Trade sanctions are the next big compliance challenge for law firms
Law firms have hitherto focused on financial sanctions – checking whether a client or counterparty is a designated individual or entity. But trade sanctions, which restrict entire sectors and the movement of goods, services, and technology, have been largely overlooked in legal sector compliance. That is changing.
The SRA has issued new guidance that from October 2024, the Office of Trade Sanctions Implementation (OTSI) has new enforcement powers under the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024. This means that trade sanctions breaches can result in significant civil penalties on a strict liability basis, with fines reaching up to £1 million or 50% of the estimated breach value – whichever is higher.
Read more about trade sanctions
Over-burdensome compliance can push solicitors to the brink
A message pings in my inbox. A call back request. I make the call and spend the next half hour talking with a solicitor who is on the verge of tears – absolutely terrified of making a mistake and the SRA coming down on them “like a tonne of bricks”.
This is not a new conversation for us – working in the world of risk and compliance, we hear such things often. But this call was different – there was a fear in the voice, a quiver in the tone, tears being fought back and most definitely a lack of sleep being had.
The SRA is tasked with ensuring that the legal profession upholds its high standards of ethics, competence, and service. However, the ever-expanding compliance burden is undoubtedly increasing strain on solicitors across the country. So much so, many now feel helpless under the weight of rules, leaving some in the profession to wonder if the regulatory system has gone too far.
ICYMI: The SRA’s new Warning Notice on marketing: what law firms need to know
The SRA has issued a new warning notice on B2C marketing, with a particular focus on volume consumer claims and unsolicited approaches to members of the public. This follows growing concerns that some law firms and claims management companies are using aggressive, misleading, or non-compliant marketing tactics to attract clients.
Reflect, learn, grow: How solicitors can boost their practice through reflection
Reflection is one of the most powerful tools for professional growth and development. For solicitors, integrating regular reflection into daily practice can enhance skills, improve client service, and even open doors for career progression. It is more than just a box to tick for Continuing Competence requirements – it’s about making learning stick and translating insights into action.
When things are busy, deadlines are looming, clients are waiting, it may seem like you have no time to stop, breathe and think. But this is exactly what you need to do – it could help you work more efficiently and effectively.
ICYMI: SRA Consumer Protection Consultation – your profession needs you! Part One
Another day, another consultation by the SRA on consumer protection. Whilst no-one is going to claim this isn’t a vital topic (upholding public trust and confidence in the profession and acting in the best interests of clients are core ethical duties), it could be easy to dismiss this:
- Is it really going to achieve anything?
- Do we have confidence in the SRA to assess and deliver consumer protections, given their complete denial of any responsibility for the big issue that caused all of this (the Axiom Ince disaster)?
- And can we really be bothered to wade through what is, again, another wordy, complicated and arguably inaccessible consultation document? Many of us are still suffering from post-numeric stress disorder from trying to tackle the SRA’s examples from the consultation on calculating fines.
Responding to this consultation is crucial, though. What the SRA really needs are people’s practical experiences and suggestions. The consultation is divided into three parts – one on holding client money, one on protecting client money, and one on the compensation fund model.
This blog will focus on part one only – parts two and three incoming in later editions!
ICYMI: SRA Consumer Protection Consultation – your profession needs you! Part Two
Building on the previous article (see below), this piece will break down the second and third parts of the current SRA consultation about client money. The previous article ran through the questions about holding client money. This article will focus on the two remaining parts of the consultation: questions about protecting client money, and about the future of the Compensation Fund.
News and Guidance
- SRA | News: New guidance issued on trade sanctions – The SRA has highlighted new enforcement powers for trade sanctions. The Office of Trade Sanctions Implementation (OTSI) can impose penalties of up to £1 million or 50% of the estimated breach value, on a strict liability basis.
Trade sanctions involve similar reporting obligations to financial sanctions.
Legal professionals must be aware that trade sanctions don’t just target individuals and entities but entire industries, affecting areas like corporate structuring, litigation, and commercial transactions. The legal sector now has a duty to report suspected breaches to OTSI.
Historically, sanctions compliance has focused on financial restrictions, but trade sanctions require a broader risk-based approach. This shift reinforces the need for law firms to review policies, update training, and integrate trade sanctions into their compliance frameworks.
- Gazette | In depth: Should solicitors hold client money? – Recommended reading before the SRA consultation closes on 25 Feb.
The SRA is consulting on whether solicitors should continue to hold client money. This follows growing concerns about the security of client funds, particularly after the Axiom Ince scandal, where £64 million of client money went missing.
This recent Law Gazette article explores the issue in depth, weighing up the risks and benefits of the current system. It looks at proposals for third-party managed accounts (TPMAs) as an alternative, highlighting arguments for and against the shift. While TPMAs could reduce the risk of misappropriation, critics warn about added costs, market readiness, and potential disruption to legal services. The article also covers The Law Society’s position, which favours improving safeguards rather than removing client accounts altogether.
This is a crucial debate with significant implications for law firms. The Law Gazette piece is essential reading for anyone wanting to understand the discussion before the consultation deadline. You should also read our summary of the proposals – Part One and Part Two.
- Gazette | SRA regime is broken – here’s how to mend it – In a recent Law Gazette article, Gregory Treverton-Jones KC critiques the SRA, labelling it as arrogant and power-hungry.
He argues that the SRA’s current regulatory framework is flawed and proposes several reforms to address these issues. Criticisms include:
- Excessive fining powers: Treverton-Jones contends that the SRA’s authority to impose substantial fines has led to disproportionate penalties, suggesting that fines exceeding £2,500 should be the purview of the Solicitors Disciplinary Tribunal (SDT) instead.
