Yearly Archives: 2014

SRA publishes Version 12 of the Handbook

The updated SRA Handbook is now live

The amendments in Version 12 of the Handbook support the Authority’s reform programme, which was announced in the spring. The changes were agreed by the SRA Board at meetings in July and September.

Paul Philip, SRA Chief Executive, said: “We are committed to reforming our regulation to enable growth and innovation in the market, while striking the right balance between reducing regulatory burdens and ensuring consumer protection. These key changes to our handbook show we are taking action to deliver that reform.”

The key changes include:

  • Measures to make it simpler for multi-disciplinary practices (MDPs) to be licensed to provide legal services under SRA regulation. These will ensure proportionate regulation where firms deliver a range of professional services under the oversight of a number of regulators. This is an important milestone in the programme, increasing competition and encouraging growth in the legal services market
  • Changes to the requirements for accountants’ reports on client accounts to make them more targeted. Firms are required to deliver accountants’ reports to the SRA within six months of the end of their financial period if those reports are qualified. Firms that receive 100 per cent of the fees from Legal Aid work are exempt from needing to obtain a report
  • Ending the annual Keeping of the Roll exercise so that those solicitors who wish to remain on the roll will no longer need to apply every year
  • Simplification of the Overseas Accounts Rules to make it easier for firms with overseas practices to meet the SRA’s requirements

View more information on the SRA’s Regulatory Reform programme.

MLROs to have improperly completed SARs rejected under new consent regime

From 1st October 2014, Money Laundering Reporting Officers (MLROs) who fail to complete consent suspicious activity reports (SARs) properly, will have them rejected under new guidance issued by the National Crime Agency. SARs disclosures which omitted either the reason for suspicion or a statement regarding the criminal property involved, would in effect be rejected, or “closed”. The SARs reporter would then be sent a notification letter stating that the submission had been closed. Despite this, MLROs would still have a legal obligation to make a disclosure before the “prohibited act” took place, and to obtain consent to avoid any liability under the Proceeds of Crime Act 2002 (PoCA). It is recommended that firms use SAR Online when submitting a consent request as this will prompt for certain relevant information. Firms should also ensure that the contact details held by the NCA for the appropriate individual at the firm are up to date, especially if they have not submitted a SAR for some time. For further guidance click here.

SRA steps up anti-money laundering work

The Solicitors Regulation Authority (SRA) is stepping up its efforts to ensure solicitors firms do not become embroiled in money laundering activity and are compliant with the various regulations and legislation associated with anti money laundering compliance.

The legal sector is one of a number of areas of work that attracts organised criminals seeking to launder the proceeds of crime. Solicitors have a duty under the Code of Conduct to ensure their business complies with anti-money laundering legislation and the Proceeds of Crime Act.

The SRA will therefore be undertaking a specific piece of focus work starting now until May 2015, working with firms to ensure robust systems are in place to guard against solicitors becoming involved in money laundering. This will include closer engagement with those firms identified as most at risk, and providing support and guidance across the whole of the profession from large firms to sole practitioners.

Paul Philip, SRA Chief Executive, said: “Law firms often handle large sums of money, and this means they attract those who seek to launder the proceeds of crime. We want to work with the profession to ensure that all firms, no matter how large or small, have the systems in place to guard against money laundering and that they are compliant with the current regulations and legislation.

“We will also be testing the systems used within firms to report money laundering, and how widely these systems are known within each firm.

“We also want to ensure solicitors are meeting their legal obligations to report suspicious transactions to the appropriate authorities. The SRA will be taking a robust stance on anti money laundering compliance and will deal promptly with any firm that that transgresses the rules.

“Our work will focus initially on those firms deemed at highest risk, but all firms need to be aware of the issue. There will be serious consequences for those who fail to take their obligations seriously.”

The SRA will report their findings after the focus work is completed early next year.

