Welcome to the latest edition of COLP Insider, your essential guide to SRA compliance. This issue covers key updates and insights to help you navigate the complex regulatory landscape. Stay informed with expert analysis, practical advice, and the latest news impacting your compliance responsibilities. Whether you are a seasoned compliance officer or new to the role, our newsletter provides valuable information to support your efforts in maintaining the highest standards of professional conduct.
In this edition:
- Summary of the main talking points from this week’s webinar on NDAs and SLAPPs (don’t forget to register for the next session on law firm culture)
- Not one, not two but three new SRA Warning Notices
- Take time to read Paul Phillips’ blog on Legal Futures (link below) – in case you had any doubt that the SRA is serious about banning client accounts
- We often get asked whether a firm can act for buyer and seller in a property transaction – our answer is below
As always, please do get in touch if you have any comments or suggestions for future newsletter items. We love hearing from you.
Have a great weekend!
Jon and the team
SRA Warnings on SLAPPs and NDAs: Key Takeaways from Our Latest Free CPD Webinar
In our latest webinar, “SLAPPs and NDAs – Latest Guidance“, we delved into the complex ethical terrain surrounding Strategic Lawsuits Against Public Participation (SLAPPs) and Non-Disclosure Agreements (NDAs). With increasing scrutiny from regulatory bodies like the Solicitors Regulation Authority (SRA), this discussion is more pertinent than ever. Here are the main themes, talking points, and takeaways from the session.
SRA Issues New Warning Notices On Key Regulatory Concerns
The Solicitors Regulation Authority (SRA) has recently issued three important warning notices addressing critical areas of legal practice: mergers and acquisitions of law firms, missing client funds, and Strategic Lawsuits Against Public Participation (SLAPPs). These notices aim to uphold the integrity and trust in the legal profession by highlighting concerning behaviours and advising solicitors on best practices.
Whenever the SRA issues a Warning Notice it means they have identified compliance issues which they are actively looking to enforce. It is more than guidance. Here’s a breakdown of each warning notice and what solicitors should do in response.
ICYMI: Time Padding In Law Firms: An Endemic Ethical Crisis?
A recent RollOnFriday poll has revealed concerning insights into the billing practices within the legal profession. Over a third (35.5%) of surveyed lawyers admitted to inflating their time sheets, with 13% confessing to doing so regularly. This practice, known as time padding or time dumping, involves recording more hours than actually worked, raising significant ethical and regulatory concerns.
If there was ever a regulatory issue hiding in plain sight, this is it. Our regulators should be looking very closely at this issue to protect the integrity of the profession from what looks like rampant unethical behaviour.
ICYMI: Updated NCA Guidance On Requesting A Defence To Money Laundering Offences (DAMLs)
This updated guide from the National Crime Agency (NCA) provides crucial information for lawyers on how to request a defence against money laundering and terrorist financing offences under the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 (TACT).
News and Guidance
- SRA Warning Notice – Mergers, acquisitions and sales of law firms – The SRA is concerned that the buying and selling of law firms, particularly in tight completion time frames, poses specific regulatory risks. Primarily, the regulator dislikes clients being treated as ‘commodities’ and emphasises that clients’ best interests must remain paramount. In addition, there are concerns that M&A due diligence is often not adequately conducted, and that mandatory regulatory reporting is overlooked.
- SRA Warning Notice – Money missing from client account – The SRA’s latest warning notice emphasises the critical importance of safeguarding client funds. Key concerns include the potential for financial loss to clients and damage to public trust if client money goes missing. Expectations for firms include:
- Immediate replacement of any missing client funds.
- Thorough compliance with SRA Accounts Rules.
- Maintaining accurate and up-to-date accounting records.
- Prompt reporting of serious breaches to the SRA.
- Ensuring client money is used solely for client matters.
- Failure to meet these standards may lead to disciplinary action or intervention by the SRA.
- Updated Law Society practice note: Trust corporations – The Law Society’s practice note on trust corporations covers their definition, creation process, benefits, disadvantages, and regulatory requirements. If you are considering establishing a trust corporation it is essential reading, and includes how to establish one, along with relevant regulatory considerations under the SRA Standards and Regulations.
- Law Society delays rollout of TA6 Property Information Form and intends consult further – The decision was made to postpone the compulsory implementation of the revised TA6 form until January 2025. This delay comes in response to strong opposition from conveyancing members who expressed concerns about the changes. The Law Society aims to use this additional time to consult further with members and ensure that the form meets their needs effectively.
- Law Society Guide: Who is regulated under the Money Laundering Regulations 2017? – This guide explains which legal professionals are regulated under the MLRs 2017. It identifies the specific definitions of independent legal professionals, trust and company service providers, and tax advisers. The guide clarifies the scope of these categories and reminds us that there is no minimum threshold for transactions: if you’re within scope you are bound by the Regulations in their entirety. The guide also highlights activities that fall outside the regulations, advising practitioners to seek independent legal advice when in doubt.
