Welcome to the first COLP Insider of 2025!
As we kick off the new year, this edition brings you the latest updates on SRA compliance, key regulatory changes, and practical insights to keep your firm ahead. From anti-money laundering developments to thematic reviews and professional obligations, we’ve got everything you need to start the year informed and prepared.
Let’s make 2025 a year of compliance confidence!
Jon and the team
P.S. Don’t forget to sign up for our compliance quiz next week…
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!
Law firm compliance year round-up
As we move into 2025 compliance professionals are reflecting on key developments, challenges, and emerging trends from the previous year. Recently, we hosted the “Compliance Year Round-Up” webinar, a discussion that unpacked the current regulatory landscape and looked forward to what might be in store for 2025. If you missed the live session, here are some highlights.
- AML compliance: Inspections, fines and common pitfalls
- The Axiom Ince scandal
- Client money and client account interest
- Sanctions compliance
- Technology and AI in compliance
- Professional ethics and public trust
Watch the recording here (expires 31 January 2025) – use passcode 37!+nU4f
Why Third Party Managed Accounts (TPMAs) could be about to transform legal practice
Managing client money has long been a source of risk and administrative burden for solicitors. Despite rigorous rules around client accounts, firms remain vulnerable to compliance failures, fraud, and costly errors. In this context, Third Party Managed Accounts (TPMAs) present a compelling alternative to traditional client accounts, offering a streamlined and secure way to handle client funds while reducing risk and regulatory exposure.
In this article, we explore what TPMAs are, the key benefits they offer, and why the Solicitors Regulation Authority (SRA) is actively encouraging firms to consider their adoption.
Are you a reflective practitioner? If not, you should be!
The SRA’s Continuing Competence regime requires solicitors to reflect on how their learning informs their practice but many fall short. Recent findings show that while some solicitors demonstrate good reflective practices, others merely list their training without considering its impact.
Reflection isn’t just a regulatory tick-box; it’s a vital part of professional growth, improving client outcomes, and staying compliant. This article by Samantha Bray explores the common challenges solicitors face with reflective practice and offers practical tips for making it more meaningful, including tools, templates, and employer-led initiatives.
News and Guidance
- SRA | Guidance: Sham litigation
- What it says: The SRA has issued guidance highlighting the risks of sham litigation as a method of money laundering. Sham litigation involves orchestrating fake legal disputes to disguise the transfer of illicit funds under the guise of legitimate legal outcomes, such as judgments or settlements. Whilst litigation activities are generally outside the scope of the Money Laundering Regulations 2017, all legal professionals are still subject to the Proceeds of Crime Act 2002 (PoCA). Therefore, firms must remain vigilant and ensure that all staff, including those not directly handling regulated activities, are aware of the risks associated with sham litigation.
- Why it’s important: This guidance underscores the legal sector’s vulnerability to being exploited for money laundering through fabricated legal proceedings. By bringing attention to this issue, the SRA aims to reduce the risk of financial crime by ensuring practitioners are more vigilant.
- Is it really happening? In a previous blog post, we questioned the prevalence of sham litigation as a money laundering risk, noting the lack of empirical evidence supporting its occurrence. The SRA’s recent guidance indicates that, despite the scarcity of documented cases, the potential for such abuse is significant enough to warrant attention.
- SRA | Thematic review: Professional obligations
- What it says: This thematic review examines how solicitors and firms maintain their professional knowledge and skills, particularly in legal, regulatory, and ethical areas. The review found that while firms had established regulatory controls and processes, there was a significant lack of regulatory knowledge among individuals. Many solicitors accessed SRA resources reactively rather than proactively, and there was an over-reliance on COLPs and compliance teams. Additionally, motivations for maintaining professional knowledge were often linked to avoiding negative consequences rather than focusing on delivering better outcomes for clients.
- Why it’s important: This review highlights potential risks within the legal profession regarding the maintenance of professional competence. The findings suggest that without proactive engagement in regulatory education and a broader understanding of professional obligations, solicitors may inadvertently compromise client interests and the profession’s integrity.
- A deeper concern: There is an argument to be made that the SRA’s findings are more concerning than the review suggests. It implies that many solicitors overestimate their understanding of professional obligations, leading to complacency. It is perhaps surprising, given the importance that the SRA places on regulatory compliance, that the review was not accompanied by a warning notice.
- SRA | Thematic review: Probate and estate administration
- What it says: The SRA’s thematic review on probate administration highlights key findings from visits to 25 firms, focusing on training and competence, supervision, client service, and protecting client assets.
- Training and competence: 60% of fee earners were unaware of their continuing competence obligations, and 40% of firms lacked a written competence policy. Training was often limited to legal and technical aspects, neglecting broader regulatory and ethical competencies.
- Supervision: Only 30% of reviewed files showed evidence of supervision. Heads of department often lacked oversight or peer reviews.
- Client service: Vulnerable clients were generally well-supported, but gaps were identified in the provision of general information, particularly about costs and roles. Complaints information for residuary beneficiaries was also inconsistent.
