the SRA.

SDT decisions

Solicitor struck off for misleading SRA, despite being cleared of all substantive charges

A solicitor has been struck off by the SDT, despite being cleared of all substantive charges against him, as a result of misleading the SRA during its investigation. The SDT found that the solicitor had made ‘flatly contradictory statements’ and must have known that some were untrue, and he had, accordingly, knowingly misled the SRA. The SDT were critical of his “vague and hesitant evidence”. He was struck off and ordered to pay costs of £35,500.

His partner was also cleared of multiple allegations, but admitted to an additional five, including conducting reserved legal activities for over 18 months when she was not authorised to do so and without proper indemnity insurance. However, the tribunal said she had not been dishonest because she genuinely and transparently believed she could practise as she did, and found her to be “a credible witness generally” who provided “immediate, open, credible, cogent and clear answers to questions”. She was given a one-year suspension, suspended for two years if she complied with conditions on her PC, preventing her from being a sole practitioner, partner, or compliance officer or working as a solicitor without SRA approval. She was ordered to pay costs of £42,200.

Full co-operation with the SRA, demonstrable insight and early admissions pay dividends

A solicitor who admitted to the SRA that a funding arrangement showed signs of being ‘a dubious scheme’; acting recklessly; failing to adequately monitor the firm’s funding arrangements, and submitting an application to the SRA containing misleading information, has been fined £25,000 by the SDT and banned from being sole signatory on any client or office account for three years. According to the Judgment on an agreed outcome, the SDT found the ‘very serious’ misconduct was ‘aggravated by his recklessness’ but noted, in mitigation, that the misconduct did not put client money at risk and he had fully co-operated with the SRA, shown demonstrable insight and made early admissions.

PI solicitor successfully defends allegation of dishonesty

A personal injury solicitor, reported to the SRA by the defendant’s solicitor, accepted that he got dates wrong on correspondence and had not succeeded in persuading a court that his witness statement was true, but denied misconduct, and was cleared after a two day SDT hearing.

The SRA alleged that he filed a witness statement which contained untrue or misleading information and then sent a letter to the solicitor with untrue or misleading information about the witness statement. Both allegations were advanced on the basis that his conduct was dishonest.

The tribunal said the allegations required the SRA to prove not just that he made a mistake, but that he acted deliberately. The prosecution was unable to prove beyond reasonable doubt that his witness statement to the court was any more than a ‘slip’. It was found that breaches of directions were technical breaches and did not amount to professional misconduct. Allegations of dishonesty were not proven. The SRA applied for costs of £18,122, saying the case had been properly brought, which was opposed by the solicitor who made his own application for £30,000 costs. The tribunal made no order, leaving each side to pay their own costs. 

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:

  • CFA and DBA agreements
  • Successor practice rules
  • Issue arising where client company no longer had a bank account to receive payment of loan monies.
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