- Updated SRA Guidance: Transparency in price and service – The latest SRA guidance on price and service transparency obligations, updated in June 2024, provides instructions for law firms to ensure compliance with the Transparency Rules. The key points are:
- Mandatory Information: Where applicable, firms must publish comprehensive information about their prices, the services they offer, and the qualifications and experience of individuals or teams providing these services. This includes explaining technical terms in plain English and avoiding legal jargon. All firms must publish regulatory information, including the Digital Badge and complaints information. The Legal Ombudsman’s address recently changed, in case you have not yet updated your complaints policy.
- Presentation of Information: The guidance suggests best practices for presenting this information, such as providing clear, easily accessible descriptions of services and linking to reliable external sources like gov.uk for additional information.
- Clarity on Costs: It is essential that firms not only publish their standard costs, but also explain any additional costs like taxes and disbursements, and any factors that could increase service costs. Information should be provided in multiple formats or languages if necessary. And don’t forget to state the rate of VAT currently in force (not just “plus VAT”) – SRA website checkers often pull firms up for this.
- Templates and Examples: The SRA provides templates for different pricing models and services, such as conveyancing, to help firms tailor their information. These templates include clear fee breakdowns and scenarios illustrating potential additional costs.
- Compliance and Marketing: Firms are reminded to ensure their marketing practices comply with statutory obligations to avoid misleading information. The SRA is keen for solicitors to engage with review sites.
- Professional Standards: The guidance reiterates the need for firms to comply with the SRA Code of Conduct, ensuring all publicity is accurate and not misleading. Firms must ensure that their practices uphold public trust and meet the high standards expected by the SRA.
- Legal Futures: Is it time for a client money big bang? – In his guest blog for Legal Futures, Paul Philip (the Chief Executive of the SRA), discusses the potential for a significant shift in how client money is handled by law firms.
- He highlights the traditional practice of law firms holding client money and suggests that the advent of digital banking offers new opportunities for more sophisticated and robust systems.
- Philip raises the possibility of moving away from the conventional client account model to a system where client money could be managed more securely and transparently through technological advancements, perhaps in line with the French model.
- “We [are] also looking at whether it is ever appropriate for firms to benefit from interest on client money. Firms must pay a fair sum of interest to clients, but should firms be topping up their income through interest earned on client balances? That doesn’t feel right to me – it’s the client’s money after all.”
- In our recent blog on this issue (Reflections On The SRA’s Proposal To Ban Solicitors Client Accounts), we expressed concerns about the practicality and implications of such a move. Whilst there are undoubtedly benefits to improving client money handling and security, an outright ban could disrupt many firms’ operations – and probably not to the benefit of clients. The French model is not known for its efficiency, after all. We think a balanced approach which enhances safeguards without imposing undue burdens on law firms is the right way to go.
Compliance corner – real life Q&As
“Can my firm act for buyer and seller in a conveyancing transaction if we put information barriers in place?”
Well, it’s complicated…
The Safe Answer:
No, your firm cannot generally act for both the buyer and seller in a conveyancing transaction, even with information barriers in place. The SRA has strict rules regarding conflicts of interest to ensure that the best interests of clients are protected and to maintain public trust in the legal profession.
A consultant solicitor was recently rebuked by the SRA for this very reason.
According to the SRA Code of Conduct for Solicitors, RELs, and RFLs, acting for both parties in a transaction where there is a significant risk of a conflict of interest is generally prohibited (Rule 6.2: You must not act in relation to a matter or a particular aspect of it if there is a conflict, or a significant risk of a conflict, between the interests of two or more current clients).
This is particularly relevant to conveyancing transactions, where the interests of the buyer and seller are more likely to be inherently in conflict.
There is a common misconception that using separate team members, offices and other information barriers will magically make a conflict go away. Unfortunately it’s not that simple. These measures can be very effective at mitigating the risk of inadvertent disclosure of confidential information between the clients. But they will not cure the fundamental client conflict and appearance of bias of one client over another. Remember that the firm as an entity, as well as the individual solicitor, is bound by the conflict rule.
So the SRA clearly does not like it. In the 2011 rules, there was a specific “indicative behaviour” (remember those?) which referenced acting for buyer and seller as being consistent with a conflict scenario. This was removed as part of the rulebook-slimming exercise, but the regulator has never explicitly changed its position.
The official SRA guidance on conflicts unhelpfully fails to address this common scenario, a missed opportunity.
