In Industry Insights

The Solicitors Regulation Authority (SRA) has recently issued three important warning notices addressing critical areas of legal practice: mergers and acquisitions of law firms, missing client funds, and Strategic Lawsuits Against Public Participation (SLAPPs). These notices aim to uphold the integrity and trust in the legal profession by highlighting concerning behaviours and advising solicitors on best practices.

Whenever the SRA issues a Warning Notice it means they have identified compliance issues which they are actively looking to enforce. It is more than guidance. Here’s a breakdown of each warning notice and what solicitors should do in response.

1. Mergers, Acquisitions, and Sales of Law Firms

The SRA is increasingly concerned about the transparency and proper conduct during the mergers, acquisitions, and sales of law firms. Poor behaviour includes inadequate due diligence, lack of transparency, and failure to protect client interests during these transactions. The regulator particularly dislikes clients being treated as ‘commodities’ to be bought and sold.

Key Concerns:

  • Due Diligence: Solicitors must conduct thorough due diligence to ensure they understand the implications of the transaction.
  • Transparency: Clients must be informed about the changes and how it may affect them.
  • Client Protection: Safeguards should be in place to protect client data and funds.

Recommended Actions:

  • Better Due Diligence: Firms should perform comprehensive checks on potential partners or buyers, focusing on financial stability and regulatory compliance. We can help by conducting a due diligence review of your target firm’s regulatory compliance.
  • Clear Communication: Keep clients informed about any changes, including how their cases and data will be handled.
  • Client Safeguards: Implement robust measures to secure client funds and sensitive information during and after the transaction.

2. Money Missing from Client Accounts

This notice addresses the alarming issue of funds going missing from client accounts, which sits with their recent proposal on banning client accounts altogether. The SRA highlights the need for rigorous financial controls and immediate action if discrepancies are detected.

Key Concerns:

  • Financial Mismanagement: Poor financial practices leading to client money being misplaced or misappropriated.
  • Lack of Accountability: Inadequate reporting and failure to take responsibility for missing funds.
  • Delayed Action: Failing to promptly address and rectify financial discrepancies.

Recommended Actions:

  • Regular Audits: Conduct frequent internal audits to ensure all client funds are properly accounted for.
  • Immediate Action: Report any missing funds to the SRA immediately and take swift action to investigate and resolve the issue (by replacing the funds).
  • Financial Training: Provide staff with training on financial management and the importance of safeguarding client money.

3. Strategic Lawsuits Against Public Participation (SLAPPs)

SLAPPs are lawsuits intended to intimidate and silence journalists, whistleblowers and critics through burdensome legal proceedings. The SRA is concerned about the misuse of legal systems to stifle legitimate public interest issues.

See our latest webinar recording for more on this topic and NDAs.

Key Concerns:

  • Meritless Claims: Bringing or threatening to bring unmeritorious claims to intimidate or harass individuals.
  • Oppressive Tactics: Using heavy-handed legal tactics to suppress lawful scrutiny and publication.
  • Balancing Duties: Ensuring that the duty to act in a client’s interest does not override wider obligations to the court and the rule of law, as well as the other professional principles including integrity and maintaining the public’s trust and confidence.

Recommended Actions:

  • Identify SLAPPs: Be vigilant in identifying potential SLAPPs and advise clients against pursuing such actions.
  • Ethical Practice: Balance client interests with professional duties to the court and public interest, ensuring integrity in legal proceedings.
  • Public Interest Considerations: Pay special attention to cases involving public interest issues and avoid tactics that could be seen as oppressive or abusive.
  • Wider litigation: This warning notice contains a reminder of litigation ethics that apply to all litigators, particularly where there is a mismatch in power between the parties. COLPs should remind their litigation teams about these foundational duties that apply.
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SRA warning notice on SLAPPs and NDAsSRA AML Audit risk assessment