Yearly Archives: 2018

SRA reminds solicitors to adhere to their litigation obligations

Solicitors have been reminded to adhere to all their professional obligations when engaged in litigation, and not to become “hired guns” just carrying out instructions that are in the best interests of clients.

The SRA has refreshed its Balancing Duties in Litigation paper, which accompanies the autumn update of the Risk Outlook. The paper updates the March 2015 report, discussing the differing duties owed by solicitors in litigation and examining the ways in which misconduct can arise.

Citing examples, such as the use of non-disclosure agreements (NDAs) which expressly prevent lawful disclosure of issues such as discrimination, harassment or sexual abuse, the paper reiterates the profession must uphold all its obligations. These include always acting with integrity and upholding the rule of law.

Paul Philip, SRA Chief Executive, said: “Maintaining the correct balance between duties is not simple and all matters must be decided on the facts. Solicitors should of course advance their clients’ cases, but they are not ’hired guns’ whose only duty is to that client.

“They also owe duties to the courts, third parties and to the public interest. It is important for solicitors to recognise their wider duties and never to rationalise misconduct on the mistaken basis that their only duty is to their client, for example by including clauses in non-disclosure agreements which seek to prevent lawful disclosure of harassment or discrimination.

“Those who cross the line into misleading the courts or abusing the litigation process should have no doubt that if we have evidence of this, we will take action.”

Other key trends identified in the Risk Outlook update include:

  • A 43 percent increase in the number of money laundering reports (across the first three quarters of the year compared to 2017).
  • A 10 percent increase in the number of reports of misuse of client money compared to 2017 (now averaging 104 per month).
  • A nine percent increase in the amount of work being carried out online.
  • Reports of email modification fraud, which in the past have tended to mostly concern conveyancing, are increasingly related to other areas of work, and now account for more than half of all these reports received.

The Risk Outlook autumn update can be found here:

Go to the Autumn Update

The Balancing duties in litigation paper, can be found here:

Go to the paper

Price transparency & digital badge confirmed

New transparency rules, requiring regulated firms to publish price and service information on their websites, are to come into effect on 6 December 2018.

This is also the date by which firms must make information on their complaints procedures available online, and from which they will be able to download and begin using the new SRA digital badge.

Providing website visitors with personalised information confirming that a firm is regulated and outlining the protections this brings, the badge is expected to become a mandatory requirement during Spring 2019.

December’s implementation of the transparency rules was first announced in June 2018, and further confirmed following Legal Services Board approval of the rules in August.

Under the rules, all regulated law firms will be required, from 6 December, to proactively publish information on prices they charge and what these include, across a number of common services:

  • For members of the public: conveyancing, probate, motoring offences, employment tribunals (claims for unfair or wrongful dismissal) and immigration (excluding asylum).
  • For businesses: debt recovery (up to £100k), employment tribunals (defending claims for unfair or wrongful dismissal) and licensing applications for business premises.

Detailed guidance, designed to help firms in understanding and preparing for the new requirements was issued in October, and has now been further updated to include templates for publishing complaints procedures.

Paul Philip, SRA Chief Executive, said: “Publishing information on price, services and protections will not only benefit the public, but will also help law firms win new business. Research shows that people struggle to find clear information about the services firms offer and think using a solicitor is more expensive than it actually is.

“We are providing guidance and support for firms to help them meet the new requirements and make the most of the opportunities they bring.”

To view more information on the transparency rules, including the recently published guidance go to:

SRA publishes price transparency guidance

Ahead of the introduction of new price transparency requirements within the legal sector, the SRA has issued guidance on what price and service information firms must publish on their websites from this December.

As well as explaining firms’ mandatory obligations, the guidance also provides templates and best practice tips on publishing user friendly price and service information for the public.

The new transparency rules, and their expected implementation date, were first announced in June 2018, and confirmed following Legal Services Board approval in August.

Under the rules, all regulated law firms will, from early December, be required to proactively publish information on prices they charge and what these include, across a number of common services:

  • For members of the public: conveyancing, probate, motoring offences, employment tribunals (claims for unfair or wrongful dismissal) and immigration (excluding asylum).
  • For small businesses: debt recovery (up to £100k), employment tribunals (defending claims for unfair or wrongful dismissal) and licensing applications for business premises.

