In this bumper issue, we look at the peculiar overlap between the Data Protection Act 2018 (GDPR) and the Money Laundering Regulations 2017.
How long do we need to keep Client Due Diligence records?
Our guest article from Richard Lane of Legal Finance Professionals shows you what you need to do with those pesky residual client balances. Get in touch if you need a bit of help with these.
We also look at the tough new regime faced by CMCs, a rapidly developing story involving a top City firm. price transparency for conveyancers, and a public rap over the knuckles for the Law Society.
All the best,
Jon and the team
The trouble with GDPR and AML
One of the fundamental principles of GDPR is that you should only keep personal data for as long as necessary. Lawyers usually retain client files for at least 6 or 7 years for PII purposes, and much longer in some cases (e.g. property, children and private client).
Within most client files you will probably find client due diligence documents, copy passports, utility bills etc.
Whilst this is wholly reasonable and standard practice, there is a risk that it may inadvertently fall foul of the anti-money laundering legislation.
Guest post: Residual Client Ledger Balances Guidance
Richard Lane of Legal Finance Professionals takes you through what you need to do.
There are very few firms of solicitors that do not have a problem, to a greater or lesser extent, with old residual balances on their clients’ ledger. For many, these balances may only be a few pounds or even a matter of pennies but, even so, they can create very real compliance problems under the SRA Accounts Rules 2011.
FCA to impose a much stricter regime for claims companies (hooray!)
A tougher regime is being proposed by the Financial Conduct Authority (FCA) in relation to Claims Management Companies (CMCs) when it takes over as regulator in April 2019.
The proposed reforms come in light of reports of harm to consumers in the sector including poor service, fraudulent claims, lack of clarity on price, and aggressive or misleading marketing.
Sounds pretty accurate.
The proposals envisage wide-ranging requirements on CMCs, from organisational systems and controls, to adhering to professional principles (such as acting in the client’s best interests, avoiding conflicts and acting with integrity). Treating customers fairly is at the heart of FCA regulation.
Why it matters
The claims industry has become synonymous with underhand marketing tactics, poor service standards and general grubbiness. It has to be good news that the FCA is looking to clean things up. The cowboys are about to meet a very different sheriff.
Of course, there are also some very good and professional CMCs out there. We just don’t hear about them because they quietly go about their business. Hopefully the FCA’s new approach will help those businesses thrive. After all, many law firms depend on good quality referrers.
Coupled with the tough new data protection laws, maybe – just maybe – we might receive fewer and fewer spam calls and texts.
SRA considering probe into Clifford Chance
Clifford Chance may face questions from the SRA regarding its investigation into Royal Bank of Scotland’s Global Restructuring Group (GRG).
The firm has been accused of failing to act upon evidence surrounding activities of the GRG by a small business owner, Clive May. He alleges that he gave the firm clear evidence of abuse by GRG, which was overlooked.
RBS instructed Clifford Chance to prepare an independent report in 2014 in respect of allegations made by Lawrence Tomlinson the previous year that RBS had deliberately forced small businesses down a route of self-destruction so that the bank could pick up assets on the cheap.
The report found no evidence to support the allegations. However, the FCA also undertook its own review in 2015 which found RBS guilty of “systematic mistreatment” of distressed small businesses.
The SRA is to determine whether or not further questioning of Clifford Chance is necessary.
New transparency proposals for conveyancers
The Council for Licensed Conveyancers (CLC) is consulting on new price transparency proposals.
The conveyancing regulator has published its second consultation in the wake of the Competition and Markets Authority’s (CMA) report of 2016, which found a lack of transparency in the legal sector.
The CMA stated that in order for information to be useful it should be clearly set out on websites and available at a time when it is relevant for the customer.
The CLC proposes that all of its regulated practices will be required to publish cost information including any referral arrangements on its website. They will also have to inform consumers about the services they provide, the key delivery stages of the services and timescales.
They consultation paper also goes as far as suggesting that firms may wish to consider providing a “quote generator” and measures of quality.
Why it matters
The CMA report was a watershed moment for legal services. It has set the direction of travel in terms of competition and consumerism, and very difficult to see any of this talk of price transparency going away.
The rationale behind all this of course has laudable aims: to increase access to legal services, and service the “unmet need”. But of course there are a number of ways the CMA’s vision can be implemented. Some will be more burdensome than others.
There is also a risk of unintended consequences. Could some firms consider this a tipping point, and withdraw from regulation entirely, giving a further boost to the unregulated market? Or indeed increase their prices to differentiate themselves? What about those who find themselves so squeezed that they fall into financial trouble?
There are lots of practical questions to be answered, and as yet we have seen little from the regulators except soundbites.
A naughty cat looking shifty yesterday
Law Society receives LSB censure
The Law Society (TLS) has received the first ever public censure from the Legal Services Board (LSB).
The oversight regulator considers that “the SRA’s effectiveness was impaired by TLS’s oversight and monitoring arrangements“.
The LSB investigation found that between autumn 2014 and February 2017 TLS breached the Internal Governance Rules set by the LSB. It found that the Law Society’s’ oversight and monitoring arrangements of the SRA were not transparent or proportionate.
Whilst it was acknowledged that TLS updated its General Regulations in October 2017 so that the SRA is now responsible for designing and managing the appointments and reappointments process for its own Board members, enforcement action was taken as it had failed to address this in 2014 when the amendments to the IGR required it.
Clearly unhappy, the LSB concluded that TLS “impaired the effectiveness of the SRA, thereby undermining the public interest in effective regulation of legal services…For a body which emphasises the importance of the rule of law this is a serious failing“.
Why it matters
The SRA have long since pressed for complete independence, which is supported by both the CMA and LSB. This censure moves them one step closer.
It is only a matter of time.
New and updated Law Society Practice Notes
- In house pro-bono practice regulatory requirements – practice note aimed at helping in house lawyers wishing to undertake pro-bono work
- Information of letterheads, websites and emails – to include information in respect of approved ADRs in final letters to complainants after 1st tier complaint.
- Imran Rashid, Hafizah Mensurah Begum and Adamsons Law have been fined £12,000 for paying prohibited referral fees and allowing their independence to be compromised by a referrer
- Christopher Mark Howdle has been struck off for failing to safeguard client account. He was found to have made “numerous payments from client account“.
- Steven Edwards was fined £5,000 and £20,000 costs for using client money to fund the general expenses of the firm, resulting in a cash shortage.