Regulatory update - Spring 2021
Our latest update on compliance and regulatory issues.
Welcome to our Spring bulletin. Life is looking a little bit more normal and hope and excitement fill the air. Forward thinking is certainly important in these times and with our regulatory bodies looking towards the future of the legal services market, here is an update on recent regulatory developments.
Will there ever be an update that makes no mention of anti-money laundering (AML)? In its recent webinar, the Solicitors Regulation Authority (SRA) again confirmed its rolling programme of thematic reviews (to include those firms now within scope as they come under the definition of ‘tax adviser’), requests for information and visits to firms in relation to risk assessments, PCPs etc., and the requirement for independent AML audits.
In a recent Solicitors Disciplinary Tribunal (SDT) case, a firm was fined £10,000 for failing to have in place a documented AML risk assessment, failing to train employees on AML and failure to conduct any or adequate due diligence. The admitted misconduct was too serious for no order to be made, but not so serious that an order revoking recognition of the firm was appropriate. There was limited financial gain to the firm and no reported loss to clients, so a fine was considered proportionate.
Hardest PII market for 20 years
Expert brokers are predicting that the profession is facing the hardest professional indemnity insurance (PII) market since the closure of the Solicitors Indemnity Fund (SIF) more than 20 years ago and have warned that insurers are seeking personal guarantees and demanding that policy excesses be paid into escrow. There is clear discontent with the SRA’s Minimum Terms, which requires insurers to pay out on a claim even if the firm hasn’t paid its premium/run-off cover, and brokers are advising firms with an October renewal date to start preparing early.
The SRA is asking for feedback on a proposal to add a clause making cover for cyber losses explicit in the minimum terms and conditions of PII cover, so that it is clear what is/is not covered in the event of a firm being the subject of a cyber-attack. The SRA reports that cybercrime accounted for £2.5 million of reported losses to firms in the first half of 2020. The consultation closes on 24 May.
SRA technology and innovation survey
In independent research to be carried out by the University of Oxford, a survey will be sent out on behalf of the SRA to every law firm asking about their use of technology and innovation, particularly during the pandemic, to be followed by wider research and interviews, with the ultimate aim to find out what has worked and what will be used in the future, and to amend regulations to reflect that, possibly including removing some regulatory barriers.
Witness statement changes in the Business and Property Courts
The recent changes to the preparation of witness statements signed on or after 6 April 2021, for use at trials in the Business and Property Courts, may bring with them increased risk of claims and reputational issues.
Failure to comply with the rules could result in the witness statement being struck out or redrafted, adverse costs orders being made and witnesses ordered to give evidence in chief orally. There could also be reputational risks for the signing ‘relevant legal representative’ which, in turn, could have a wider impact for the firm, in relation to potential claims, additional supervision requirements and, potentially, regulatory sanctions, so firms need to be aware of the changes and take the appropriate steps.
Non-UK resident SDLT surcharge
From 1 April 2021 an additional 2% surcharge will be applied on existing Stamp Duty Land Tax (SDLT) rates to freehold and leasehold properties in England and Northern Ireland purchased by non-UK residents, which will also apply to some UK companies controlled by non-residents.
This could be another concern for conveyancers, on top of the pressure arising from the SDLT ‘holiday’ and firms should ensure relevant clients are advised of the changes at the start of the retainer and in advance of completion.
Struck off for forging colleague’s signature
A junior solicitor has been struck off for forging a qualified solicitor’s signature on a number of conveyancing documents, which included undertakings, during her training contract. She admitted she had signed the documents in the licenced conveyancer’s name, but the SDT did not accept her claim that she was authorised by her colleague to do so, or that she believed she could replicate a signature. The Tribunal decided that even though the character evidence indicated she would be a successful solicitor, her actions showed a clear lack of integrity and was dishonest. She was struck off and ordered to pay costs of £15,686.
The decision is being appealed, so watch this space. This is the second report of an appeal being made by a junior solicitor against strike off in as many months, the first being made possible following the raising of funds through crowd-funding.
Feeling the pressure
Two recent SDT decisions have highlighted that feeling under pressure at work is not a mitigating circumstance for acting dishonestly and in a manner which directly contravenes the SRA’s Code of Conduct.