In addition to prices, firms must also outline typical timescales for the quoted services and provide details of the experience and qualifications of staff who work in these areas.

The required information must be published in a prominent location on a firm’s website, which is accessible, clearly signposted and easy for visitors to find. For those without a website, the information must be immediately available in any format for any member of the public who requests it.

Research the SRA have published  found that 42% of small businesses shop around online when in need of professional legal support, with 75% saying they would do this even more if more information was available on firms’ websites.

The research also revealed that small businesses think solicitor firms are more expensive than is really the case and that firms would be a more attractive option if they published prices.

Paul Philip, SRA Chief Executive, said: “Publishing information on price, services and protections will not only benefit the public, but will also help those who deliver these services win business and connect with their customers. We are providing guidance and support for firms to assist with meeting the new requirements and making the most of the opportunities they bring.”

Further reforms due to be introduced as part of the SRA’s transparency rules include a requirement to publish information on complaints procedures, a new digital register of regulated law firms, and the introduction of an SRA digital badge.

Currently in development, the digital badge will be displayed on regulated firms’ websites and link to information about the protections that customers have when using regulated firms.

Read the price transparency guidance

Read more about the research findings

SRA publishes rules for European Insurance Distribution Directive

The SRA have published our rules for dealing with the new Insurance Distribution Directive.

The Directive means that firms carrying on insurance distribution activities will need to change the way they work. Replacing the Insurance Mediation Directive, the new Directive aims to strengthen protections in place for clients, such as improving the information they receive.

Paul Philip, SRA Chief Executive, said: “Our changes meet the requirements of the new Directive without putting unnecessary burdens on firms. For example, in many areas our, Code of Conduct already covers what is needed.

“It’s important that firms make sure they are up to date with the revised requirements so that they can provide a proper service to their clients.”

Some of the key enhancements brought in by the directive and that firms will need to familiarise themselves with are:

  • Professional and organisational requirements
  • Conduct of business requirements
  • Information requirements
  • Demands and needs of their client

Firms working in personal injury, conveyancing or probate are most likely to be affected. For example, they might arrange after-the-event insurance in a personal injury matter or defective title insurance in a conveyance.

However, there might be other insurance products that firms advise on or arrange for their clients in other areas of law. All firms should therefore assess their own individual practices and make sure they are up to date and able to comply with the revised rules.

The rules can be found here:

Go to the rules

Guidance on the new directive is also available here:

Go to the guidance

Where firms have an appointed insurance mediation officer the SRA will be updating their records to change this role to an insurance distribution officer.

As a designated Professional Body for financial services activities, the SRA have in place rules that govern the carrying on of financial services activities by exempt professional firms.

Recent £7m losses see regulator urge caution over new legal business partners

Solicitors have been urged to make sure that the credentials of people approaching their firm to offer business expansion are genuine.

The SRA have recently received two reports of firms branching out into different work areas, but the reality was that new colleagues had infiltrated the firm to defraud clients. The incidents have led to potential losses of more than £7 million for those involved.

The fraudsters approached law firms offering to expand the services they offered and gave bogus credentials to support their supposed expertise. However, once appointed and away from supervision, they had access to client money which appears to have been stolen.

Small firms are targeted. This may be because the fraudsters think their apparent offers of assistance or new work will be more readily accepted and that principals in those firms may not have been able to keep up to speed with warnings such as this one.

Solicitors have a duty to run their businesses in accordance with “sound financial and risk management processes” to protect their clients’ money and assets. Reports of infiltration highlight the need for the profession to make sure that it carries out proper due diligence on those seeking to join a firm.

There is also an obligation for solicitors to provide a proper standard of service to their clients. Taking on new staff for areas where managers do not have the relevant expertise could mean they might not be properly supervising employees.

Paul Philip, SRA Chief Executive, said: “Many law firms handle large amounts of money, making them an attractive target for fraudsters.

“We know that most firms have strong systems in place to make sure they are employing the right people, as well as protections to make sure staff are properly supervised and money in the client account stays safe.

“But these recent cases show that there is no room for complacency and that undertaking careful due diligence for any potential employees is essential. Leaving the door open for fraud is damaging to both the firm and public trust in solicitors.”

