Regulatory update – Summer 2019
Welcome to the summer edition of our newsletter.
It’s safe to say that the introduction of the new SRA Standards & Regulations will be just around the corner once we all get back from our summer holidays. Please come and join us at one of our training seminars in September and we will help to prepare you for the changes. We are holding sessions in Manchester, Liverpool, London, and Leeds and it would be great to see you there! See our dedicated events page for more details.
AML risk assessments required for all new regulated matters
In July the Law Society published its response to the question of whether an AML risk assessment is required on every new regulated matter. It stated ‘Regulation 28(12)(a)(ii) sets out that your customer due diligence measures must reflect the level of risk arising in a particular case. A risk assessment is therefore required on every new matter. This will assist you in understanding the purpose of the transaction.’
Our view is that it is best practice to undertake risk assessments for all new clients which will help to ensure that AML obligations are applied consistently by fee earners and are not missed when files are transferred between departments. A risk assessment can be documented within a short file opening form and doesn’t have to be a time consuming process. Risk assessments are also required for existing clients in certain circumstances which should be covered in firms’ AML policies and staff training.
Only 25% of law firms’ websites are compliant with the new rules on price and service transparency
As you will be only too aware, since the beginning of December 2018, firms have been expected to display price and other key information across a range of practice areas to assist consumers in choosing between them. In its review of 447 randomly selected law firm websites, the SRA found that nearly a fifth were not compliant at all and 58% were only partially compliant.
The regulator has given the 78 firms that are not complying at all two months to do so before considering enforcement action, and those that are partially compliant have been told to add the missing information and face another web sweep. The most common failing was not displaying information on how to complain. Other areas included not specifying the amount of VAT applied to costs and not displaying information on key stages or likely timescales. The Law Society issued further guidance in August to assist firms in complying with price and service transparency.
Solicitors Disciplinary Tribunal (SDT) expects increased caseload in 2020
Time will tell whether the number of solicitors being struck off or sanctioned in other ways will increase following the introduction of the new civil standard of proof at the end of the year, but the SDT has confirmed that it expects the number of cases referred to it to increase sharply.
This is probably not good news for those who are critical of the current disciplinary regime which sees solicitors struck off more regularly than those in other professions. 2018 saw 80 solicitors struck off with the ultimate consequence likely to be the end of their legal careers. The SDT’s annual report confirms that extra training on the new standard will be provided to tribunal members and clerks, so we would hope that serious sanctions will continue to be applied only when it is fair and necessary to do so. The report also confirms that tribunal staff have received extra training to deal with vulnerable witnesses ahead of an expected increase in the number of sexual misconduct cases.
Effective complaints procedures work!
The SRA has revealed that the proportion of complaints about poor service resolved internally by law firms without reference to the Legal Ombudsman has passed 80% for the first time. The figure rose from around 19,000 in 2012 – the year when figures were first collected - to over 22,800 in 2018. The data suggests that larger firms are more likely to resolve a complaint, which the SRA considers is probably due to them having the resources to deal with complaints. Our view is that having a well thought out Complaints Policy that is followed whenever a complaint is received is key to early resolution, minimising costs and preserving a firm’s reputation.
Is a big shift in the way solicitors work on the horizon?
Interesting times lie ahead as the ways in which solicitors can work will open up for those who do not want to be part of a traditional law firm. The new Standards & Regulations will come into force on 25 November 2019 and will introduce a new category of solicitor called independent solicitors who will be able to work freelance. A recent SRA guidance note suggests that they could join forces in set-ups similar to barristers’ chambers where the chambers provides administrative and business support, or they could see clients from a ‘maintained office’ where the host provides reception and other administrative and secretarial services.
SRA aims for more transparency
In a news release, the Chair of the SRA, Anna Bradley, set out her plans to make sure its board is working in an open way and is accountable to its core stakeholders. The papers for the SRA’s July board meeting have shed further light on the new measures, including the use of social media to enable real-time reporting from board meetings and a new landing page on the SRA website to guide people to new content. The SRA will also publish a statement setting out how it is accountable along with a transparency policy and decision-making framework. More in-depth board meeting minutes will also be published.
The Legal Services Board (LSB) had previously raised concerns about the lack of transparency at the SRA following the closure of its board meetings to the public and press. Whilst the drive to improve transparency will hopefully give more insight into the inner workings and decision making processes at the SRA, it remains to be seen whether the LSB will be satisfied that enough is being done.
Two solicitors have been fined £10,000 each plus costs of £11,800 on a joint and several basis following various failures in the running of their firm including making payments from client account for disbursements when there were insufficient funds, making incorrect payments from client account, failing to carry out proper reconciliations of the client account meaning that shortages were not identified and failing to maintain properly written up accounting records. They were also found to have paid prohibited referral fees and had failed to provide clients with accurate information regarding the financial/other interests of referrers. Unsurprisingly, the respondents were also found to have failed to carry out their roles as COLP and COFA adequately.
The result could have been worse for the respondents had it not also been found that accounts rules breaches were primarily the result of sloppiness with no loss to individual clients and payments of prohibited referral fees were not done with specific intent and had not involved a breach of trust. The respondents also made good the shortages on the client account and had taken steps to ensure future compliance.
Restoration to the roll refused for solicitor struck off in 1995
The applicant was struck off the roll in 1995 having been found guilty of failing to maintain properly written up books of account, placing his own funds in client account, using client funds for his own purposes and drawing funds from client account otherwise than in accordance with the rules. Whilst the applicant had not been struck off for dishonesty, his actions were serious and had resulted in a £73,000 payment out of the Compensation Fund. In addition, on two occasions he had worked without the approval of the SRA and had failed to disclose to one firm that he was a struck-off solicitor which resulted in a criminal conviction.
Whilst the SDT commended the applicant’s charitable work, they decided that he had not demonstrated rehabilitation and had shown a reckless disregard for the rules on more than one occasion. It was not therefore appropriate to restore him to the roll.
Solicitor used client monies to prop up firm
A solicitor found to have been withholding funds totalling £69,000 that should have been used to pay disbursements including counsel, experts and others has been struck off and ordered to pay £9,000 in costs. The funds were used to support the firm which was closed down following the SRA’s investigation. The solicitor had a history of breaking the Solicitors Accounts Rules, having been prosecuted in 2009.
Solicitor struck off for misleading court, insurer and regulator
A solicitor who lied to potential insurers on an application for judicial review and followed this up by lying to his regulator to avoid disciplinary action has been struck off. He was also found to have filed false medical evidence and an inaccurate witness statement in order to secure an adjournment of disciplinary proceedings. In 2009 the solicitor had also received a severe reprimand as part of a regulatory settlement with the SRA, but he failed to declare that in a proposal form sent to insurers. He claimed that he believed that the information he gave to the insurers was true, which was rejected by the SRA. He was also ordered to pay £35,667 in costs.
Solicitor suspended following backdating and fabricating documents
A solicitor has avoided being struck off and instead has been suspended for nine months and ordered to pay almost £7,000 in costs after charges of dishonesty were dropped against him. The solicitor had instructed his secretaries to fabricate and backdate a number of letters, attendance notes and other documents. One worker was instructed to create as many as 41 documents after a file was requested by a firm of solicitors who had taken over the case. A further 11 documents were created after a file (for which there was no paper copy) had been selected for a Legal Aid Agency audit. It was not alleged that the documents were false, or that the events did not occur. The SRA accepted it was a case of putting the file in the order it should have been and the tribunal accepted that the motivation was to satisfy the audit process and senior partners. There had been no financial advantage to anyone and no client was disadvantaged.