- Lack of accountability: He highlights concerns over the SRA’s perceived unaccountability and its strained relationship with the profession, calling for increased oversight and transparency. “Who regulates the regulator?” is a question with an unsatisfactory answer, with the LSB historically taking a largely pro-SRA stance.
Treverton-Jones emphasises the need for a regulatory system that is fair, efficient, and better aligned with the realities of legal practice. He calls for open dialogue and fresh perspectives to drive meaningful reform in the profession’s regulatory framework.
- SRA | Research and publications: Consumer vulnerability in the legal market – The SRA commissioned a study by the University of South Wales to explore how consumer vulnerability in the legal market can be measured and monitored.
The research found that:
- Vulnerability is complex, dynamic, and often hidden. The term itself can be stigmatising.
- Measuring vulnerability is challenging due to varying definitions, reliance on risk factors, and limited organisational resources.
- Existing tools from other sectors are not easily adaptable to legal services.
- Rather than focusing solely on individual risk factors, the study advocates for a “universal practice” approach—designing legal services to be accessible and inclusive for all. The SRA plans to work with experts to implement this.
- Law Society | Blog: 65% of law firms have been a victim of a cyber incident – This blog post highlights that two-thirds of law firms have experienced a cyber incident, yet 35% still lack a cyber mitigation plan.
The article underscores the increasing prevalence of cybercrime, noting that identity theft has reached epidemic levels in the UK, with nearly 500 incidents daily. Common attacks include fraudulent emails, viruses, and malware. The piece emphasises the importance of proactive cybersecurity measures and directs readers to resources such as the National Cyber Security Centre’s guidance.
- Law Society | Blog: ‘Fish files’ – the attack of the 4am impending doom case – In this post barrister Rehna Azim delves into the common experience among legal professionals of feeling overwhelmed by certain cases, which she refers to as “fish files”- cases that, if neglected, become increasingly burdensome over time. Azim recounts her personal encounter with such a case: despite its professional appeal, the case induced significant anxiety, leading to sleepless nights and pervasive stress.
Seeking strategies to manage these feelings, Azim turned to her social media network, where she received an outpouring of advice from fellow legal practitioners. The pragmatic suggestions to deal with these cases are well worth a read (and sharing with your team – the juniors in particular).
Compliance corner – real life Q&As
Q: Is producing an annual MLRO report a requirement under the Money Laundering Regulations?
A: While producing an “MLRO report” to a firm’s senior management team is not an explicit requirement under the MLRs, it is strongly recommended, according to the LSAG (Legal Sector Affinity Group) guidance (Paragraph 4.3.3). This recommendation, endorsed by the Law Society, SRA and HM Treasury, is phrased as a “should” rather than a “must”.
What should an annual MLRO report cover?
- Changes in AML/CTF risks: updates on any changes to the money laundering or terrorism financing risks within the firm.
- Planned improvements: advice on improvements that should be made in the coming year to enhance the firm’s AML policies.
- Progress on past improvements: a review of actions taken from previous reports and their effectiveness.
- Internal auditing results: outcomes from any internal audits conducted to assess the firm’s AML controls and compliance.
- Resourcing concerns: considerations regarding adequate staffing and resources to support effective AML management.
- Supervisor interactions: any communications or interactions with the relevant supervisory body.
- AML staff training: details of any AML training completed by staff members.
- Regulatory and guidance updates: key regulatory changes or notable publications/guidance from AML authorities.
- Other relevant information: for example, trends in SARs (Suspicious Activity Reports) filed by the firm, common deficiencies, and lessons learned.
Why produce this report?
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: Compliance Quiz!
Thanks for the great turnout for last month’s compliance quiz. We know that some of you were doing this as a firmwide exercise.
How did you score?
For those who couldn’t make it, you can watch the recording below. Pens at the ready!
Watch the recording (use passcode &&pA26y8)
SRA and SDT disciplinary decisions
- Whetham and Green – AML fine of 2% of turnover for historic breaches.
- James Chisholm – trainee solicitor struck off for “inappropriate and/or unwanted and/or sexually motivated” touching of a colleague without consent during a work-related social.
- Saul Oyefeso – personal injury consultant (not a solicitor) removed from the profession following a GBH conviction.
- Christian Joseph Fish – business analyst (not a solicitor) struck off following convictions for sexual offences involving children.
- Monk and Turner Solicitors LLP – firm fined £750 for failing to notify the SRA about changes to its COLP and COFA.
- Shahzads Law Ltd – AML fine of around 2% of turnover for failing to conduct client and matter risk assessments.
- Timothy Gray – fined around 25% of gross annual salary for failing to follow his firm’s AML processes on property files.
- Khoo and Company Solicitors Limited – AML fine of around 2% of turnover.
- Laura Mason – office manager removed from the profession for misuse of the company credit card.
- The Commercial Law Practice Limited – AML fine of around 2% of turnover.
- Steinbergs – firm fined around 2% of turnover for AML breaches.
- Duffield Harrison LLP – £25,000 fine (the maximum for non-ABSs) for serious AML failings.
- Christopher Sweetman – divorce solicitor rebuked for breach of undertaking.
- Sarah Eastman – rebuked following drink driving conviction.
- Burch Phillips & Co – AML fine of 2% of turnover.
Training your team: Anti-money laundering
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
What we do – contact us for further information about our services
- Outsourced COLP and COFA support
- Compliance audits
- New firm and ABS applications
- Independent AML audits (Regulation 21)
- Training (online, remote, on demand)
- AML and GDPR workshops
- PII cost reduction
- Remote file reviews
- TPMAs
- Escrow accounts
- AML and sanctions searches