In one case, a partner of a national firm misled a client regarding the payment of a settlement sum of £38,000 in relation to a litigation matter. The client had been promised the money would arrive imminently over a number of months, but initial contact hadn’t even been made with the other party. The client complained and both the partner and the firm reported the issue to the SRA, two days before the partner resigned. At the SDT, it was heard that the partner had also made misleading statements regarding payment to a previous client. The partner’s mitigation was that he felt under “extreme pressure” at work and as a senior member of the firm, he couldn’t explain his problems to anyone. He was also having personal and medical difficulties during the period of misconduct. The partner agreed to be struck off and pay costs of £4,600.
In the second matter, a recently-qualified solicitor faked a decree absolute, certified a copy of the document and misled her client to believe that his divorce was completed, as well as having him pay fees of £1,630 into her personal bank account, informing the client that the fees were going to be paid to the firm. When she became aware that the client had discovered that there was no record of his divorce, she telephoned the client to insist that the decree absolute was a true document and she should be trusted as his legal representative. It was also found that another client had paid fees directly to the solicitor’s personal bank account, following the creation and issue of fake invoices. The solicitor’s mitigation was that she was worried about losing her job due to being overwhelmed by her workload. Her firm denied that she couldn’t manage her workload and claimed that she was well supported. The solicitor agreed to be struck off and pay costs of £5,000.
Strike off avoided where lie told when ‘blinded by panic’
The SDT said there were exceptional circumstances and spared a newly qualified solicitor from strike off, despite her admitting dishonesty, taking the view that such a sanction would be disproportionate. She told a litigant in person that an email, which included sensitive data, must have been blocked by a firewall, when she had actually sent it in error to a third party. Within an hour, she admitted what she had done, the matter was reported to the SRA and ICO and her employer gave her a first written warning. In an agreed outcome, approved by the SDT, the SRA said the misconduct was ‘a moment of madness’, she had admitted it almost immediately and there was no evidence it would be repeated. She was suspended for 6 months and ordered to pay £5000 costs.
Reeling in a lawyer
Unfortunately, as we are only too aware, solicitors are not immune to phishing attempts. A senior solicitor, with 50 years PQE, has been fined £10,000 and costs of £16,000 for paying £290,000 of conveyancing proceeds to a third party, and multiple solicitor accounts rules breaches as a result of relying on handwritten methods and inadequate processes. In relation to the email fraud, the solicitor had received an email asking him to transfer the money to a different bank account. He replied by email asking for telephone confirmation but then relied upon an email response confirming he should use the new details. The SDT accepted he had taken steps to remedy the breaches, co-operated with the SRA investigation and previously had ‘a long unblemished disciplinary record’. A salutary reminder to ensure all necessary checks are undertaken before parting with any funds.
Reaction to a complaint
The SDT recently fined a solicitor £10,000 as a result of his behaviour following a complaint to the SRA. The solicitor had been informed of a client complaint made against him, called the client and was abusive, using rather “colourful” language, whilst attempting to have him withdraw the complaint. The solicitor claimed that his reaction was due to fearing a loss of his livelihood as a result of the complaint and that he was unwell at the time of the telephone call, which impacted on what he said. The solicitor agreed with the SRA that someone acting with integrity would not have had such a conversation with the client who had made the complaint and the investigation should have been able to proceed without such interference.
Drink driving conviction not an automatic breach of principle
The SDT has ruled that a solicitor convicted of drink-driving did not automatically undermine public trust and allowed an appeal in part against a fine of £2000 imposed by an SRA adjudication, reducing it to £600. The solicitor failed to notify the SRA of the conviction, moved abroad for a couple of years and on his return successfully applied for a practising certificate without declaring his conviction. He then self-reported it two months later, but did not declare it when renewing his practising certificate some time later on the basis that he thought the conviction was spent. The SRA adjudicator found he had breached principle 6 of the SRA Principles 2011 (behaving in a way that maintains the trust the public places in you and in the provision of legal services), and principle 7 (co-operating with the regulator). The tribunal found that on the balance of probabilities the approach to deciding there had been a breach of principle 6 was wrong, but upheld the decision in relation to a breach of principle 7.
Recently we have been advising firms on a range of issues, including:
- Responding to a SRA Notice recommending referral to the SDT
- Independent AML audits
- Risk and compliance audits
- Regulatory advice in relation to sale of part of a business
Are you monitoring the adequacy and effectiveness of your anti-money laundering policies and procedures? Find out more about our Compli anti-money laundering service and how we can help.