Regulatory update — Winter 2022-2023
Our latest update on compliance and regulatory issues
AML, Sanctions and Economic Crime
Anti-money laundering work will remain high priority for the SRA in 2023 with an ever-expanding number of firm inspections and desk-based review activity. The annual report reiterated its previous guidance that most firms need to have an independent audit and this was an area of compliance which was still lacking. If your firm falls within the regulated sector for AML and hasn’t yet had an independent audit you should make this a priority for 2023. One firm was recently fined a record £20,000 under the SRA’s increased fining powers for failing to have in place a compliant firm wide risk assessment (FWRA) or AML policies, controls and procedures (PCPs). We anticipate that we will continue to see this level of fines going forward.
Compliance with the sanctions regime has presented recent challenges and the consequences of non-compliance are high because of the strict liability enforcement by the Office of Financial Sanctions Implementation (OFSI). The SRA has now published further guidance setting out what it expects from firms and providing advice on how best to meet these obligations. As a reminder, all firms are subject to the sanctions regime, not just those who undertake work within scope of the MLR.
Guidance is expected from the SRA/Legal Sector Affinity Group (LSAG) on proliferation financing, the changes in relation to which came into effect through the Money Laundering and Terrorist Financing (Amendment) (No 2) Regulations 2022 on 1 September 2022. The regulatory requirements mirror those for AML, so regulated entities can either create a separate risk assessment and PCPs or incorporate it into the existing AML firm wide risk assessment (FWRA) and PCPs. The SRA recently confirmed that it expected to see evidence that firms have considered their proliferation financing risk, either as part of the FWRA or separately.
Economic Crime Levy
The first economic crime levy will be collected by HMRC from April 2023 on all AML regulated businesses and will be a fixed fee based on size as determined by UK revenue. Small firms (less than 10.2m) will be exempt, with medium size firms (£10.2m - £36m) paying £10,000, large firms (£36m-£1bn) paying £36,000 and very large businesses (>£1bn) paying £250,000 pa.
SRA Transparency Rules
The SRA are carrying out a rolling programme checking websites of all law firms to ensure compliance with the transparency rules, including firms who previously completed a declaration confirming they are fully compliant. Any firm with a website which offers services in the areas of conveyancing, probate, immigration, employment tribunals or motoring offences, must publish certain information including details on the services offered, who delivers them and pricing. In addition, all law firms must publish details of their complaints procedure and the website must also include the SRA clickable logo.
Changes to the Legal Ombudsman Scheme Rules
The new Legal Ombudsman scheme rules take effect from 1 April 2023 and include cutting the time limit for complaining to LeO from six years to one year, giving discretion to dismiss or discontinue a complaint if they consider it would not be a proportionate use of the ombudsman’s time to investigate. Guidance has recently been issued which includes suggested wording to notify clients of the changes. Amendments will need to be made to engagement letters, terms of business, client care packs, complaints processes and complaint final response letters.
Strategic Lawsuits Against Public Participation (commonly known as SLAPPS) has featured a lot in the news recently. The SRA has made it very clear to firms through its warning notice of the importance of ensuring that the duty to act in a client’s best interests does not override the wider public interest obligations and duties to the court and that litigation is conducted properly.
We are likely to see more investigations, potential disciplinary action and sanctions being imposed on firms/solicitors in breach.
The SRA issued guidance on effective supervision in November 2022. Not only is this important in its own right and an essential read if you haven’t done so already, but it is significant in the context of the SRA’s recent response to the LSB’s criticism of the profession in relation to competence in which it has said that it will be carrying out visits to firms conducting audits and file reviews to check competence and as part of that, will expect to see evidence of supervision, quality checks and training records.
Now might be the time to review your supervision processes and how effective they are. Get in touch to discuss how our Compliance and ethics Barometer could help.
Guidance and practice notes
In addition to the above, recent publications include:
Recently we have been advising clients on a range of issues, including:
- Independent AML audit following SRA visit
- Compliance healthcheck and policy and procedures review
- Year 2 AML independent audits
- Mergers and demergers
- ABS applications
Struck off for misleading client regarding settlement
An experienced solicitor who failed to inform a client about an offer until after the time limit for response which the client then rejected, missed deadlines for submitting medical evidence and serving documents, and then accepted a lower offer without taking instructions, was struck off and ordered to pay costs.
Solicitor struck off for overcharging vulnerable client
The SDT struck off a solicitor for overcharging a vulnerable client over £250,000, the client being unaware that the solicitor was transferring a large volume of funds from her late husband’s estate. The SDT found that there were several unjustified charges, including £75,000 to store documents at the firm’s premises, when, according to the SRA, the annual cost should have been about £2000.
Fined for failing to deal with complaints
A complaints partner in a firm that acted mainly in conveyancing matters has been fined £4,000 for failing to deal with complaints, delays responding to clients and the Legal Ombudsman, and failing to pay an award to a client ordered by the Ombudsman.
Struck off for withdrawing money from client account
The SDT found that a solicitor was withdrawing funds from the client account, preparing invoices in relation to probate estates and transferring the money without consent. The solicitor admitted breaches of the accounts rules but denied that he was dishonest.
Struck off for manifest incompetence
A solicitor was struck off for failing to take appropriate steps to ensure that there was no conflict of interest in acting for both parties in a transaction which led to one of the clients, an older client, giving away his home to a significantly younger individual with no family connection. There was very limited evidence that relevant information was obtained from the clients and the solicitor failed to pick up on any red flags, including the significant age difference between the parties; no information in respect of the relationship, and the transfer was for nil consideration.
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