- Protecting client assets: While most firms demonstrated good practices in safeguarding client money, two firms failed to obtain mandatory accountants’ reports, a significant breach.What it says – The SRA’s thematic review on probate administration highlights key findings from visits to 25 firms, focusing on training and competence, supervision, client service, and protecting client assets.
- Why it’s important: The findings underscore the risks of non-compliance in probate administration, from weak supervision to insufficient client communication. Estate administration is high-risk, with large sums of client money at stake, making it critical for firms to prioritise competence, robust supervision, and transparent client service. Managers must address structural issues to uphold professional standards and protect clients. The more troubling aspects of the SRA’s findings:
- The lack of continuing competence awareness reflects a structural failure across many firms, undermining the profession’s emphasis on effective training.
- The limited evidence of supervision, while common, raises questions about whether busy practitioners are cutting corners to manage caseloads.
- Inconsistent costs information and failure to treat residuary beneficiaries as clients expose firms to reputational and regulatory risks.
- What it says: The SRA’s thematic review on probate administration highlights key findings from visits to 25 firms, focusing on training and competence, supervision, client service, and protecting client assets.
- SRA | Warning notice: Marketing your services to members of the public
- What it says: The SRA has issued a warning notice reminding law firms and solicitors of their regulatory obligations when marketing services to the public (not B2B marketing, although we could do with some separate guidance on that).
- Prohibition of unsolicited approaches: Solicitors and law firms are prohibited from making unsolicited approaches – such as cold calling or door knocking – to potential clients, except for current or former clients.
- Accuracy in marketing materials: All promotional materials must be accurate, not misleading, and should clearly communicate any risks associated with ‘no win no fee’ arrangements.
- Compliance with SRA Principles: Firms must adhere to SRA Principles, including acting with integrity, upholding public trust, and acting in clients’ best interests.
- Why it’s important: The SRA is looking closely at all aspects of consumer claims in the wake of SSB, and this warning notice should be viewed in that context. As a public interest regulator, the SRA requires solicitors maintain the integrity and reputation of the legal profession. Very few professionals would welcome aggressive or misleading marketing practices.
- Points to note:
- The intricacies of the costs outcome for Conditional Fee Agreements are extremely complex and arguably impossible to communicate effectively in a short marketing message. Even with disclaimers, the potential for clients to misunderstand remains high, creating risks for both clients and firms. This raises questions about whether CFAs can ever truly be marketed in compliance with the SRA’s warning notice requirements.
- The distinction between targeted and non-targeted advertising in digital spaces is unclear. Pay-per-click (PPC) campaigns, for example, could fall into either category depending on how they are structured and delivered. The guidance does not provide clarity on this, leaving firms at risk of inadvertently breaching the rules in their digital marketing strategies.
- What it says: The SRA has issued a warning notice reminding law firms and solicitors of their regulatory obligations when marketing services to the public (not B2B marketing, although we could do with some separate guidance on that).
- SRA | Risk outlook report: Serving clients’ needs in a changing legal market
- What it says: The SRA has released a Risk Outlook report highlighting the evolving landscape of legal services and the associated risks and opportunities for law firms.
- The report notes that consumers are under financial pressure due to high interest rates and cost of living concerns. This economic climate has led to increased demand in areas such as litigation, bankruptcy, and employment law. Concurrently, clients are seeking more efficient services, better value for money, and greater transparency regarding processes, timelines, and costs.
- Law firms are increasingly adopting new technologies, including artificial intelligence (AI) and business intelligence services, to enhance operational and financial performance. However, the SRA warns that a lack of digital skills among legal practitioners could pose risks if new technologies are not fully understood or properly implemented.
- With the rise in technology use, the report emphasises the importance of robust cybersecurity measures. Firms are advised to avoid over-reliance on third-party IT providers and to have continuity plans, including backup systems, to ensure uninterrupted client service.
- Why it’s important:
- As clients demand more efficient and transparent services, law firms must adapt to meet these expectations to maintain trust and competitiveness in the market.
- While technology offers opportunities for improved efficiency, inadequate understanding and implementation can lead to significant risks, including data breaches and compromised service quality. Ensuring proper training and compliance with regulatory obligations is important.
- The increasing dependence on digital systems necessitates that firms proactively manage cybersecurity risks to protect client information and uphold their professional responsibilities.
- What it says: The SRA has released a Risk Outlook report highlighting the evolving landscape of legal services and the associated risks and opportunities for law firms.
Focus on: Third Party Managed Accounts (TPMAs)
Paul McCluskey at Gemstone Legal has written a great article highlighting why law firms should act now when it comes to Third Party Managed Accounts (TPMAs). If you haven’t explored TPMAs yet, it’s worth giving them some serious thought. These accounts provide a practical alternative to holding client money, helping firms reduce the risk and hassle of compliance with client account rules.
The SRA is keen to encourage the use of TPMAs, saying that they have the potential to reduce risk, cut down on the administrative burden, improve transparency, and ultimately let you focus more on your clients.
The regulator is so keen on TPMAs, they are consulting on whether law firms should be able to operate client accounts at all.
