Jon and the team
Reminder: PC renewals now open
This year’s practising renewals exercise is live for both individuals and firms. The application forms are hidden within mySRA – click the links for guidance. Don’t forget that individuals have to opt in to be included in their firm’s bulk renewal.
You will have seen that the huge levy to plug the gap in the Compensation Fund has finally been given the green light by the LSB. Individual contributions rise from £30 to £90; firm contributions increase from £660 to £2,220.
The application window closes on 31 October 2024.
Critiquing the SRA’s Financial Penalties Proposal: Voices of Opposition and Underlying Concerns
The Solicitors Regulation Authority (SRA) recently issued a consultation (now closed) proposing significant changes to its financial penalties framework. The response from key stakeholders in the profession has been vociferous, with widespread criticism from the Law Society, the City of London Law Society, the Birmingham Law Society, and the Solicitors Disciplinary Tribunal (SDT). Each of these organisations has raised serious concerns about the proposed changes, which could have far-reaching consequences for law firms.
The proposed minimum and maximum fines in Bands E and F, for example, suggest a level of severity of misconduct that traditionally would warrant referral to the independent SDT. The consultation raises pressing questions: Is the SRA overstepping its remit? Are these changes a threat to the established role of the SDT? Does it undermine principles of “fairness”, and exacerbate the inequality of arms between regulator and regulated?
Quick-Fire AML Q&A
Compliance with Anti-Money Laundering (AML) regulations is increasingly a source of stress and concern for lawyers. The Solicitors Regulation Authority (SRA) has been ramping up its enforcement efforts, issuing increasingly punitive fines and scrutinising firms to ensure they meet the necessary standards.
During a recent webinar (“SRA AML Fines: Lessons to be learned”), the 500+ lawyers in attendance raised some pressing questions about the SRA’s approach to AML fines and compliance requirements. We thought it would be helpful to prepare a rapid-fire Q&A that addresses the most common concerns raised before and during the session.
ICYMI: 5 Lessons your firm can learn from SRA AML fines
Regular readers of this newsletter will know that the SRA has been ramping up its efforts to combat money laundering within the legal sector. As part of this crackdown, numerous firms have faced substantial fines for failing to meet their Anti-Money Laundering (AML) obligations following targeted regulatory visits.
The SRA now wields unlimited fining powers for matters involving financial crime. That means no formal hearing is necessary. If the financial penalties consultation amendments come into force, the minimum fine for the most serious offences will start at £500,000 for firms (£100,000 for individuals), and could go up to as much as 10% of global turnover.
While these fines can be financially damaging, they are also a severe blow to reputation.
On the plus side, publicised decisions can offer valuable lessons that can help firms avoid similar pitfalls in the future.
Here are 5 key lessons your firm can learn from the SRA’s recent AML fines to strengthen your compliance framework and safeguard your reputation.
ICYMI: A Proactive Approach to Preventing Sexual Harassment: What COLPs Need to Know
With the introduction of the Worker Protection (Amendment of Equality Act 2010) Act 2023, set to come into force in 2024, law firms face a critical shift in their responsibilities regarding workplace harassment, says Debbie Fowler. This new legislation requires firms to take proactive steps to prevent sexual harassment, moving beyond reactive measures and aiming to foster a safer and more respectful workplace culture. Additionally, employers will be held liable for third-party harassment, significantly expanding their obligations.
Why This Matters to COLPs
COLPs (Compliance Officers for Legal Practice) play a pivotal role in ensuring that their firm not only complies with legal standards but also maintains a workplace environment that upholds the highest ethical and professional values. The new duty under the legislation emphasises the importance of a preventative approach. Firms should not wait for incidents to occur but must anticipate and mitigate risks. This aligns with the SRA Principles, which emphasise acting with integrity, upholding public trust in legal services, and promoting equality and diversity.
News and Guidance
- SRA | News from the Board: Reflections on our September Board meeting – The SRA latest Board meeting signals a continued shift toward proactive regulation. With an emphasis on addressing “bulk litigation risks” in the wake of several high profile law firm failures, the SRA intends to spend money enhancing data quality and tightening its grip on regulatory processes. Noteworthy is the plan for increased scrutiny on law firm consolidators, extension of the current SRA Chair’s appointment, and a plan for increased Accounts Rules spot checks across the profession. Sort out those residual balances!
- OPBAS | Anti-Money Laundering Supervision by the Legal and Accountancy Professional Body Supervisors: Progress and themes from our 2023/2024 supervisory work – OPBAS is the AML “super regulator” of the professional services regulators. It puts direct pressure on the SRA and others to constantly tighten AML supervision. The organisation’s latest report highlights ongoing weaknesses in the legal sector. Despite compliance with the Money Laundering Regulations, many professional body supervisors (PBSs) lack consistent effectiveness in key areas, including risk-based approaches, enforcement, and information sharing. Notably, OPBAS observed a decline in PBS effectiveness in the 2023/24 cycle and called for more proactive enforcement. Although the SRA is not called out specifically, the tone of the report suggests that law firms should anticipate stricter AML supervision and consider enhancing their internal AML controls and training efforts.
