Hello, and welcome to our round up of risk and compliance news!
The premise of this newsletter is very simple – we want to keep you updated with key news in the compliance world. We pull together the most important updates from the regulators, Law Society, legal press etc. to save you time hunting for it. We also comment on each news item setting out why it’s important, and identify any action you need to take.
We had some great feedback from the last newsletter – interested to hear your thoughts on this new format!
Proposed AML reforms ‘would make SARs regime risk based’
The government is proposing to reform suspicious activity reports (SARs). In the recent Action Plan for anti-money laundering and counter-terrorist finance, key proposals were outlined suggesting that the new AML regime will be more intelligence-led and risk-based.
Why is it important?
In the wake of the ‘Panama Papers’ scandal (which surely has some way to go yet), and an impending review of the UK’s AML regime by the Financial Action Task Force (the international ratings agency), the UK government is desperate to be seen to be pushing ahead with an all-out war on financial crime.
As well as changes to the way AML risks are reported to, and handled by, the National Crime Agency (NCA), the paper also sets out proposals for the removal of the statutory money laundering defence. This alone could have huge implications for firms’ attitude to AML risk.
The action plan, which highlights the legal profession’s vital role in combatting financial crime, looks at making the process of reporting less of a ‘tick box exercise’.
You can read more here
ABSs ‘haven’t worked’ as intended
Paul Philip, the Chief Executive of the SRA, has admitted that Alternative Business Structures ‘haven’t worked’ as the legislators intended. In particular, we have not seen a huge number of truly ‘multi-disciplinary practices’ (MDPs) – those ‘one stop shop’ joint ventures between lawyers, accountants and other professionals. Part of the problem, Mr Philip says, was the SRA’s own authorisation process.
Why is it important?
When ABSs were first launched, the two main ‘game changers’ were expected to be supermarkets entering into the legal profession, and a surge in MDPs. But there has not (yet) been the anticipated legal Big Bang.
Yes, there are some very interesting ABS business models (we see them every day here), but by and large they tend to be evolutionary rather than revolutionary.
Things are definitely improving at the authorisation level (decisions in under three months in some cases), and by acknowledging its own past failings the SRA has set itself on course to remove regulation as a barrier to ABS. The Separate Business Rule was relaxed last year, and this goes some way to presenting more opportunities for lawyers to work with other professionals.
Read more here
Got ABS plans? Contact us for a free chat about getting started.
Cybercrime and PI insurance
In advance of renewal season, the Gazette has recently warned that PI insurers could seek further information about the measures in place to combat cybercrime.
Why is it important?
This is a stark reminder that fraud and cybercrime is high on the regulators’ agenda (see for example the SRA’s Risk Outlook 2015/16). When the insurers are getting spooked by their exposure to risk you know there is a real problem.
As a very minimum, it’s important that you stay up-to-date with the latest methods that fraudsters are using, and ask yourself whether you are taking all reasonable steps to mitigate the risks. You could complete a simple IT risk assessment (contact us for a free template). And there are specialist companies out there who will assess the strength of your current IT security. There are one or two we can recommend.
But let’s not forget that this issue is wider that IT risks. In fact, the word ‘cybercrime’ is a bit of a misnomer. Much of the fraudulent activity we are seeing is relatively old-fashioned mandate and cheque fraud.
Make no mistake, your firm is an enticing target for criminals. Your defences are only as strong as your weakest link – be that personnel or systems.
Continuing Competence – only 6 months to go!
The countdown is on – the SRA’s new Continuing Competence regime becomes mandatory from 1 November 2016.
Why is it important?
The old CPD requirements of completing 16 hours each year will no longer be valid. All solicitors need to be aware of what the new approach will mean for them (hint: it would be wrong to assume that you can just keep doing 16 hours – under the new rules that is not enough).
A recent SRA survey estimates that almost half of all law firms have switched over to the new system – although interestingly most of those had made few changes to their existing Learning & Development processes.
You can read more here and access the SRA’s toolkit here. No doubt we’ll be giving more guidance as the switch-over approaches.
Conveyancers are liable for fraudulent seller’s actions
In a decision that is likely to cause concern for property solicitors, the High Court recently ruled that conveyancers on both sides of a transaction were liable for the actions of a ‘rogue seller’. In the case, a fraudster impersonated the genuine owner of a property in London and purported to sell it. Both sides failed to pick up on the warning signs of fraud, and the “seller’s” solicitors did not undertake basic AML checks.
Why is it important?
This case brings together the AML rules and principles of negligence. If the seller’s solicitors had only been more vigorous in their client due diligence, or more alive to the very clear red flags in the case (purchase money in full before completion; funds then sent by the firm overseas…), the innocent purchaser would have been protected, and the lawyers would not be facing a £400,000 bill.
You can read the full judgement here
Legal Ombudsman (LeO) roundup
The Law Society believes that LeO funding should be partly based on the ‘polluter pays’ principle i.e. those firms who give a shoddy service, resulting in more complaints, should bear a larger proportion of the LeO’s costs. The Leo has indicated a full review of its fee structure later in 2016.
In other news, the oversight regulator (the Legal Services Board) has shelved plans to widen the LeO scheme to unregulated providers of legal services – including will writers and paid McKenzie friends.
Why is it important?
The Law Society’s stance on LeO funding is hard to argue with. As things stand, law firms face a flat £400 fee whether or not the complaint is upheld. Hardly a fair system to those firms who find themselves exonerated, or small firms with limited resources.
In our experience, it also encourages firms to settle complaints on a commercial basis, rather than perhaps addressing any failings that caused the initial complaint.
The LSB’s decision not to expand the LeO scheme means that clients using unregulated providers will continue to have no statutory body to complain to. On one hand, in a world where it is easy to sit outside of regulation for most legal work, this is not in the spirit of consumer protection.
On the other hand, it gives solicitors the opportunity to differentiate themselves from the unregulated competition.
You can read more about each of these stories here and here
Download your free template PSC register
You’re probably well aware of the new requirement – as of 6 April 2016 – for incorporated businesses to maintain a Persons with Significant Control (PSC) register. Yes, that includes law firms! And yes, it is a criminal offence not to do it!
So with that in mind, we have put together a little template register and guidance to get you started.
For full details about keeping a PSC register and filing it with Companies House (as of 30 June 2016), have a look at the official guidance.
Please let us know what you think about the template – is there anything we should add or amend?
Download your free template here
