Be warned: SRA starts fining firms for Transparency Rules breaches
We have seen our first example of a firm being sanctioned by the SRA for a breach of the Transparency Rules. The decision resulted in:
- £1,000 fine
- Conditions on the firm’s authorisation
- £300 costs
The firm in question had taken early steps to comply with the rules, and thought that they had everything in place. They were certainly not in the category of those firms who are “unable or unwilling” to follow the rules.
In fact, the firm does not really undertake any work in the areas they were pulled up on.
The mistake they made was delegating compliance to the IT team.
Although unquestionably harsh, we cannot be shocked that the SRA has started wielding its sanctioning powers. They have given the profession plenty of warning over the past two years.
An appeal to the SDT is being considered.
Now is the time to audit your firm’s website.
Read our post: SRA Transparency Rules in a Nutshell
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Breaching court orders by Zoom
City giant McDermott Will & Emery was forced to self-report to the SRA after allowing a hearing to be live streamed, against an order of the court. Interestingly, the court seems to have forced the firm’s hand into reporting. https://bit.ly/30MT5AO
What can we learn from this?
- Breaches of court orders are almost certainly reportable to the SRA. Don’t kid yourself.
- Seemingly administrative and easily-overlooked tasks (such as limiting Zoom invitations in line with a court order) can become huge compliance issues. The COLP needs to figure out (a) how they get notified of these relevant risks, and (b) how to ensure they are appropriately managed. These can pose significant challenges to any organisation larger than sole practitioners.
- Zoom, and other similar software, is not necessarily secure.
- Compliance failures can be big news, and impact upon a firm’s reputation.
Guidance
- ICO guidance on AI and data protection https://bit.ly/2XW5eBA
- ICO comment on the police facial recognition case (R(Bridges) v Chief Constable of South Wales Police & Others) https://bit.ly/2FihPc1
- SRA Guidance: Supporting orderly closures https://bit.ly/2XW5Eb8
- SRA Guidance: Firm closures due to financial difficulties https://bit.ly/2PLh2Cj
- SRA Guidance: Make sure your firm has the right status https://bit.ly/3iwOXLp – we often see firms (particularly ABSs) unaware that changes to their ownership or management structure could trigger additional SRA authorisation requirements. Since the Legal Services Act carries criminal penalties, it’s important that proposed changes trigger a stop, pause and assessment of the regulatory implications.
- SRA Guidance: SRA Investigations – health issues and medical evidence https://bit.ly/30P9bKj
Question of the week
“Our client’s ultimate beneficial owner is a local authority. Do we have to ID the individual council members?”
Short answer: probably not.
As with all matters covered by the Money Laundering Regulations, we must first start by assessing the risk of the transaction and the client. This risk assessment will guide your next steps. Low risk cases can follow the standard due diligence route. Higher risk cases – and those defined as being high risk in the legislation (such as involving PEPs) – must go down the route of enhanced due diligence.
Most cases will be lower risk, but don’t make that assumption. You should look at every case with fresh eyes.
If your client has beneficial owners, the Regulations require you to:
- identify the beneficial owner (easy, in the case of a local authority)
- take reasonable steps to verify their identity (you only need to be satisfied that the beneficial owner is who they say they are. This should be relatively straightforward in this case)
- take steps to understand the ownership and structure of the beneficial owner (again, not onerous for a public authority).
So in this scenario, you would not have to go and get all the council members to get their passports verified!
This answer would drastically change though, if we were talking about a high risk transaction, or where the beneficial owner was, for example:
- located in a high risk jurisdiction
- structured in a way that made it difficult to understand the ownership and control
- a PEP
In these cases you would certainly need to be much more cautious, and further verification steps would be required.
Disciplinary and interventions
- SRA swoops in to close 16-office firm Kingly, citing suspected dishonesty on behalf of Nurul Miah https://bit.ly/3iC5TzY
- SRA intervenes in The Law Practice (UK) Limited, citing suspected dishonesty on behalf of Paul Harris https://bit.ly/3gUOke8