- SRA | Revised 2024/25 Business Plan published – The SRA’s revised business plan outlines its priorities including issues identified in the ongoing Consumer Protection Review, bulk litigation risks, and improving the regulator’s use of data. Notably, it hints at possible higher levies on solicitors to address emerging risks.
- SRA | Updated resources to help firms comply with transparency rules – The regulator has issued updated guidance to help law firms comply with transparency rules, which it says will improve the clarity and accessibility of legal services for clients. The resources, which come against the news that around 500 firms have been pulled up for website breaches in the past 18 months, includes pricing and service information templates. The SRA website auditors are very picky, and will not hesitate to reach for the regulatory enforcement tools where necessary.
- Law Society | Practice note: Freelance solicitors [updated] – The updated Law Society practice note on freelance solicitors provides a detailed overview of this alternative practice model, focusing on the regulatory issues for practitioners. Under the SRA Standards and Regulations, solicitors can offer services to the public outside traditional legal entities. Some key points:
- A freelance solicitor practices in their own name, cannot employ others (if they are providing reserved activities), and must receive fees directly. Freelancers can provide legal services as a solicitor without needing to be authorised as a sole practice.
- They are exempt from the SRA’s minimum terms for professional indemnity insurance (PII), but must have adequate and appropriate insurance when conducting reserved legal activities.
- Freelance solicitors must comply with the SRA rules that apply to them, including the Principles, Code of Conduct and and Transparency Rules. Other more general regulation, such as data protection and consumer protection, will apply.
- Those offering legal services within scope must comply with Money Laundering Regulations (MLRs) and are subject to restrictions on hiring staff if conducting reserved legal activities.
- Clients need to be made aware that freelance solicitors may not have the same level of PII coverage as traditional firms.
- Law firms engaging with freelance solicitors should understand the limitations and potential risks, including the solicitor’s inability to handle client money in some cases, and the value of undertakings given by a freelancer.
- Freelance solicitors should not be confused with solicitors who practice through an unregulated entity.
Compliance corner – real life Q&As
Q: “Could a firm refusing to act for a Russian national be considered discrimination?”
A: This is a great question! And very timely, given the regulator’s focus on sanctions compliance.
The SRA Code of Conduct for Firms rule 1.1 states: “You do not unfairly discriminate by allowing your personal views to affect your professional relationships and the way in which you provide your services.”
There isn’t a ‘blanket ban’ on providing services to Russian nationals. We must remember that everyone should be entitled to legal representation, and Russia isn’t even on the official list of high risk third countries. But it is crucial for firms to ensure that proper sanctions checks and thorough source of funds assessments are conducted.
Here are some key points to consider:
- Sanctions Checks: The firm must regularly conduct sanctions checks, as the landscape is constantly changing. Today’s non-designated individual could be sanctioned tomorrow. This necessitates ongoing vigilance to avoid inadvertently acting for a sanctioned individual. E-verification systems often provide alerts.
- Risk-Based Approach: The grounds for refusing to act should not be based solely on nationality. Instead, the decision should relate to the individual’s connections to a high-risk jurisdiction. A firm might adopt a policy of accepting lower-risk matters, such as purely advisory work, which demonstrates a risk-based, non-discriminatory approach.
- Case-by-Case Evaluation: Instead of applying a blanket rule, consider a ‘case-by-case’ approach. Each instruction should be risk-assessed individually, with the firm’s decision documented. This ensures that the firm’s stance is based on specific risk factors rather than nationality alone.
- Document Your Decision-Making: Your firm’s risk appetite should be detailed in the Firm-Wide Risk Assessment (FWRA). For each instruction, document the reasons for accepting or declining, including considerations of expertise, resources, source of funds, and proportionality of fees to risks involved.
- Justifiable Risk Stance: Some firms may find such work outside their risk appetite for reasons such as lack of expertise or the administrative burden of constant sanctions checks. This can be justifiable, provided that there is a clear and well-documented rationale.
Refusing to act for a Russian national may not necessarily constitute discrimination if the decision is grounded in a well-documented, risk-based approach. Ensure that your firm’s policies, risk assessments, and decisions are consistently documented to create a clear audit trail.
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 | 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.
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.
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SRA and SDT disciplinary decisions
- Liam Gillard – law firm accounts employee removed from the legal profession for misleading his employers about sending coursework to an accreditation body.
- Zachariah Reynolds and Alexa Kordowicz – partner and assistant solicitor fined £21,287 and £9,359 respectively, for failing to take proper instructions in secured lending matters, consider client conflict risks, and whether a transaction was in the clients’ best interests.
- Allsop Durn LLP – firm rebuked for not complying with an undertaking to discharge a mortgage, until 14 months after completion.
- Anthony Foley – rebuke for solicitor who held client money for almost 15 years too long.
- Chukwuemeka Mmegwa – rebuke for COLP/COFA who sought to deflect responsibility for compliance failings following an SRA forensic investigation of the firm.
- David Storry Walton – struck off following conviction for attempting “to engage in sexual communication with a child”, uncovered as part of an amateur sting operation.
- Godwin Ehujor – fined £3,478 for breaching an undertaking restricting payment of the net proceeds of a property sale until divorce finances had been agreed.
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