Jon and the team

The SRA And Axiom Ince: A Call For Accountability And Reform

“How many legal regulators does it take to fix a lightbulb?”

“Just one… but only after an independent review finds that it’s broken.”

The long-overdue independent report commissioned by the Legal Services Board (LSB) into the Solicitors Regulation Authority’s (SRA) oversight in the Axiom Ince affair has unearthed a series of troubling lapses in regulatory judgement and process.

This feels like a defining moment for the SRA, not least because the report prompted the LSB to confirm it is taking unprecedented enforcement action.

The findings of the review have led to considerable scrutiny, not only of the SRA’s approach to managing high-risk firms but also unfortunately of the regulator’s public response to the report. This writer looks forward to the upcoming SRA conference on 5 November as an opportunity for genuine reflection and reform.

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SRA’s Thematic Review On AML Training: What Firms Need To Know

The Solicitors Regulation Authority (SRA) has published a thematic review focused on anti-money laundering (AML) training in law firms. This review is a timely reminder that training plays a significant part in regulatory compliance and risk management within firms.

As the SRA steps up its AML audit function, firms can expect training to become a key focus in future visits. Understanding the SRA’s expectations now will help firms prepare for more thorough scrutiny in the future. Here’s what the thematic review means for your firm.

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Exploring Source Of Funds Compliance In Practice

Our latest webinar (“Practical guidance on source of funds”) tackled the challenges and nuances of handling source of funds (SoF) inquiries, an essential part of anti-money laundering (AML) compliance. Our speakers shared real-world insights, best practices, and strategies to manage the common (and sometimes complex) inquiries around SoF, aiming to boost attendees’ confidence and compliance accuracy.

For those who couldn’t join, here’s a recap of the main discussion points and key takeaways, along with a list of questions from the Q&A session and brief answers for immediate reference.

Read the webinar write-up

ICYMI: Sham Litigation: A Real Money Laundering Risk Or A Hypothetical Concern?

Sham litigation is often cited as a potential avenue for money laundering, where the legal process of dispute resolution is abused to disguise the origins of illicit funds. For years, skepticism has been poured on the volume of Russian-linked cases heard in the English courts.

But is this a real problem, or is it just a theoretical risk that regulators feel compelled to address? Despite being flagged in money laundering risk assessments, the actual empirical evidence of harm caused by sham litigation remains sparse. With the SRA hinting at forthcoming guidance on the issue, it’s worth considering whether we’re in danger of over-regulating an area where the risk to society might not justify intervention.