The Law Society Practice note on conflicts is a more useful resource. It acknowledges that it is generally not permissible to act for both the buyer and the seller in a conveyancing transaction due to the potential for a conflict of interest. However, it goes on to say:
“The decision rests with you and your practice as to whether there is a conflict of interests or a significant risk of one in the circumstances, taking into account whether:
- the seller and buyer are, for example, persons related by blood or marriage
- the sale is at an undervalue or a gift, or
- the seller and the buyer are both established clients of the firm”
Exceptions and Practical Steps:
While the general rule is clear, there are very limited exceptions where acting for both parties might be possible, such as in simple, straightforward transactions with no contentious issues, and where both parties give informed consent. We have to remember that conflicts are always fact-specific, and there may be cases where it is genuinely in the clients’ best interests to use one firm.
However, the exceptions to the rule in conveyancing are rare and must be approached with extreme caution. It is certainly a decision which the COLP should make.
The Law Society says:
- You must document the basis for your decision and be prepared to justify it to the SRA. This includes recording your decision and the reasons behind it.
- Continuously monitor the situation for any emerging conflicts of interest. The implications of a conflict arising mid-transaction could be significant for both clients and any others involved in linked transactions, such as in a conveyancing chain.
- Even with informed consent and robust information barriers, you must ensure that acting for both parties is genuinely in their best interests and does not compromise your professional obligations.
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 free webinar – Shaping the Future: Leveraging the Power of Culture in Law Firms
We are excited to invite you to an exclusive webinar, featuring guest expert Chris Sweetman.
Date: Wednesday 10th July 2024
Time: 1:00pm-2:00pm
Platform: Zoom
This session will delve into the increasingly important topic of law firm culture, focusing on regulatory perspectives and practical steps to align with the SRA’s guidelines. Our panel will share invaluable insights on creating a positive and compliant work environment.
Read our blog on this topic here
Places are limited. Secure your spot here
Upon registration, you’ll receive a confirmation email with all the necessary details to join this essential webinar.
Recording: NDAs and SLAPPs – latest guidance
This week we hosted a webinar with Sophie Freeman of The Legal Director, discussing the SRA’s warnings around the use of Non-disclosure agreements and ‘Strategic Litigation Against Public Participation’.
Despite being separate warnings, there are common themes around balancing the competing duties to act in clients’ best interests versus upholding ethical principles. Acting with integrity, upholding the rule of law and maintaining public trust in the profession all come into play. Solicitors cannot blindly follow client instructions without considering the wider ethical context.
But where is the tipping point? Sophie had some very useful insight into the commercial use of NDAs, particularly in the employment and entertainment spheres.
The SLAPPs guidance may, at first glance, appear to be a niche area of concern. But the SRA Warning Notice has elements that apply to all litigators.
Watch the recording (use passcode CvalG&2k).
Recording: Attacks, hacks and cyber risks
Watch our panel discussion on cyber security for law firms, which brought together experts Chris Roberts from Cybata, Gary Horswell and Colin Fox from Ntegrity insurance brokers, and data protection practitioner Rachael Eyre.
The discussion focused on the growing cyber threats facing law firms, emphasising the importance of digital literacy, supply chain security, regulatory compliance, and the role of cyber insurance.
The panel provided practical tips for enhancing cyber security measures and highlighted future challenges, including the impact of AI on cyber threats.
Training your team: Master COLP and COFA Responsibilities
Are you ready to excel in your role as a Compliance Officer for Legal Practice (COLP) or Compliance Officer for Finance and Administration (COFA)? Our bespoke training courses ensure you meet SRA requirements with confidence. Choose from remote or in-person sessions tailored to your firm’s needs, covering essential duties, compliance strategies, and practical tips. Interact with experienced trainers, ask questions, and receive valuable insights to safeguard your firm and yourself.
Don’t miss out—request a free quote today!
SRA and SDT disciplinary decisions
- Laura Sainsbury – fined £10,146 for ‘recklessly’ amending and filing a deed of transfer without the client’s knowledge.
- Catherine Thompson – conveyancing executive removed from the profession for dishonestly backdating letters and forging client signatures on deeds.
- Steven Diamond – non-solicitor conveyancer removed from the profession for backdating a deed of easement, having overlooked to prepare the document at the relevant time.
- Sophie Mulrooney – non-solicitor banned from the profession for diverting a client’s stamp duty refund to herself.
- Jacque Aitken – Office Manager removed from the profession for using her position to help use client money for office expenses.
- Sterling Winshaw Solicitors Ltd – firm fined £750 for failing to submit diversity data to the SRA.
- Margaret Compton – consultant solicitor rebuked for acting in a conflict of interest situation in three conveyancing transactions, where the other party was represented by another colleague.
- Laurence Lee & Co – firm fined £1,822 for having inadequate systems and controls in place to stop a rogue accounts manager from stealing £157,000 from the client and office accounts.
What we do – contact us for further information about our services