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Regulatory update — Summer 2021

Our latest update on compliance and regulatory issues.

Welcome to our latest update on regulatory and compliance issues, which is dominated by PII and AML news. Summer is in full swing and the school holidays are upon us. Hopefully you will all manage to get a break and enjoy some sunshine if possible, be it with a staycation or a vacation. Whilst the world still feels a little like Groundhog Day there are changes that we all must keep up to date with, so grab a coffee and get comfy for this update!


On 9 August, the SRA wrote to the COLPs of approximately 8000 firms asking them to declare by 27 August that their websites are compliant with the SRA Transparency Rules. The rules apply to all firms, not just those who fall into scope for publishing prices, as all firms must have its complaints procedure, SRA number and display the SRA digital badge on the website. If you have any concerns regarding whether your website complies, please get in touch. Those firms without a website must complete the declaration to confirm this is the position.

The SRA have imposed sanctions for non-compliance, so don’t miss the deadline.

Reprieve for SIF as closure postponed for further 12 months to 30 September 2022

Major news has been the announcement by the SRA confirming it has agreed to extend the SIF for another year. This will be welcome news to the Law Society and the profession as a whole, especially those solicitors who have retired from practice but who potentially faced exposure for historical claims post-closure of SIF. The Law Society has urged the SRA to act quickly and come up with a solution and the SRA has confirmed that it will consult on next steps including alternative indemnity and a “hardship” fund. We will of course keep you updated.

PII premiums hike

Any firm who went through PII renewal in the Spring will be well aware of the tough market we are now in and the significant increases in PII premiums being sought by insurers. According to a report issued by brokers, Lockton, even “claim-free” firms have seen an average increase of almost 23%, whilst across all firms, premiums increased by an average of 27.3% The prediction is that these difficult conditions are likely to continue for some time to come with rates expected to continue to rise for the October renewal season. Conveyancing work and probate are the main practice areas giving rise to increasingly costly claims and firms are being encouraged by the Law Society to “take steps to review their risk management practices and ensure these are adequate to avoid all but the most improbable claims”. All firms where renewal is due on 1 October need to be preparing early to ensure that the best picture possible is presented to insurers of the work they do and their risk management processes. Compli can assist with risk reviews so don’t hesitate to get in touch if you need help.

Cracking down on AML

The SRA has announced that it has fined more firms for failing to fulfil the anti-money laundering obligations and not completing the AML declaration by January 2020 as required. The firms have been fined £800 each and ordered to pay £600 in costs. This is the second group of fines announced, following the SRA’s confirmation in June that it had sanctioned six firms for not confirming they had carried out a firm wide risk assessment as required. It is unlikely that this will be the last such announcement of similar sanctions, the SRA having confirmed last year the intention to carry out thematic reviews and visits to all firms within scope of the regulations, and visiting every high-risk firm on a rolling basis every three years. At a recent webinar, the SRA Director of Money Laundering confirmed that the latest thematic review, relating to MLCOs and MLROs, had just started and they would be reporting on it at the Compliance Officers conference in November, firm visits were ongoing and there were currently approximately 200 live AML investigations.

As advised previously, if you are in scope of the MLR, you need to make sure you have carried out, and regularly reviewed, your firm wide risk assessment, AML policies, controls and procedures are up to date and being followed, training is provided to all relevant employees, and an independent AML audit has been carried out. Get in touch for a quote if you need help understanding your obligations and carrying out the independent audit.

Law Society issues guidance on post-lockdown supervision of junior lawyers and trainees

Many firms will be looking at hybrid working models in the hope of retaining some of the best bits from the extended period of home working. In anticipation, the Law Society has issued guidance setting out good practice for firms to take into account when deciding working arrangements, with a view to ensuring that junior staff and trainees are appropriately supervised and supported when working remotely.   Whilst not mandatory, the guidance contains useful information on remote working, wellbeing and working patterns amongst other things, and will assist law firms in complying with regulatory requirements regarding supervision.   