Approaches of this type, particularly if it unsolicited, need to be treated with extreme caution. Carrying out due diligence would include:

  • Getting as much verification as possible from third parties such as banks and other professional firms. One check or reference from another firm is unlikely to be sufficient because the fraudsters may control or have influence over more than one firm
  • Internet searches
  • Checks on official websites such as this one and those of other regulators

Solicitors should be aware of unusual aspects of the proposal. This could be someone bringing work to the firm or even saying that they will pay the sole principal or partners a ‘salary’.

Advice on carrying out due diligence for potential employees has been outlined in a number of case studies.

The duties on solicitors – including running businesses along sound risk management processes, protecting the money and assets of clients and providing a proper standard of service – are outlined in the SRA Principles.

The reports of infiltration are still being investigated and therefore no further details on these cases can be given out at this time.

Solicitors urged to check frozen asset list

Solicitors have been urged to check the HM Treasury frozen assets review to make sure they are not holding monies belonging to a client that is subject to financial sanctions.

HM Treasury has published its annual frozen assets review. Anyone who is holding frozen assets has until Friday 12 October 2018 to submit a report to the Office of Financial Sanctions Implementation (OFSI).

Reports need to be made to the OFSI using this email address:

Sanctions are an important foreign policy and national security tool and solicitors should be aware of their ongoing responsibilities. The profession needs to comply with financial sanctions in place in the UK and to report frozen assets and other relevant information to OFSI immediately.

Crispin Passmore, SRA Executive Director, said: “Solicitors are rightly being asked to make sure they are not helping anyone with dubious funding streams – becoming ‘professional enablers’. This risk exists for every single solicitor and law firm, whether conveyancing on the high street or handling global transactions.

“We would urge all of you to look at the review and, if a client is listed and you hold any of their assets, make a report as necessary.”

The Treasury has provided an example of what the Annual Review involves.

More information on financial sanctions can be found in OFSI’s guide

Anyone who submitted a report last year and no longer hold the assets will need to submit a “nil return”.

Law firms warned against using client account as banking facility

The SRA has restated its warning to law firms that they should not provide banking facilities through a client account to their clients or others, while providing further detail on how the rules apply in practice.

The rules set out that law firms should only have money linked to an underlying legal service going through their client account. There must also be a proper connection with those receiving those funds and the legal services the firm has provided.

Risks to firms, clients and the wider public, include assisting money laundering, helping someone avoid their obligations in an insolvency situation, or improperly hiding assets in a commercial or matrimonial dispute. The SRA also warned firms about the risks of allowing firms’ client accounts to be used to add credibility to questionable investment schemes.

Firms cannot justify processing money through the client account due to having a retainer with a client. The SRA cautions against firms holding funds to enable them to pay a client’s routine outgoings, for instance when based abroad. With technological advances this is no longer justifiable.

The SRA has published eleven case studies to help law firms understand the types of instances when paying money into the client account may or may not be acceptable.

Paul Philip, SRA Chief Executive, said: “Law firms are not regulated to operate their client accounts as a banking facility for clients. They should not trade on their reputation to provide banking facilities, which can result in significant risks for the firm, as well as their clients and the wider public.

“Our rules are not intended to prevent usual practice in traditional work undertaken by solicitors such as conveyancing, company acquisitions, the administration of estates or dealing with formal trusts. Money passing through the client account can be entirely legitimate where there is a clear legal service being provided, but we will continue to take action against those who cannot justify their actions, put their clients at risk and undermine public trust in the profession.”

In the last 12 months, the SRA has prosecuted 20 solicitors and three firms at the SDT. Three solicitors were struck off and two more suspended, while the SDT also levied £763,000 of fines, including the highest fine ever of £500,000.

Read the warning notice

Read the case studies

SRA publishes spring update for Risk Outlook

The spring update for the SRA’s Risk Outlook was published this week. Included in the update is information on an increase in cybercrime reports. The majority of reports received in the past have involved email interceptions in a bid to steal client money. There is now an increase in law firms reporting other types of cybercrime attacks. You can also get the latest information on other risks such as money laundering and the use of non-disclosure agreements.
Read more about: Risk outlook