In the risk and compliance world, this has been about as exciting as weeks get.
The new Money Laundering Regulations came into force on Monday, which caused a flurry of both excitement and worry (or maybe just worry). Don’t panic – see below for some guidance on what you should prioritise.
The big ABS news this week is that ICAEW are likely to be authorised as a regulator and licensing authority in respect of ALL SIX reserved areas. Which will mean accountants will be able to practice as law firms in their own right. When you consider the access to clients that accountants have, this could prove to be very significant.
Loads of disciplinary decisions also out this week and summarised below – some of them are eye-openers!
We hope you find this newsletter interesting and informative….please get in touch with your views, we would love to hear from you.
Have a great weekend,
Jon and the team
New Money Laundering Regulations
So the waiting is finally over, the Money Laundering Regulations 2017 came into force on the 26th June 2017. Hope you took full advantage of the weekend we were all given to implement the changes! Don’t panic, our latest blog will give you practical advice as to what you need to do first. Spoiler alert: we think that the risk assessment is the most important part. Do that properly, and it informs the rest of your approach to AML.
Get in touch if you have any queries…
IMPORTANT: SRA Financial Services Questionnaire
If you do not respond you are likely to be on the SRA’s radar. They have real concerns that firms are in breach of the Financial Services and Markets Act, which is a criminal offence.
The problem is that, a few specialists aside, hardly anyone understands the FSMA – including the regulator. Their approach is that the burden is on firms to assess their own activities. The SRA’s own Professional Ethics advice is that all firms should be on the FCA Exempt Professional Firms register ‘just in case’.
It doesn’t help that the questionnaire is poorly drafted. We have already come across firms that have very nearly replied indicating that they should be fully FCA-regulated, by ticking one of the first list of bullet points. We suspect that there are many more that have simply replied ‘No’ to everything without really thinking about it.
We think this could open a huge can of worms, and this is unlikely to be the last we hear of it.
SRA committed to reduce ‘burden of compliance culture’
In a conference on the 22nd June 2017, Juliet Oliver, general counsel of the SRA, said that the SRA does not want the profession to live in fear of the regulator. Earlier this month, the SRA announced it was dramatically slimming-down the Handbook and reducing the number of rules for solicitors. Ms Oliver said those changes are intended to reduce the ‘burden of compliance culture’ for firms. She encouraged solicitors and firms to getting ‘core standards right’ and gave assurances that the SRA will not look to punish every mistake under the new rules.
Why it matters
We fully support these sentiments. But does anyone actually believe that the regulatory compliance is going to get easier? The statistics of disciplinary measures taken would suggest otherwise, with rebukes, fines, as well as striking off or suspensions by the SDT increasing year on year. Every week we hear of solicitors being hauled over the coals for relatively minor infractions. And the regulators of course wants to make it easier to bring prosecutions, by reducing the burden of proof in the SDT.
Let’s not forget that firms at the moment are having to deal with a potentially tricky financial services questionnaire, diversity survey, new money laundering laws, impending data protection changes and ‘failure to prevent facilitation of tax evasion’ offences. It sometimes feels like a never-ending assault.
Whilst it is nice to hear that the SRA will not seek to punish every mistake, until there is evidence of a major culture change, we doubt we will hear a collective sigh a relief from the profession.
Data protection breaches
A company that fell victim to a cyber attack has been fined £60,000 by the Information Commissioner’s Office. Following an investigation, the ICO found that Boomerang Video Ltd failed to take basic steps to stop its website being attacked. The ICO warned all SME’s to take note.
Gloucester City Council and Basildon Borough Council have also recently been fined £100,000 and £150,000 respectively by the ICO for breaches involving sensitive information, raising concerns that local authorities are falling short on data protection.
Why it matters
With the GDPR due to come into force in May next year (see our blog) data protection should be high on every organisation’s agenda. The ICO is a becoming more and more active in enforcement.
Like local authorities, solicitors typically process significant volumes of some of the most sensitive data possible.
Unlike the Money Laundering Regulations, we have had plenty of notice of the GDPR. Under the GDPR serious breaches could attract huge fines, so now is the time for everyone to take stock and ensure that data protection measures are in place.
Finding of dishonesty overturned
The High Court has overturned a finding of dishonesty by the SDT against experienced agricultural solicitor Peter Rhys Williams. Mr Williams was accused of selling a property at an undervalue and lying about the value of a property in order to defraud the client’s creditors. At the SDT hearing, Mr Williams was struck off and ordered to pay the SRA’s costs amounting to a staggering £195,000.
