Hot topics: How to avoid unnecessary SRA fines and reputation damage

You may have noticed that the regulator has been busy flexing its new fining powers recently. The SRA can slap fines of up to £25,000 without reference to the Solicitors Disciplinary Tribunal. (ABSs are on the hook for fines up to £250m.)

Regular readers of this newsletter will know that these fines tend to fall into a few predictable categories, which include:

Professional misconduct
Money Laundering Regulations failures
Transparency Rules breaches
Using the client account as a banking facility
Not dealing with residual client balances

In addition to the fine itself, there is the issue of reputation damage. No firm will welcome being named and shamed by the SRA. It will be a stain on their record for a number of years. It might even make clients think twice about using the firm.

Although we may never know the true extent of damage caused by a regulatory fine, it is certainly worth taking steps to tighten up these common breach areas.

So here are some things your compliance team could concentrate on:

Reduce the likelihood of bad apples
Check your AML systems and controls
Tighten up your marketing and publicity
Understand what goes through the client account
Take control of residual balances

Read the full post

Infographic: Source of funds and source of wealth

Use this handy infographic to cut through the noise surrounding source of funds requirements.

After conducting your risk assessment on the client and transaction, ask these three questions:

“Show me the money”
“How did you get the money?”
“Does it make sense?”

Download the infographic and send to your team.

Thank you to Rachael and Sam for putting this together.

ICYMI: Law firms must offer remote working to attract and retain staff, says top legal recruiter

The ability to work from home is a major consideration for legal professionals when considering a career move, and law firms not offering this kind of flexibility are at a disadvantage in a tough recruitment market. “It comes up every single time”, said Jonathan Fagan, Managing Director of Ten Percent Legal Recruitment, speaking at a recent panel discussion on law firm insurance, recruitment and mergers.

According to Jonathan, firms must be able to persuade candidates that they will become an integral part of the practice and that there is plenty of work for them to do. This is particularly relevant for property firms, many of whom are experiencing a downturn in instruction volume, and where potential recruits are likely to have concerns about being ‘last in, first out’.

Law firms are also advised to weed out candidates who use job offers to leverage a pay rise from existing employers. “The question I would ask is ‘If we offered you the job tomorrow, would you take it?’,” said Jonathan. “The answer will give you an idea about how committed a particular candidate is.”

Also in this panel session we discussed:

The law firm M&A market with Jeff Zindani, how sellers can make their practice ready for sale, and what due diligence buyers should conduct on target firms
Professional indemnity insurance market update with Gary Horswell, and how to present your firm as a good risk to insurers

Read the full write up here

Watch the recording here

News and Guidance

News for solicitors

SRA Updates

Practising certificate renewals (2023/24) – The annual renewal exercise closes on 31 October. It can take a little time to gather all the required information about the practice, so don’t leave it to the last minute. Bear in mind the SRA now operates Two Factor Authentication for all mySRA accounts, meaning it’s much more difficult for an assistant to log in using your account.

Law Society Updates (may require login)

Other Updates

Paul Arnold at PDP’s Data Protection Compliance Conference 2023 – useful transcript of ICO deputy CEO’s conference speech, setting out the general direction of travel in the world of data protection.

Free webinars and recordings

free CPD for solicitors

Next Webinar: Risk and compliance horizon scanning – top takeaways from the SRA Conference 2023 and more

When: Wednesday 25th October 2023, 12:00pm

The annual SRA Compliance Officers Conference is fast approaching. Hosted in Birmingham, it is a ‘must attend’ for compliance officers as the regulator will be discussing AML, continuing competence, cybercrime and AI, SQE and much more.

(If attending in person is not possible, you can always attend the virtual event hosted by the SRA from 6th – 9th November on their YouTube channel.)

Following the conference, Jon and Rachael will be taking some time to reflect on the day. In this webinar, they will be discussing some of the key takeaways, as well as any surprise announcements that may occur, with a view of what may be on the horizon for law firms in the coming months in the world of risk and compliance.

So grab a cuppa, and come and join us in our discussion. You will, of course, have the opportunity to ask any of your burning questions.

Feel free to share this email with colleagues who may be interested in this free training. JBL clients get priority access.

We hope to see you there!

