After a rather indulgent August (oh, France), we’re back to it on the compliance front. And what better email for COLPs to receive during the summer holiday period than one from the SRA about a looming AML survey deadline. 23rd September – put it in your calendar. From what we have seen over the last few weeks, that email has sparked quite a few firms into action reviewing and updating their documents.
In this back-to-school edition of COLP Insider we have three new articles for you on law firm mergers, Chinese underground banking (expect to hear more about that and other ‘informal value transfer systems’ in the coming years), and PII renewal.
The SRA seems to have taken the summer as an opportunity to refresh some of its guidance and warning notices, so do have a look at those. Especially if you do any ‘financial mis-selling’ work.
Please do come along to our next free webinar on SRA fines, in conjunction with Thirdfort (full details below). There have been some more large fines over the past weeks – see the disciplinary sections of this newsletter.
As always, please do get in touch if you have any comments or suggestions for future newsletter items.
Until next time!
Jon and the team
Ensuring compliance in law firm M&A transactions: A guide for solicitors
As the legal industry evolves, mergers, acquisitions, and sales are becoming more frequent among law firms. Whether for strategic growth, market consolidation, or retirement, these transactions offer significant opportunities. However, they also come with substantial compliance risks that can jeopardise a firm’s reputation and stability if not handled correctly.
In this blog, we’ll dive into the compliance issues that solicitors and law firms must consider when navigating M&A transactions, based on recent warnings from the Solicitors Regulation Authority (SRA).
How the Metropolitan Police’s £55M money laundering convictions highlight the importance of law firms’ AML compliance
In August 2023, the Metropolitan Police broke up a £55 million money laundering ring operating in Hackney. This complex scheme involved several individuals who laundered large sums of money through “Chinese underground banking systems” and other informal value transfer systems (IVTS). The group used a network of couriers and anonymous transactions to facilitate the movement of illicit funds, ultimately leading to their conviction and the seizure of significant assets. The criminals involved were sentenced to a total of almost 25 years in prison.
This high-profile case underscores the growing use of underground banking systems for laundering criminal proceeds, raising serious concerns for solicitors involved in financial transactions. For legal professionals, understanding these informal banking systems is essential, as they can inadvertently become entangled in money laundering activities if they fail to conduct proper due diligence.
7 Essential tips for a successful PII renewal
PII renewal season is fast approaching, with around two-thirds of law firms expected to renew their insurance in the next three or four weeks. Following years of limited market appetite, there is now an opportune moment to capitalise on the increasingly favourable market conditions.
It’s not too late to benefit, but you will need to approach your PII renewal strategically to ensure your firm is well-presented to insurers.
How law firms can leverage the power of culture
Our latest webinar (“Shaping the Future: Leveraging the Power of Culture in Law Firms”) drew considerable interest from the legal profession, with over 100 participants signing up to the live session. Our panel comprised Jonathon Bray, Chris Sweetman, and Ed Marshall, who explored the regulatory and strategic importance of cultivating a positive culture in law firms. Here are the key takeaways from the session:
- The regulatory perspective, thematic reviews and rule changes
- Defining and shaping culture
- Strategic benefits
- Practical steps to cultivate positive culture
Understanding The SRA’s AML data collection exercise 2024: A guide for COLPs
The SRA’s Anti-Money Laundering (AML) Data Collection Exercise 2024 went live in August. The SRA is responsible for enforcing the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), ensuring firms have robust systems to prevent money laundering and terrorist financing.
COLPs, along with MLROs and other senior role holders, play a critical role in this process. The SRA has written to COLPs advising them to “Get ready to provide information about your firm’s Anti-Money Laundering (AML) and financial sanctions activity“. This data collection exercise takes the form of a 44-question survey.
The deadline for submitting responses to the SRA is 23 September 2024.
News and Guidance
- SRA: Guidance | Representing clients during claims for financial services or products – This guidance outlines the duties under the SRA Claims Management Fees Rules 2024, including providing clear information about fees, informing clients of their right to self-representation, and ensuring charges are fair and reasonable. Solicitors must disclose all fee-related details and ensure charges are justified. Certain claims may be exempt from maximum charges under specific circumstances. The guidance interprets compliance with the rules widely, and includes reference to Code of Conduct requirements.