Mrs Justice Carr, who gave the main ruling, said that the SRA had not put the ‘dishonest’ representation to Mr Williams or mentioned it in the closing argument. The finding of dishonesty was therefore set aside with Mrs Justice Carr stating ‘there has been a serious procedural irregularity in relation to the finding of dishonesty…Those findings were procedurally unfair’.
Why it matters
Are lack of integrity and dishonesty the same? Well it seems even the High Court cannot decide, with this case raising this issue for the 3rd time in less than 6 months. Back in February, Mr Justice Morris said that lack of integrity is ‘not synonymous with dishonesty’, then in April Mr Justice Mostyn ruled that honesty and integrity are the same. In this case Carr J said ‘in the field of solicitors’ regulation, the concepts of dishonesty and want of integrity are indeed separate and distinct. Want of integrity arises when, objectively judged, a solicitor fails to meet the high professional standards to be expected of a solicitor. It does not require the subjective element of conscious wrongdoing’.
Whiplash reform and Court modernisation in Queen Speech
The Queen announced 27 bills as part of the government’s legislative programme during her speech on the 21st June, the Civil Liability Bill and Courts Bill are of particular interest. The Civil Liability Bill proposes to address the ‘compensation culture’ surrounding RTA claims. The bill will ban pre-med offers, increase the small claims limit, and will introduce a fixed tariff of compensation for whiplash injuries. It also seeks to reform the courts system and introduce online and digital services.
Why it matters
Whilst improvements to the Court services have generally been welcomed, the suggested personal injury reforms have re-ignited concerns by the profession. The briefing note for the bill states that legislation will reduce motor insurance premiums by £35 a year (yup already down on the promise of £40 a few months ago!) and will ‘crack down on fraudulent whiplash claims’. The Law Society president Robert Bourns commented ‘it will be a clear injustice if the government persists with denying essential legal advice to those injured through no fault of their own-if government is truly committed to targeting fraudulent claims, it should do just that’.
Super-regulator opens the door to Accountants
The ICAEW became the first non-legal organisation authorised to regulate probate (and licence ABSs) back in August 2014. Earlier this week, the LSB wrote to the Lord Chancellor recommending approval of ICAEW’s application to regulate all six reserve areas (litigation, rights of audience, probate, reserved instrument activities including property, administration of oaths, notarial). This will be limited to taxation services in respect of conduct of litigation, rights of audience and reserved instrument activities.
Why it matters
This is a significant milestone in the liberalisation of the legal market. It will allow accountancy firms to offer a fully integrated service to its commercial client base, which is in line with Competition and Market Authority’s desire to strengthen competition.
It raises huge competition issues for the solicitor profession, particularly commercial. Most businesses have a close relationship with an accountant, and you can see the temptation of using that firm as a one-stop shop.
But where there are threats there are also opportunities. Perhaps there is greater scope to enter into joint ventures with accountants, and gain access to a large client base.
Don’t forget as well, that next year solicitors will be able to practise (non-reserved work) in unregulated businesses. For entrepreneurial law firms, there could therefore be scope to offer commercial services on a reduced cost base.
New and updated SRA Warning Notices and Guidance
- Warning Notice – Investment schemes (including conveyancing) 23 June 2017
- SRA highlights publication of money laundering regulations
- Two Solicitors, each with over 40 years post qualification experience appeared in front of the SDT for improperly transferring money from their firm’s client account to their office account. John Jones, was struck off the roll and Lucinda Rowberry was fined £5000.
- Solicitor Claire Parry was rebuked and fined for failing to pay her annual practising fees and failing to co-operate with the SRA.
- Mr Aldis, a consultant solicitor, was rebuked and fined £2000 for taking client data to his new firm without client consent. Mr Aldis admitted to downloading confidential information relating to client matters without prior consent in breach of Principles 5,6 and 10.
- Coops Law, which is ran by the same brothers who ran Asons law and where the majority of Asons’ staff transferred, has been closed down by the SRA. This closure takes place less than three months after it took over from Asons, which was also closed down by the regulator.
- Laura Jackson, an ex-employee at North Ainley Solicitors, received a section 43 order banning her from working in the legal profession as well as a rebuke and a fine. Ms Jackson omitted to have LPA’s signed by her clients and attempted to cover her omission by signing them herself.
- Rajpal Singh Ahlywalia, a former solicitor at Clyde and Co has been struck off the roll and ordered to pay £41,000 in costs. He missed a deadline for a Defence in one of his cases resulting in a default judgement. The SDT found that he had laid a ‘false paper trail’, including sending an update to the insurer client’s incorrect address and a wholly misleading update to an insurance broker.
- John Mitton, a former non-solicitor director in the employment department of PG Legal Ltd has received a section 43 order and rebuked and fined £1000. He admitted sending misleading information to a client that he had made an application to court to settle his employment dispute when he had not.