SRA guidance on residual client balances and authorisation under rule 20.1(k) of the Accounts Rules

In October 2014, rule 20.1(k) will be changing and all residual client balances of £500 or less will be dealt with by firms, having met the conditions set out in rule 20.2, without the prior authority of the SRA being sought. For those balances over £500 or not going to be paid to charity, an application must be made, in the usual way, to the Professional Ethics – Guidance team.

Applications for authority under the existing rule may take up to 12 weeks and therefore your firm may decide that it is appropriate to deal with existing balances yourselves once the new rule comes into effect. If this is the case the COFA should note the decision taken and the steps taken in the meantime to trace the clients in order to return the funds to them.

Information Commissioner ‘sounds the alarm’ on data breaches within the legal profession

The Information Commissioner’s Office (ICO) is warning barristers and solicitors to keep personal information secure, especially paper files. This follows a number of data breaches reported to the ICO involving the legal profession.

The ICO can serve a monetary penalty of up to £500,000 for a serious breach of the Data Protection Act provided the incident had the potential to cause substantial damage or substantial distress to affected individuals. In most cases these penalties are issued to companies or public authorities, but barristers and solicitors are generally classed as data controllers in their own right and are therefore legally responsible for the personal information they process.

In the last three months, 15 incidents involving members of the legal profession have been reported to the ICO. The information handled by barristers and solicitors is often very sensitive. This means that the damage caused by a data breach could meet the statutory threshold for issuing a financial penalty. Legal professionals will also often carry around large quantities of information in folders or files when taking them to or from court, and may store them at home. This can increase the risk of a data breach.

Information Commissioner, Christopher Graham, said:

“The number of breaches reported by barristers and solicitors may not seem that high, but given the sensitive information they handle, and the fact that it is often held in paper files rather than secured by any sort of encryption, that number is troubling. It is important that we sound the alarm at an early stage to make sure this problem is addressed before a barrister or solicitor is left counting the financial and reputational damage of a serious data breach.

“We have published some top tips to help barristers and solicitors look after the personal information they handle. These measures will set them on the road to compliance and help them get the basics right.”

The ICO has published the following top tips to help barristers and solicitors keep the personal information they handle secure.

  • Keep paper records secure. Do not leave files in your car overnight and do lock information away when it is not in use.
  • Consider data minimisation techniques in order to ensure that you are only carrying information that is essential to the task in hand.
  • Where possible, store personal information on an encrypted memory stick or portable device. If the information is properly encrypted it will be virtually impossible to access it, even if the device is lost or stolen.
  • When sending personal information by email consider whether the information needs to be encrypted or password protected. Avoid the pitfalls of auto-complete by double checking to make sure the email address you are sending the information to is correct.
  • Only keep information for as long as is necessary. You must delete or dispose of information securely if you no longer need it.
  • If you are disposing of an old computer, or other device, make sure all of the information held on the device is permanently deleted before disposal.

The ICO is currently working with The Bar Council to update the Information Security Guidance provided to Barristers in England and Wales.

The ICO website includes further guidance on the security measures that should be in place when handling personal information. The ICO has also published a blog explaining the importance of encryption and the options available to barristers and solicitors who need to encrypt their data.

SRA Board makes changes to ease the burden

The Board of the Solicitors Regulation Authority (SRA) has approved a series of changes to its regulatory requirements to make them more proportionate and targeted and so reduce the cost and burden of regulation.

These changes form part of a reform programme, launched on 7 May with the publication of a policy statement which sets out the Board’s approach to regulation and its reform.

The reform programme will:

  • remove unnecessary regulatory barriers and restrictions to enable increased competition, innovation and growth to serve the consumers of legal services better,
  • reduce unnecessary regulatory burdens and cost on regulated firms,
  • ensure that regulation is properly targeted and proportionate for all solicitors and regulated businesses, particularly small businesses

The SRA published four consultation papers at the same time containing proposals forming the first stage of the reforms. At its meeting the Board considered the outcome of three of those consultations, and one earlier consultation, including consultation responses, the outcome of further engagement with stakeholders during the consultation period and analyses of the impacts of the proposed changes.