Recording: Strategy hour – law firm insurance, recruitment and mergers

On Wednesday 27 September 2023, our monthly webinar focused on issues around buying and selling law firms, the insurance market and recruitment.

Our expert panel includes:

Gary Horswell, Managing Director of Ntegrity Insurance Solutions – a specialist in the solicitors PII market since the ‘open market’ began in 2000.
Jonathan Fagan, Founder and Managing Director of Ten Percent Group – a specialist in locum & permanent solicitor recruitment, as well as law firm sales, mergers & acquisitions.
Jeff Zindani, Founder and Managing Director of Acquira Professional Services – a leading M&A matchmaker and broker for law firms and legal tech companies.

Watch the recording

Read the write-up

Download the slides

Download Jeff Zindani’s article (‘Exit strategy’)

Recording: The dangers of using your client account as a banking facility and how to avoid it

Operating a client account can be an interesting business! Not only do you have increased money laundering and financial crime risks, you must also avoid acting like a financial institution.

Accounts Rule 3.3 states: “You must not use a client account to provide banking facilities to clients or third parties” …. and this can be quite tricky to navigate. Several solicitors have been fined and disciplined by the SRA under this rule.

But how do you avoid getting this wrong? What is a ‘banking facility’ and how does the SRA interpret the rule?

Fear not, we are here to help! In this webinar we looked at:

The history of the ‘banking facility’ rule
Why can we not act as a bank?
SRA Guidance
Disciplinary decisions relating to Accounts Rule 3.3
Practical considerations for law firms

Watch the recording

Recording: Optimising your AML knowledge to ensure you are LSAG compliant

We were delighted to co-host this session with our friends at Thirdfort.

Unsurprisingly, we get asked many questions about source of funds, source of wealth, identification of clients, and the like. In the current world of regulation, we find many law firms are very nervous about ‘getting it wrong’ and want to ensure compliance.

In this webinar, our JBL team discussed some of these most common compliance queries with valuable input from Harriet Holmes of Thirdfort, including:

Source of funds – how far do we need to go? How do I know I’m done?
Source of funds – is the ‘Bank of Mum and Dad’ low risk?
Source of wealth – can I take my client’s word for it?
Risk assessment – do I need to do one at the start of every file?
Ongoing monitoring – what should this look like in practice?
Employee screening – we don’t DBS-check all our staff. Should we?
Independent audit – how often does it need to be done?
CDD – do I need to verify the identity of all the Directors of a client company?
CDD – who do I need to verify in a trust?

Watch the recording

SRA and SDT disciplinary decisions

solicitors disciplinary tribunal SDT SRA

Reilly & Co Solicitors – £2,000 fine for failing to have a compliant AML firm-wide risk assessment and effective AML controls in place.
TMS Legal Ltd – firm fined £45,000 following complaints from defendant banks in mis-sold packaged bank account claims. It was found that the firm’s supervision of non-lawyers was not effective, and that inaccurate information had been submitted to the banks.
Waugh & Musgrave – firm fined £1,438.40 for failing to comply with a conveyancing undertaking within a reasonable time frame.
Ronald George Paterson – City lawyer ‘eavesdropping’ on a private Zoom board meeting was not professional misconduct, according to the SDT.
Curwens LLP – firm fined £14,116.46 for allowing over £100,000 of old client balances build up over several years. The firm also improperly used a suspense account for unallocated client account receipts, and admitted to using the client account as a banking facility.
Charlotte Earl – paralegal banned from the profession for dishonestly backdating a letter and misleading a client about the status of a medical records request.
Alexander Mullen – non-lawyer RTA file handler barred for dishonestly filing particulars of claim, which the client had not seen or approved.
Sarah Heine – non-lawyer Immigration Co-ordinator barred for posting confidential client documents to social media, with inappropriate commentary.
Richard Simon Walford and Richard Alistair Heron – solicitors acting as Attorneys under an LPA fined £11,250 each following water damage to a client’s property. The solicitors failed to ensure that the terms of the home insurance policy were met, then used the client’s funds to rectify the water damage. Even though the client was reimbursed some time later, it was also found that they acted in a conflict situation by continuing to act for the client when it was apparent there was a potential negligence claim against them.