In Industry Insights

Forget about gym-membership subscriptions and new healthy eating regimes. Maybe something a little more palatable would be a constructive look at planning your risk and compliance tasks for the coming year. Kathryn Davies of Jonathon Bray looks at what COLPs must tackle in 2019.

How about taking action on just one per month?

1. New SRA Handbook

The big news for the year is the imminent roll-out of the new SRA Handbook (sorry – ‘Standards and Regulations’). We haven’t been given an implementation date as yet but it could be as early as April.

Whilst the final version of the Handbook is not yet published we can assume that it will not differ from the version approved by the LSB in November.

We know that the Code of Conduct will take two forms: one for individuals and one for firms. The Principles will be reduced from 10 to 6. Of note is that the requirement to act with “integrity” and to act “honestly” has been now separated into two principles rather than conjoined as one (making it easier to prosecute on either). Those principles that have been removed have not been ousted completely but can be found elsewhere within the revised codes of conduct.

The Handbook has been reduced to a quarter of its previous size which is aimed at making the rules that bit more accessible. Indicative behaviours that featured as ‘helpful’ compliance indicators in the previous Code of Conduct have been removed. No guidance has been published as yet but you do wonder whether these will form de facto rules. Concerns were raised by delegates at the recent SRA compliance conference in relation to the need for all guidance and updated information to be easily identified and accessible in one place. The indication from Paul Phillip, SRA Chief Executive, was that the SRA would be looking at reviewing the website.

COLPs will need to arrange for staff training on the new rulebook.

One of the most significant changes being ushered in is the increased flexibility regarding how solicitors practise. Solicitors will be allowed to provide non-reserved legal activities in unregulated firms. Firms may see the reforms as an opportunity to review their own business models, consider the scope for innovation arising from them and also reflect on the potential competition from other sectors who may wish to exploit these new opportunities. Should you hive off non-reserved activities into a separate business?

2. Accounts Rules – one for the COFA

A long-overdue overhaul of the Accounts Rules forms a significant part of the SRA Handbook reforms. Have you considered checking whether your accounts procedures and software need to be updated to reflect the anticipated changes? Since much of the detail in the rules will go (such as the ’14-day rule’), firms will have more flexibility in the way that accounts departments are run.

The core focus remains: safeguarding client money. The key principles of keeping client money separate from firm money, ensuring that client money is returned promptly at the end of a matter, using client money only for its intended purpose and obtaining an annual accountant’s report all survive the the cull.

A significant change comes under new rule 4.3, which states that when you hold client money and some or all of it will be used to pay your costs, you must give a bill of costs to the client before you transfer costs from client to office account. Note this is “costs” not “fees” and therefore means profit costs and disbursements. On strict interpretation, you will therefore no longer be able to transfer money from client account to pay for disbursements until giving or sending a bill to the client. (Unless this is a drafting error on the SRA’s part, which it may turn out to be).

3. AML procedures and staff awareness – COLP and MLRO

As part of your firm’s “spring clean”, dust off the AML policies and procedures that were updated in light of Money Laundering Regulations 2017. You did that, right?

Double check that they have truly been amended to reflect the changes brought in under the new MLRs and cross reference them against the HM Treasury-approved Law Society Guidance.

It would also be helpful to review your training records to check that members of staff including existing and new recruits have had updated training.

As part of the review exercise, audit how well the policies are actually being implemented. A word perfect policy is useless if everyone ignores it. Your audit should flag up problem areas which could either prompt further training or the amendment of the policies themselves to ensure that they are practical as well as compliant.

An interesting – and slightly concerning – opinion piece written by Frank Maher for the New Law Journal flags up that firms may come under fire from the SRA if AML polices and procedures are not being followed, even if the practice is in line with generally accepted AML standards.

This makes sense. What would be the point of conducting a firm-wide risk assessments (as you are required to do), only to ignore the policies which come out of that exercise?


I know, I know. We all suffered with data protection fatigue in 2018. But I am afraid you will have to revisit this one in 2019.

As with AML, you must review your key documents (including policies, terms of business and client care letters) to ensure that they have been updated to reflect the implementation of GDPR and Data Protection Act 2018.

Consider whether there are any triggers for you to undertake a Data Protection Impact Assessment (DPIA). Your firm may have acquired new IT software; you may have merged, moved offices or expanded your practice areas. All of these things would merit a revised DPIA because they could pose a significant risk to personal data.

Again, providing all staff with updated training would also be valuable to ensure that it remains at the forefront of their minds.

Subject Access Requests (SARs) are becoming more widely used as people and their lawyers are more aware of their data rights. Do you know which parts of a file you would have to provide? There is a lot of helpful guidance out there including two Law Society practice notes here and here.

5. Price and service transparency and the Digital badge

If the new SRA Transparency Rules passed you by in December (and there are plenty of firms whose websites are not yet compliant), it’s not too late to get your house in order.

Remember that the rules apply to all SRA-regulated firms. You must review your website to ensure that it has the required regulatory  wording and complaints information as a minimum.

For those firms caught by the main thrust of the rules, you must ensure that clear price and service information is provided on your website, or accessible in an alternative format if you don’t have a website.

If you haven’t done so already, the SRA Digital Badge is now available to display on your firm’s website directly from the SRA. It isn’t compulsory as yet but we are told it will be in the Spring. You have a few weeks – and no doubt the SRA will be checking that you are displaying the badge correctly.

6. Business planning

Management, leadership and strategy are core regulatory requirements of the modern law firm. Given all the regulatory change imminent, it would be wise to take stock of the opportunities and threats coming your way.

Will the unregulated sector or the Big Four start eating your lunch in 2019? Is technology about to automate your expertise? Are you properly structured for succession planning?