Charles Plant, SRA Chair of the Board, said: “All legal services regulators face a challenge to remove unnecessary and or disproportionate regulatory burdens on firms in the legal sector and promote innovation, competition and growth in the market. Our reform programme aims to make the SRA’s regulation more proportionate and better targeted, while maintaining critical protections for consumers.

“The majority of responses to our consultations agreed with our aim of reducing the burden of regulation. However, some stakeholders disagreed with the proposals we made.

“We have taken this feedback on board and, where we feel respondents have a valid point, we have either decided to take a fresh look at the proposals, or look for more information.”

The changes made by the Board are still subject to Legal Services Board approval. If agreed to, the changes will be made in time for the 11th version of the Handbook, which is due to go live in October.

The changes made by the Board are:

  • Minimum terms and conditions for indemnity insurance: the Board is introducing a requirement on all firms to ensure they have an appropriate level of indemnity insurance cover, but reducing the mandatory minimum level of compulsory cover to £500,000. These proposals will ensure consumers are better protected by, for the first time, requiring firms to ensure appropriate cover rather than simply relying on meeting the minimum requirements and, at the same time, ensure the very many firms undertaking primarily low value transactions are not forced to obtain higher levels of insurance than they and their clients require. The Board emphasised the importance of firms being appropriately insured, particularly where work was being undertaken for vulnerable clients in high value cases; such as clinical negligence cases. The SRA would be taking targeted supervision work forward following the implementation of these changes focussed on such areas of practice. The other proposed changes to the indemnity insurance arrangements have been deferred until 2015 to allow for the completion of a wider review of indemnity insurance arrangements;
  • Residual balances: the Board is increasing the amount that may be withdrawn from residual client balances and donated to charity without SRA approval from £50 to £500. Guidance on residual balances has been prepared to accompany this change and will be published on the SRA website in due course;
  • Reporting Accountant Requirements: the Board decided to defer a decision on this proposal until its next meeting. The Board recognised the need to ensure that, where firms choose to hold client money, appropriate safeguards are in place to assure the safety of that money. Further analysis of the consultation responses and consideration of options will be undertaken before the Board reaches its decision;
  • Compensation Fund eligibility: the Board decided to change the eligibility criteria to only consider applications from individuals and small businesses, charities and trustees where turnover, annual income and trust value do not exceed £2 million respectively.

Decisions on the licensing of multi-disciplinary practices and stopping the Keeping of the Roll enquiry as an annual event, which were also consulted on in the spring, will be considered by the Board in the autumn. The SRA Board also agreed on the 2014/15 practising fees and Compensation Fund contributions subject to the decision of the Law Society Council on 9 July on the total amount of funding required by the Law Society Group.

Minimum terms

The Board is introducing for the first time a requirement for firms to assess and purchase an appropriate level of indemnity insurance cover and reducing the minimum level of compulsory cover to £500,000. Together the SRA Board believes these changes will enhance consumer protection and reduce unnecessary regulatory burdens and costs on small firms undertaking low value transactions. The former change will ensure that firms have a positive duty to purchase cover at a level appropriate to the nature of their business, clients and transaction value rather than simply relying on the minimum level specified, even where that level might have been too low. At the same time, the many small firms undertaking low value transactions for consumers will have the freedom to not purchase cover at an unnecessarily high level. Other proposals from the consultation have been deferred until 2015 to allow further consideration. The SRA remains concerned that the level of insurance premiums drives costs for firms in ways that make it more difficult for them to compete and increases the cost of services to consumers. These proposals aim to bring these costs down. The SRA remains confident that there is still merit in the further proposals and there was support for them in the consultation, but believes that they will benefit from further consideration alongside other possible reforms that have been suggested by stakeholders. During this time the SRA will also consider these further proposals put forward through the consultation exercise. There may be a wider review of all client protection matters, including compensation arrangements and the Accounts Rules. A call for evidence will be launched this month and a further consultation paper will be produced by the end of the year. Any changes will then be announced in April to ensure they are considered in the renewal period starting in October 2015.