Read more

News and Guidance

• Law Society | Independent review finds SRA handling of Axiom Ince inadequate and ineffective – In the wake of the critical review of the SRA’s oversight of Axiom Ince, the Law Society has issued a robust response, urging immediate action to strengthen regulatory accountability and bolster public confidence in the legal profession. The Law Society expressed serious concerns regarding the SRA’s lack of effective response to early warning signs of risk at Axiom Ince. Emphasising the importance of proactive regulation, the Law Society advocates for a shift toward more vigilant oversight practices to safeguard the profession’s integrity and better protect clients.
• SRA | Research: Overrepresentation of Black, Asian and minority ethnic solicitors in reports to the Solicitors Regulation Authority – The SRA’s recent research into the overrepresentation of BAME solicitors (not our terminology) in regulatory processes found no evidence of client bias as a driver of complaints. Instead, academics suggest that multiple intersecting factors—such as firm size, work types, and organisational context—play significant roles. BAME solicitors, often overrepresented in smaller and legal aid-focused firms, face challenges that increase their exposure to regulatory reports and investigations. While BAME solicitors are more likely to be investigated, this is attributed to structural factors rather than direct bias within the SRA’s assessment process.
• SRA | Anti-Money Laundering Annual Report 2023-24 – The SRA recently released its annual report on AML supervision:
  • Increased supervision and enforcement – it will come as no shock that the SRA has substantially ramped up its proactive approach. Inspections and desk-based reviews have nearly doubled, reaching 545, up from 273 in the previous year. File reviews have also increased dramatically, from 1,245 to 3,048. Enforcement actions have risen from 39 to 74 cases. Financial penalties related to AML breaches have crossed the £1 million threshold, as imposed by both the SRA and the Solicitors Disciplinary Tribunal (SDT).
  • Key Investigation Areas – the report identifies the primary areas of concern. There were 87 reports related to failures in carrying out adequate client and matter risk assessments. With 61 reports, insufficient or poorly implemented AML policies, procedures and controls remain a significant issue. 46 reports highlight failures to adequately check the source of client funds, a critical component of AML compliance.
  • Focus on Independent Audits – The SRA has implemented a rolling programme to assess firms’ independent audits. Firms with significant issues in their audits that have not taken corrective action may be subject to further checks by the SRA.
• SRA | SRA Corporate Strategy Benchmarking: What drives trust and confidence in legal services? – This SRA report highlights the regulator’s performance against strategic objectives, focusing on themes like accessibility, regulation, and public confidence in the legal system. While the report acknowledges some progress, it identifies areas needing improvement, such as supporting small firms and addressing concerns from legal professionals about regulatory burdens. The report also indicates mixed views of the SRA within the legal profession itself. While the report finds that 56% of lawyers view the SRA positively, a notable 26% remain critical. This underscores tensions around the SRA’s current regulatory approach.
• Law Society | Updated Practice Note: What to do when a complaint goes to the Legal Ombudsman – When a complaint escalates to the Legal Ombudsman (LeO), it’s essential for firms to understand the steps and expectations. This practice note provides a quick guide to the process, including:
  • Eligibility and Timing: LeO accepts complaints from clients and certain others, such as small businesses and charities, only after a firm has had the chance to address it internally. Clients usually have six months to escalate to LeO if dissatisfied with the firm’s final response.
  • The Investigation Process: If LeO accepts a complaint, an investigator defines the issues and gathers information from the firm. Early resolution is encouraged, and informal resolution can avoid the complaint being published on LeO’s site.
  • Possible Outcomes: If LeO finds poor service, remedies may include an apology, fee adjustments, or compensation. Disagreements on preliminary decisions can proceed to an Ombudsman, whose final decision is binding.
  • Compliance and Documentation: Firms must keep clear records and be prepared to explain actions taken. Failure to cooperate can result in penalties, so maintaining transparency and a cooperative stance is crucial.
• Law Society | Updated Practice Note: Handling complaints – Good complaints handling not only helps retain client trust but also ensures compliance with the SRA Code of Conduct. Here’s are some best practices from the Law Society’s recent guidance:
  • Identifying and Addressing Complaints: Complaints may be formal or informal expressions of dissatisfaction. It’s essential to pick up on client cues early to resolve issues before they escalate.
  • Communication and Transparency: Inform clients from the outset about your firm’s complaints process, their rights, and how to proceed if they remain dissatisfied. If unresolved, clients must be given contact information for the Legal Ombudsman (LeO) and alternative dispute resolution options if appropriate.
  • Responding Promptly and Fairly: Aim to acknowledge complaints within two working days, maintain clear records, and respond in a way that addresses the client’s concerns. Be transparent about any delays and provide appropriate remedies where necessary.
  • Record Keeping and Improvement: Track complaints to identify recurring issues and improve service quality. The SRA’s “Maintaining standards of service and reducing complaints” report highlights common issues like delays and poor communication; keeping detailed records helps assess your firm’s responsiveness.
  • Apologies and Professional Indemnity: Apologising for minor issues can defuse tension, but for more serious concerns, check with your insurer before acknowledging fault, as this may affect liability.
• Law Society | Updated Practice Note: SRA powers of investigation – The SRA holds broad powers to investigate misconduct, including compelling solicitors to explain actions, produce documents, and attend interviews. Non-compliance can result in disciplinary action, with legal obligations defined by the Solicitors Act 1974 and Legal Services Act 2007. This updated practice note provides comprehensive guidance.

Compliance corner – real life Q&As

Q: “What should a firm do if they identify a compliance gap during an internal AML audit? Should they immediately report it to the SRA or first implement a corrective action plan?”

A: Knowing that the SRA views AML compliance breaches as “serious” – you need no further evidence than the catalogue of fines reported in this newsletter – it’s crucial to act promptly and thoughtfully.