If you’re wondering whether TPMAs are right for your firm, Gemstone Legal is running sessions to guide you through the ins and outs. These will cover how TPMAs work in practice, how they can benefit your firm, and what you need to do to stay compliant with SRA rules.
You can read Paul’s article here and if you’d like to register for the TPMA sessions, you can do so via the link in the article. This is a fantastic opportunity to get ahead of the curve.
Compliance corner – real life Q&As
Q: “How should we handle situations where confidential information received from a non-client third party conflicts with our duty of disclosure to our client in a corporate transaction?”
A recent case we advised on highlights an interesting challenge for solicitors: balancing confidentiality and disclosure obligations in corporate transactions.
The scenario
A solicitor acting for a buyer in a corporate share purchase transaction received confidential information from a prospective client (a key individual within the target business). The individual disclosed their intention to leave the business and potentially breach restrictive covenants. This created a conflict between the solicitor’s duty of confidentiality to the individual (who was not yet a client and who was not taken on when the issue became apparent) and their duty of disclosure to the buyer
Navigating the conflict
The solicitor’s ability to continue acting for the buyer depends on obtaining the buyer’s informed consent to proceed without disclosing the confidential information. Here’s the step-by-step approach we took:
- Explain the situation – The solicitor should inform the buyer that confidential information has been received and cannot be disclosed. They must clarify that the information is unlikely to materially affect the transaction or the buyer’s decision but seek the buyer’s consent to proceed.
- Obtain written consent – Written consent from the buyer (e.g., via email) is essential to confirm they understand the situation and agree to the non-disclosure.
- Document the internal impact assessment – The solicitor should record:
- The nature of the confidential information.
- An analysis of its materiality.
- The rationale for concluding that the non-disclosure is in the buyer’s best interests.
- Monitor for changes – If new facts emerge that change the materiality of the information, the solicitor must reassess and may need to reconsider their position.
Risks to consider
Even with informed consent, risks remain:
- Client understanding: The buyer must genuinely understand the implications of their consent.
- Material significance: If the confidential information later proves significant, the buyer could allege a failure to act in their best interests.
- Withdrawal: If non-disclosure significantly prejudices the buyer at any stage, withdrawal from the case entirely may be necessary.
This approach aligns with SRA Codes of Conduct, preserving both confidentiality and disclosure obligations. However, informed consent and ongoing monitoring are critical to manage risks effectively.
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
Next up: Compliance Quiz!
Are you ready to put your compliance knowledge to the test? Join us for a live compliance quiz designed to challenge, engage, and educate your team while ticking off CPD requirements!
Date: Thursday 23rd January 2025
Time: 12:00 PM
Where: Online (Zoom)
- This interactive session will feature real-world scenarios across key compliance areas, including:
- Anti-money laundering (AML)
- Sanctions compliance
- Data protection
- Accounts rules
- General compliance
Why attend?
- Build practical skills through scenario-based learning
- Enhance your team’s compliance knowledge
- Earn CPD credits toward your continuing competence
Here’s a sneak peek of a scenario we’ll cover: “Your firm is acting for a client linked to UAE. During a routine check, you discover inconsistencies in the source of funds provided. What steps should you take next to stay compliant with AML regulations?”
Don’t miss this opportunity to sharpen your compliance skills and connect with peers in an engaging, team-friendly format!
Recording: Compliance year round-up
Watch our review of compliance highlights and challenges from 2024 and a forward-looking discussion on what’s on the horizon for 2025.
This session covered:
- Key regulatory changes, themes and trends solicitors should have been paying attention to in 2024.
- Lessons learned from SRA enforcement actions and guidance updates.
- Emerging risks and compliance priorities for the year ahead.
- Practical tips to help your firm stay ahead of the curve in 2025.
Watch the recording (available for 14 days) – use passcode 37!+nU4f
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
SRA and SDT disciplinary decisions
- Rajinder Singh – solicitor rebuked for holding onto historic cumulative residual balances of over £130,000.
- Paul Corren – fined £14,116 for providing banking facilities through the firm’s client account.
- Jordan Heeley and Alexandra Ditcham – conveyancing paralegals barred following drug dealing convictions.
- Richards Thomas LLP – fined £750 for not having a COLP and COFA in place.
- Clare Godden – conveyancing executive removed from the profession for backdating Companies House documents.
- Hilary Brown – ABS owner removed from the profession for continuing to run a regulated law firm without a lawyer.
- Michelle Qume – non-lawyer partner removed from the profession following client money irregularities.
- Stephanie Merrill – trainee disqualified for misleading employer about her reasons for a holiday leave request.
- Abdul Barri – fined £2,750 for failing to cooperate with an SRA investigation.
- Marilyn Neptune – conveyancer disqualified for misleading lender client regarding completion conditions.
- Phoebe Bird – paralegal removed for falsifying email records on a client file.
- Connor Johnson – personal injury paralegal struck off for creating false attendance notes on a file.
- Vanessa Ann Filby – conveyancing paralegal struck off for misappropriating over £100,000 of client money.
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