Residual balances

Solicitors can donate residual balances in the client account to charity if all attempts have been made to contact the owners. For amounts of more than £50, solicitors must seek permission from the SRA. The Law Society suggested that, as part of the SRA’s Red Tape Initiative to remove unnecessary administrative tasks, this limit be increased. Solicitors could then redistribute residual balances more quickly and without creating work for themselves and the SRA. The majority of respondents agreed with the proposal, with a small number objecting to the size of the new limit. Two new rule suggestions from the Law Society will be dealt with later.

Accountants’ reports

The Board has deferred a decision on this proposal until its next meeting to allow for further analysis of the consultation and consideration of the options.

Compensation Fund eligibility

The SRA will change the eligibility criteria to focus the fund on consumers and small businesses and exclude larger corporate consumers. The Compensation Fund protects clients from dishonesty or a failure to account for their money by a solicitor. However, a large number of claims come from companies such as lenders and mortgage providers. Few of these claims are successful, as the applicant will often have other avenues of redress and is unable to satisfy the SRA that it has suffered loss and hardship. By changing the eligibility criteria, the SRA will be able to manage claims more effectively and reduce the cost of administering the Fund. The eligibility criteria for the Compensation Fund is therefore limited to individuals, small enterprises with an annual turnover of no more than £2 million, charities with an annual income of no more than £2 million and trustees of trusts with a net asset value of less than £2 million.

Extension to consumer credit transitional provisions agreed

The Solicitors Regulation Authority (SRA) has secured agreement with the Financial Conduct Authority (FCA) to extend the transitional arrangements for consumer credit work.

The FCA took over regulation of consumer credit work in 1 April. Law firms carrying out consumer credit work and who were originally covered by the Law Society’s group licence therefore had to look again at their authorisation. As part of this, transitional arrangements were put in place for law firms affected by the shift in regulators until 30 September 2014.

The SRA has since worked with the FCA to secure an extension, and the FCA has now agreed to run the transitional period until 1 April, 2015.

More information: Regulation of consumer credit activities

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

On 13th June, the Consumer Protection (Distance Selling) Regulations 2000 and the  Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008 will be superseded by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

The Regulations apply to contracts entered into on or after that date and impose a new statutory regulatory regime for certain consumer contracts. Solicitors will need to review and amend their client care documentation.

The new regulations apply when the client is a consumer and the contract is entered into:

  • on the solicitors’ premises
  • away from the solicitors’ premises or following discussions which have taken place there
  • at a distance as part of an organised distance sales service

The regulations also extend the previous cancellation period of 7 days to 14 days.

Click here to download our free guidance note on the Consumer Contracts Regulations 2013.

Contact us for further advice and if you would like us to review and amend your client care documentation.

SRA contact numbers change

The Solicitors Regulation Authority (SRA) will be changing some key telephone numbers on Thursday 5 June.

Details for the Contact Centre, Professional Ethics and confidential reporting line Red Alert will change, dropping the “08” at the start and instead using “03”. Anyone using the “08” numbers will hear a message advising them to redial using the “03” prefix. This message will remain in place for the foreseeable future.

The new numbers will therefore be:

  • Contact Centre: 0370 606 2555
  • Professional Ethics helpline: 0370 606 2577
  • Red Alert: 0345 850 0999

Firms that have the SRA’s contact details on their website should ensure the new versions are displayed. Firms that have existing printed materials carrying the SRA’s contact details can continue to use them as the re-direct message will be in place. However, any new printing should use the new numbers.

The change is being made so that the SRA complies with European Union Consumer Rights Directive 2011/83/EC. Under the Directive, calls to customer helplines must be charged at no more than the basic rate.

Charges for calling “03” numbers are the same as for calls made to standard UK landline phone numbers. Calls to “03” numbers are also included in mobile phone call packages in the same way regular landline numbers are.