It is beginning to dawn on the profession that the working trends of flexibility, wellbeing and career satisfaction apply equally to lawyers. Hence we are seeing the rise of dispersed working, flexible work patterns, and a focus on protecting mental health in the workplace.

7. Training lawyers and the lawyers of tomorrow

The Continuing Competence regime which replaced 16-hour CPD is a couple of years old now. It’s time to reflect on how well your firm and its solicitors have responded to the new requirements. What has happened to training budgets? Do you have access to individual training records and annual Continuing Competence plans? If not, how can you possibly sign off the annual declaration?

A significant proportion of firms have in fact taken no serious steps to adapt to the ‘new’ system. It’s time that changed.

Firms that take trainees, take note. The new Solicitors Qualifying Exam (SQE) is due to roll out in September 2021. As part of this all new entrants to the profession must have two years qualifying work experience. There is no longer going to be a “training contract” in the traditional sense, and in fact a wide range of legal experience may qualify. However, the SRA has confirmed that there will be a transitional period (up to 2032) for those trainees who wish to qualify under the existing regime.

How will you deal with this fundamental change to the training regime? Two years will whizz by…

8. Brexit

At the time of writing, nobody knows what is going to happen after March. The only certainty is that there is uncertainty. Brexit could have far-reaching implications for our legal system, practising rights, and demand for legal services. Or it might not. Lucky for us, those in charge know exactly what they are doing.

How should a COLP plan for the unknown? A good start would be to review the Law Society and government guidance on ‘no-deal’ scenarios. You should be looking for how Brexit could affect your operations and strategy. Firms operating internationally will no doubt feel the effects most keenly, but the ripple effects of Brexit could impact us all.

Particular consideration needs to be given to the practising rights of UK lawyers in the EU and European lawyers in the UK. There are currently EU Directives in place to make cross-border practice pain-free, and for the mutual recognition of European professional qualifications.

If no deal is reached the Law Society guidance states that all this is at risk.

Registered European Lawyer (REL) status will effectively cease to exist upon the day that the UK exits the EU, although the government assures us that transitional arrangements will be put in place. The advice is that any EEA lawyers currently practising in the UK should register as RELs as soon as possible.

The rights of UK lawyers wishing to practice in an EU or EFTA members state will be dependent upon the existence of a practising and regulatory framework for third country lawyers. UK-qualified lawyers will lose their rights of audience in EU courts unless they already have an EU qualification. The Law Society advises that any UK lawyer practising in the EU/EFA should consider registering with the relevant authority where they wish to practice as soon as possible, if they haven’t done so already.

9. Keep an eye on the breach-reporting consultation

The SRA’s consultation in relation to possibly amending the reporting threshold for misconduct has closed and the report is due to be referred back to the LSB in January.

The SRA indicated at its Conference in December that there appeared to be consensus in favour of an objective element to the test ie. “reasonable grounds to believe serious misconduct” has taken place.

Ostensibly, this consultation was born out of a wave of allegations of misconduct against solicitors, and prompted by the #MeToo movement. We have also seen the SRA warn firms on the inappropriate use of NDAs in such cases.

But reporting misconduct is of course much wider than that, and COLPs need to be aware of what the SRA expects in terms of investigation and reporting.

10. SIF protection quietly coming to an end

Currently the old Solicitors Indemnity Fund (SIF) continues to provide supplementary run-off cover to all firms. This cover sits behind the scenes and kicks in when the compulsory 6 year minimum term run off cover expires. It is the insurance equivalent to a safety net, and protects both the public and practitioners in the event of late claims.

Beware, however, that the SIF will end on 30th September 2020 and no alternative arrangements have yet been put in place.

This ever-so-slightly terrifying Gazette article is a must read.

11. CQS and Lexcel

The Law Society is relaunching its Conveyancing Quality Scheme (CQS) this year. Three core values will be introduced and will form the baseline for CQS accreditation:

  • Proactively and effectively manage risk and demonstrate behaviours that support and promote the integrity of CQS and the community.
  • Demonstrate best practice and excellence in client care through robust practice management or residential conveyancing
  • Demonstrate thorough knowledge and skill in handling conveyancing transactions.

The proposal is that a number of on-site visits will be undertaken each year and there will also be increased numbers of desk-based assessments. For firms used to filling in the form and never having any interaction with the Law Society, this may come as a bit of a shock.

The Law Society says there is no need to panic, as there will be an implementation period to enable members to make the necessary adjustments. Which suggests they are aware that there is potentially a gap in what some firms say they do, and actual practice…

Don’t forget that Lexcel 6.1 is now in effect, so future assessments will include updated data protection requirements.

12. Criminal Finance Act (remember that?)

It seems apparent that the government and regulators are on a mission to hunt down “professional enablers”, and they haven’t held back in their criticism of the legal profession. Scandals such as the Panama Papers leaks simply added fuel to the fire.

Earlier this year the profession was labelled as such by the head of the National Crime Agency’s economic crime unit in an interview with the Financial Times (paywall). He also warned of the increasing expectation to file more Suspicious Activity Reports (SARs).

It is with this is mind that the Law Society has published an updated practice note in relation to the Criminal Finance Act 2017 (CFA 2017), which came into force on 27 April 2017.

As you should be aware, the Act creates two criminal offences. Law firms and other “relevant bodies” are liable for failing to prevent the actions of their employees and other “associated persons” who criminally facilitate tax evasion. Sound familiar? It is largely modelled on the Bribery Act’s “failure to prevent” offence.

As with the Bribery Act, preventative policies need to be in place.

In addition, a thorough risk assessment should be undertaken in relation – where are the tax evasion facilitation risks in the business?

Well that’s 12 jobs we think COLPs must tackle in 2019. Can you think of any others?

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