- SRA: [Updated] Warning Notice | Use of non-disclosure agreements (NDAs) – The updated warning notice emphasises that NDAs should not be used to prevent individuals from reporting misconduct, cooperating with law enforcement, or making disclosures protected by law. Solicitors must ensure NDAs are clear, enforceable, and do not unfairly restrict individuals’ rights. They must also avoid taking advantage of unrepresented or vulnerable parties. Compliance with professional and regulatory obligations, such as maintaining public trust and acting with integrity, is crucial. Misuse of NDAs may lead to disciplinary action. See also the key take-aways from our recent webinar on NDAs.
- Gazette: SRA forced to delay rise in compensation fund levies – Whilst the wait for the elusive independent report into the Axiom Ince affair goes on, the Legal Services Board (LSB) has taken the unusual step of putting the brakes on a planned SRA fees increase by up to three months. The regulator had planned to raise compensation fund contributions by 300% this year. John Hyde’s excellent commentary on the sorry saga is well worth a read.
- SRA: [Updated] Guidance | Complying with the UK Sanctions Regime – The updated SRA guidance on sanctions outlines how solicitors and law firms must comply with sanctions imposed by the UK government. It stresses the importance of conducting due diligence to identify “designated persons” and avoid breaches. This guidance also explains key red flags for sanctions evasion and contains a template sanctions risk assessment.
- Law Society: Practice Note | What to do when the law firm you work for is closing down – This practice note provides guidance for employees of law firms that are closing down, covering scenarios such as closure due to financial issues, death, or SRA intervention. It discusses employment considerations like redundancy, TUPE regulations, and job-seeking strategies. Employees are advised on handling client matters, safeguarding confidential information, and protecting themselves from potential liability. The guidance also includes advice for trainee solicitors and emphasises the importance of acting in accordance with the SRA Standards and Regulations during the closure process.
Compliance corner – real life Q&As
“Can a solicitor practice through an unregulated limited company instead of a regulated law firm?”
This is a frequent question among solicitors exploring alternative ways to deliver legal services. The short answer is yes, so long as the legal work is not one of the reserved activities. If a solicitor wants to do non-reserved work through an unregulated company, they remain personally regulated by the SRA, and their professional obligations continue to apply.
Reserved work can only be conducted through a regulated law firm, as a recognised sole practitioner, or as a freelance solicitor.
What is an Unregulated Legal Service Entity?
When a solicitor practices through an unregulated entity, such as a limited company, the business itself is not subject to direct regulation by the SRA. However, solicitors remain bound by the SRA Code of Conduct and SRA Principles. The main difference is that the business entity doesn’t have to meet the regulatory requirements that a regulated law firm would, such as obtaining SRA-approved professional indemnity insurance or providing access to the Legal Ombudsman.
Solicitors working in such an arrangement must clearly communicate their regulatory status to clients. Clients must understand that they are not receiving services from a fully regulated law firm, meaning they won’t benefit from all regulatory protections. This transparency is critical and is a requirement under SRA rules.
Key Considerations
- Client Communication: Solicitors practicing in an unregulated entity must inform clients of their status and ensure that clients understand the consequences of this arrangement. They won’t have access to protections like the SRA Compensation Fund or the Legal Ombudsman. The solicitor should assess whether it’s in the client’s best interest to instruct them over a fully regulated firm.
- Regulatory Compliance: Even in an unregulated business, solicitors are still personally regulated by the SRA, meaning the SRA Code of Conduct and Principles apply fully. This includes duties such as acting in the best interest of the client, maintaining confidentiality, and ensuring competence.
- Professional Indemnity Insurance: Although there is flexibility regarding insurance, solicitors should carefully consider the level of insurance they maintain. While a regulated firm must adhere to SRA minimum standards for professional indemnity insurance, solicitors practicing through an unregulated company can choose their level of cover. Nonetheless, ensuring adequate protection remains essential to avoid personal liability.