Immediate steps should focus on understanding the root cause of the gap, its potential impact, and developing a clear action plan for addressing it. Here’s a suggested approach to handling such a scenario:

• Assess the breach’s severity and scope: Begin by evaluating the extent of the issue. Does the gap affect multiple cases, or is it an isolated incident? Is it a minor procedural issue or a more serious breach? This will help in determining the level of risk posed to the firm and its clients.
• Implement a plan for corrective actions: Next, develop a plan to rectify the issue. This might involve retraining staff, updating policies, or enhancing specific controls. Ensuring that these actions are documented will help in tracking improvements and showing a proactive approach.
• Report as necessary: Whether the gap should be reported to the SRA depends on its severity and the associated risk. Minor, low-risk issues may be manageable in-house if promptly corrected. However, if the gap is significant or could imply systemic weaknesses (such as a lapse in client due diligence or lack of key controls, like risk assessments), the firm should seriously consider notifying the SRA to demonstrate transparency and a commitment to compliance. Firms should review their reporting obligations as outlined in the SRA Standards and Regulations and consult with their Compliance Officer for Legal Practice (COLP) to make a balanced decision. You are required to make “prompt” reports, so don’t be tempted to put it off until you have implemented all of the corrective actions – sending them a plan of what you intend to do would be a better option.
• Monitor and review: After addressing the immediate issue, monitor for any recurrence and consider conducting a follow-up audit to confirm that the corrective actions are effective. Consistent review of procedures will help in minimising future gaps.

Ultimately, taking quick, documented, and proportionate actions shows both the SRA that your firm is diligent and committed to robust AML compliance.

This is not legal advice. If you have a question you would like us to answer in this section, feel free to send it to info@jonathonbray.com 

Free CPD

Recording: Practical guidance on source of funds (available to view for 30 days)

On 30 October we hosted an interactive webinar on one of the most crucial aspects of Anti-Money Laundering (AML) compliance—Source of Funds.

We tried to offer practical, no-nonsense advice to help you navigate the complexities of source of funds checks. Rather than vague recommendations, we focused on clear, actionable guidance tailored to various practice areas.

What else would you like us to cover in these free sessions?

Watch the recording – use passcode j*9Z6Mg2

Recording | SRA AML fines: Lessons to be learned

In this session, attended by over 500 people, Harriet Holmes (Thirdfort) and Jonathan Bray discussed the SRA’s recent fines related to anti-money laundering compliance. The focus was on the lessons that solicitors and law firms can learn to avoid similar issues and improve their compliance procedures.

Key topics include:

• Overview of SRA AML Fines: The speakers outline the significant fines issued by the SRA this year and provide a context for why these fines are increasing.
• Common Compliance Failures: Real examples of where firms have fallen short, offering insight into recurring mistakes such as inadequate due diligence, improper risk assessments, and failure to properly identify clients.
• Best Practices: Practical advice is shared on how firms can strengthen their AML compliance systems, including staff training, maintaining up-to-date policies, and using technology effectively to monitor risks.
• Industry Impact: The discussion touches on the broader implications of these fines for law firms, with an emphasis on how firms can protect themselves and avoid costly penalties.

Watch the recording

Training your team: Anti-money laundering update

The SRA expects that all ‘relevant employees’ practicing within the scope of the Money Laundering Regulations (MLRs) must receive robust anti-money laundering (AML) training. Now is the time to ensure your firm is compliant. Failure to meet these obligations can result in significant fines and regulatory action.

Our comprehensive AML training is designed to equip your team with the knowledge and practical skills needed to identify, prevent, and report suspicious activities, safeguarding your firm from risk. Ensure your firm stays ahead of regulatory requirements and avoids potential pitfalls by enrolling your team today.

Formats available: Online | In person | On-demand

Don’t miss out—request a free quote today!

Safeguard Your Practice: Independent Anti-Money Laundering Audit

SRA and SDT disciplinary decisions

• Jayesh Anjaria – non-lawyer employee of Axiom Ince banned from the profession for falsifying bank records.
• Muhammed Ali – another Axiom Ince employee banned for transferring almost £55m from the firm, transactions which he knew – or ought to have known – were improper.
• Bull & Co Solicitors LLP – fined just under 2% of turnover for the usual AML control breaches.
• Edridges & Drummonds – this firm was fined just over 2% of turnover for slightly more serious AML breaches.
• Redfearns Solicitors LLP – 0.7% of turnover fine for failing to have in place a firm-wide risk assessment.
• Tedstone George & Tedstone Solicitors – firm fined 2% of turnover for not completing client and matter risk assessments.
• Roger Addington – solicitor fined £2,398 for failing to conduct client and matter risk assessments in conveyancing transactions.
• Morr & Co LLP – firm rebuked for failing to distribute an estate, after becoming responsible for the file as part of a law firm merger.

What we do – contact us for further information about our services

• Outsourced COLP and COFA support
• New firm and ABS applications
• Independent AML audits (Regulation 21)
• Training
• AML workshops
• PII services
• File reviews