A monthly legal compliance update
Law firms need to assess what the ongoing political upheaval – including the resignation of the prime minister – combined with updates to the compliance landscape this month mean for their risk profile, says Brian Rogers, regulatory director at Access Legal.
SRA fines
The government has approved the increase in the Solicitors Regulation Authority’s (SRA) fining power, from £2,000 to £25,000.
The Lord Chancellor, Dominic Raab personally intervened in the consultation process on the basis that the SRA’s enforcement powers need to be enhanced to ‘create a stronger deterrent to solicitor misconduct’.
The Legal Services Board (LSB) is of the view that the SRA’s fining powers should go “considerably beyond” the increase to £25,000, saying there is a “compelling case” for a larger increase, especially given that the Legal Services Act 2007 allows the SRA to fine alternative business structures (ABSs) £250m and the individuals working in them £50m.
Anti-money laundering reporting
The SRA reported £161m worth of suspect transactions involving the profession to the National Crime Agency during the 18 months to April 2022, with failures to check the source of funds the main cause for reports.
As usual residential and commercial conveyancing were key areas of concern, themes included misuse of client account (no underlying legal transaction), tax evasion, fraud, client or funding links with high-risk jurisdictions, and complex offshore company structures or funds to conceal ownership.
Competency
The LSB is putting pressure on underlying legal regulators to take action to ensure that lawyers are not operating with “out-of-date” skills or knowledge, so firms need to ensure they and their employees are complying with their competency obligations.
Diversity data publication
Firms need to remember that their diversity data should be made available to their staff and external parties – this may be through websites, but can also be through alternative or additional publication methods such as a poster in office reception areas and/or meeting rooms, and an article in internal or external newsletters/bulletins.
If publishing on a website, firms should make it easy to find and understand. This could include having a ‘diversity’ link on the homepage with a specific page for diversity data, and illustrating the data using clear tables, diagrams or graphics and include a summary of what it shows.
Professional indemnity insurance
This key area of expense for law firms and conveyancing firms is continuing to cause real concern, especially when firms are seeing premiums rising substantially – it is becoming clear that firms are seeing premiums rise to approximately 10% of fees.
Under plans approved by the LSB, firms regulated by the Council for Licensed Conveyancers will have to submit at least one application for professional indemnity insurance two months ahead of the renewal deadline. From 2023, insurers receiving applications will be required to respond no less than one month before the deadline, on 1st June, in a bid to reduce the risks involved when firms and insurers take renewal right up to the 30 June cut-off.
It will be interesting to see if the same regime is introduced for SRA regulated firms.
AML enforcement
A law firm whose multiple failures raised the risk of it facilitating money laundering and terrorist financing has been fined £2,000 by the SRA – the firm did not have in place a compliant AML firm-wide risk assessment until February 2022, despite having declared two years earlier that it did (nothing like misleading the regulator).
The original risk assessment failed to consider the firm’s delivery channels and its transactions, as required by the Money Laundering Regulations.
The firm also didn’t have compliant AML policies, controls and procedures, with an absence of source of funds information, out-of-date guidance and links, and referring to an employee who was no longer with the firm. The firm also failed to provide sufficient training to staff.
Is your COFA a BOOM?
Compliance officers for finance and administration are more than likely to be regarded by the SRA as beneficial owners, officers and managers (BOOMs) for AML purposes, so firms need to ensure they have made the appropriate notifications to the regulator.
Estate agent misconduct
Firms that take referrals from estate agents need to ensure they act in the best interests of their clients, especially in relation to whether the agreements between clients and estate agents are in their interests. The head of National Trading Standards’ estate and letting agency team (NTSELAT) has said there are “too many instances” of estate agents only allowing potential buyers to view a property or make an offer if they use a recommended conveyancer and other service providers.