- Ethical Considerations: Solicitors should ensure that practising through an unregulated entity does not compromise their ethical obligations. For instance, they must avoid misleading clients about their status and ensure that clients fully understand the limitations of working with an unregulated firm.
- Client Money: The solicitor will not be allowed to hold client money in their own name, but that does not necessarily stop the unregulated business operating a client account.
Conclusion
While it is possible for a solicitor to provide legal services through an unregulated limited company, there are still compliance and ethical considerations to bear in mind. Solicitors remain bound by the SRA’s regulatory framework, even if their business entity is not directly regulated. The success of such a venture depends on transparent client communication, adequate insurance coverage, and a thorough understanding of the regulatory environment. For more detailed guidance, the Law Society’s practice note on offering legal services from unregulated entities is an essential resource.
Disclaimer: Always seek professional advice if unsure of the regulatory implications of your business model.
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 webinar: SRA AML fines: Lessons to be learned
Our next free session will be presented in conjunction with Thirdfort, our favourite AML software solution. Jonathon Bray and Harriet Holmes will discuss the raft of fines issued by the SRA, and what they tell us about how firms are expected to approach AML compliance.
You will have the opportunity to ask questions live.
Places are limited, so reserve yours early.
Date: 18th September 2024
Time: 12:00 to 12:45
Don’t miss out: Reserve your place here
Recording: Shaping the Future: Leveraging the Power of Culture in Law Firms
Re-watch this week’s webinar, in which Ed and Jon chatted to expert Chris Sweetman about law firm culture. We talked about the regulatory angle, what culture is (and isn’t), and the strategic benefits of taking stock of culture and aligning behaviour with values.
Passcode: TzB08+1*
Read our blog on law firm culture here
Training your team: 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
- Anca-Florina Mitrana – Rebuke for NQ property solicitor who didn’t provide clients with adequate warnings about high-risk investments. Jonathan Sara was also fined £5,165.
- Irfan Malik – IT service desk employee banned from the legal profession for stealing laptops.
- Lydia Cleary – Paralegal “struck off” for dishonestly creating false attendance notes on a client file.
- Gareth Williams – Solicitor rebuked for continuing to trade without professional indemnity insurance.
- Aman Mahroof – COFA fined £5,472 for failing to keep proper accounting records or complete client account reconciliations.
- Stephen Vasey – Solicitor fined £1,198 for acting in a conflict situation, where no exception to the general rule applied.
- Ian Bond – Law firm employee banned from the profession, following a conviction for touching “two of his work colleagues in an inappropriate, sexual manner” after a staff summer party.
- Shahraq Hussain – Paralegal removed from the profession for dishonestly withholding relevant information from his law firm employer (the relevant information being: a court struck out his personal injury claim for fundamentally dishonesty; and he had received a CCJ).
- GD Solicitors Ltd – Firm fined £21,843 (2.4% of turnover) for AML process shortcomings, including lack of risk assessment and policies and procedures.
- Prithiviraj Pem – COLP and COFA fined £5,635 for allowing a £10,000 client account shortfall to arise through lack of reconciliation.
- Symons Gay and Leland LLP – Firm fined £12,636 (2% of turnover) following an AML audit, for lack of required documentation and failing to conduct client and matter risk assessments on five files.
- Band Hatton Button LLP – Firm fined £46,447 (reduced from £77,412 – 1.6% of turnover – under the terms of a regulatory settlement agreement) for AML failings: risk assessment, policies and procedures, lack of independent audit, lack of client and matter risk assessments.
- Stratford Solicitors Limited – Firm fined £18,425 (2% of turnover) for AML failures identified in an SRA inspection: risk assessment, policies and procedures.
- Charles Westwood – Criminal solicitor rebuked for failing to submit a client’s sentencing appeal in time.
- David Bridges – Solicitor rebuked following public order and criminal damage convictions.
- James Riley – Law firm director rebuked following a convictions for assault.
- Proctor & Hobbs Limited – Firm fined £10,729 for charging clients 35% of recovered damages under damages-based agreements (the statutory limit being 25%).
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