Disciplinary Decisions

Ignoring suspicious claims

A solicitor has been fined £35,000 with conditions imposed on his practicing certificate after failing to undertake adequate identity checks on clients which would have highlighted that personal injury claims being brought were potentially fraudulent. Whilst the solicitor’s argument that the pattern that suggested fraudulent claims could only be seen in hindsight was rejected by the SDT, it decided that a suspension or strike off would not have been proportionate because, although the solicitor had acted recklessly and with a lack of integrity, it was not severe enough to warrant action for protection of the public. 

Keep an eye out

Two directors of an ABS have been fined £10,000 and £5,001 for failing to oversee an office where a £3.3 million of property fraud was carried out by a partner and a person who passed herself off as a solicitor, using the name of a genuine solicitor. Both directors were located in an alternative office elsewhere in the country, whilst the alleged fraud was carried out in London. The London partner opened separate bank accounts, was sole signatory and the directors, one of whom was HOLP and HOFA, did not have access.

Lack of due diligence

A firm who acted for a fraudster posing as a homeowner has been rebuked by the SRA, having admitted it failed to carry out proper checks on the prospective seller before the sale took place. The firm asked for, and received, certified copies of his ID documents but the third party had only certified the ID documents were true copies of the originals, without verifying the client’s identity and no one at the firm met the client to conduct the enhanced customer due diligence required to verify his identity. The firm sent the net proceeds to the client and was later contacted by the police investigating suspicions that the sale was fraudulent.

Recreating documents

The SDT found that a partner had acted without integrity and fined him £50,000 in relation to one aspect of the matter, but allegations of dishonesty and recklessness in relation to backdating letters and allowing them to be attached to a claim were not proven. He admitted recreating letters he thought had already been sent out and backdating them three months, which were then attached to particulars of claim for possession proceedings, but denied signing the documents and knowingly misleading the court or opposition solicitors. The SDT said that recreating documents and not making that clear was ‘lacking in integrity, and we are very conscious of solicitors needing to be scrupulously accurate in all they do’.

Misleading the High Court

A partner of an international law firm has been struck off after being found to have deliberately misled the High Court, counsel and the other side, having become aware of discrepancies in the dates of telephone calls which meant that a party could not have been discussing the aftermath of a grenade attack because the calls pre-dated the attack, stating to his team that “we can get away with the date error". He signed an affidavit in order to secure a freezing order and later used the order for submissions to Interpol and other law enforcement agencies in extradition proceedings. 

CV Porkies

Honesty will always be paramount but a City partner learnt this lesson the hard way when she was struck off for inflating prior billing figures when applying to move firms. She claimed to have billed £1.4 million at a previous firm when, in reality, she had only billed £177,000 in the 2 years she had been at the firm. At the tribunal she claimed that the figures she gave were what she could have billed had she received the correct resources in her prior firm and that the new firm was aware of this when it took her on as an equity partner.

Charging Dead

A retired sole practitioner has been struck off for charging monies to a deceased client’s account. He denied any dishonesty but the tribunal found personal gain at the centre of several years of misconduct.

Unlawful funding agreement and conflict of interest

While the client suffered no financial loss, a solicitor who entered into a DBA in a family matter and then chased the client for costs under it, was fined £10,000, the SDT confirming that he should have known DBAs were unlawful in family law cases. The solicitor denied the agreement amounted to a DBA, but letters referred to it being a DBA and payment by the client of 15% of any sum recovered. The client was awarded a lump sum payment of £769,000 plus costs and the solicitor sought payment of the 15%, saying that debt recovery solicitors would be instructed if payment was not received. The SDT accepted he had made a “genuine error”, but said he should have known what funding arrangements could be made with a client. In addition, he facilitated loans to the client from another client, and while not involved in negotiating terms, drafted the loan documentation, and then acted for the client who made the loans, seeking recovery for non-payment, when there was a clear conflict of interest. The SDT held that he acted with a lack of integrity, but said the misconduct was not serious enough for him to be struck off or conditions placed on his practicing certificate.

Case studies

Recently we have been advising firms on a range of issues, including:

  • Independent AML audits
  • Risk and compliance audit in relation to PII renewal
  • Review of policies, procedures, retainer documents etc.
  • Data protection issues
  • Assisting a client with replacement COLP, COFA and ABS applications

Sectors and Services featured in this article