In COLP and COFA News, Industry Insights, Jon's Blog, Newsletter

The SRA has published an update to its Risk Outlook and warns legal professionals of the risks currently facing law firms.

The report contains a table of today’s key risks:

  • Misuse of money or assets,
  • Money laundering: inadequate systems and controls,
  • Bogus firms,
  • Lack of a diverse and representative profession,
  • Failure to provide proper standard of service: particularly in relation to vulnerable clients,
  • Breach of confidentiality, and
  • Lack of independence

We already knew that misuse of client money is sadly on the rise, but it is concerning to see money laundering issues gaining ground. Anti-money laundering procedures should be engrained, and this is a reminder not to relax those important client due diligence checks and financial crime risk assessments at the outset of every matter.

The SRA has also brought our attention to two ‘new entries’- bogus firms and lack of independence.

Bogus Firms:

The SRA has revealed that in 2013 they experienced an unprecedented number of reports of bogus firms, an increase of 57% from previous years. You will probably have seen an alarming rise of scam alerts issued by the regulator, which are also well covered in the legal press. ‘Bogus firms’ refers to criminals assuming the identity of a law firm to steal money and/ or access confidential information. In some cases it has involved the identity theft of an existing law firm or practitioner. Bogus firms are a financial risk, a risk to confidentiality and could seriously jeopardise a firm’s reputation.

It is very important to ensure that stringent checks and controls are implemented to avoid harm to the firm and its clients. Ask yourself, am I happy with the identity of my opponent? Is there any reason to suspect they are not who they say they are?  Also think about how you protect the identity of your own firm, including its online presence and Companies House filings.

Lack of Independence:

The second ‘new entry’ is the lack of independence of law firms whereby there is a risk that a firm’s decision making is influenced by structural or commercial concerns. This is thought to be caused by a change in the balance of power between large (mostly corporate) clients and the legal advisor.

The SRA is urging the firms it regulates to resist pressure from influential clients and avoid compromising the overriding principle to act in the public’s best interest. Interestingly, in the report the SRA recognises that some of the principles in the Handbook do conflict and stresses that in the instance of a conflict, the principle that “best serves the public interest, in the particular situation, prevails”.

What should you do?

Firstly, read the report and remember that the SRA has committed to updating this regularly, http://www.sra.org.uk/solicitors/freedom-in-practice/OFR/risk/outlook/risk-outlook-2014-2015.page.

Secondly, have a think about the risks identified in the report – do any in particular strike a chord? If so, it is likely that you should prioritise addressing any gaps in your systems.

Keeping an up-to-date risk register is recommended to record and monitor compliance as part of the firm’s general risk management. It is also necessary that employees are encouraged to report any risks to the COLP or line manager – these clear reporting lines are seen by the SRA as critical to the effective operation of the compliance officer roles. Some firms embed these processes in a whistle-blowing policy and/or compliance failure reporting policy.

Recommended Posts

Start typing and press Enter to search