SRA probes 26 firms over money laundering

Almost half of firms placed under extra scrutiny by the Solicitors Regulation Authority for potential money laundering breaches could now face disciplinary proceedings after alleged failures were exposed.

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Paul Philip: ‘compliance is not optional’

The regulator reviewed 59 firms that provide trust and company services – seen as a particular risk for criminals laundering money – and is now investigating 26 for possible rule breaches.

The review found no evidence that firms had actually laundered money or that they had any intention of becoming involved in criminal activities. But red flags were raised at more than a third of firms under review about their lack of adequate risk assessment. In four cases, firms had no risk assessment at all.

While 15 firms had turned down work following due diligence, a similar number were found to have inadequate processes in place to manage risks around politically exposed persons (PEPs), individuals whose prominence in public life could make them vulnerable to corruption.

SRA chief executive Paul Philip said: ‘Most solicitors take their responsibilities seriously, but too many firms are falling short. Those firms should be on notice that compliance is not optional. They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action.’

The SRA’s message has been repeated several times in recent years, but the prospect of sweeping prosecutions involving dozens of firms is intended to drive home the message that action is required.

The net is set to be cast wider in the coming months, with the regulator beginning a further compliance review of 400 firms, led by a new dedicated anti-money laundering unit.

Around 7,000 firms do work that falls under the scope of the government’s money laundering regulations. In the past five years, 60 cases have been brought before the tribunal linked to potential improper money movements, with more than 40 solicitors struck off.

A Law Society spokesperson said: ‘The SRA’s findings will help us pinpoint those elements of the regulations that members still find challenging and tailor our support services to member needs. The findings also help members understand and prepare for the level of detail that the SRA clearly expects to see in firms’ compliance procedures.

‘Chapters 2, 3 and 4 of the legal sector AML guidance deal with most of the challenges identified by the thematic review. Where a specific question is not answered by the guidance, members should call our Practice Advice Service for free and confidential advice.’

(Source: The Law Society Gazette, 13th May 2019)

SRA review shows too many law firms falling short on anti-money laundering

  • Review results in 26 firms entering disciplinary processes
  • SRA issues warning to profession about money laundering

A review has shown that a significant minority of law firms are not doing enough to prevent money laundering, with some falling seriously short.

Go to the review

The SRA’s review focused on 59 law firms providing trust and company services. The creation and administration of trusts and companies on behalf of clients has been highlighted by the government as one of the legal service areas at highest risk of exploitation by criminals to launder money.

The review did not find evidence of actual money laundering or that firms had any intention of becoming involved in criminal activities. However, it did find a range of breaches of the 2017 Money Laundering Regulations, as well as poor training and processes. This means firms could be unwittingly assisting money launderers.

One of the biggest areas of concern was firms’ risk assessments. A firm risk assessment is required in legislation and should be the backbone of a firm’s anti-money laundering approach. The SRA found that more than a third (24) of firms reviewed fell short in this area, including four that had no risk assessment at all.

There were also issues around appropriate customer due diligence. This included inadequate processes in almost a quarter (14) of firms to manage risks around Politically Exposed Persons, known as PEPs. However, in some instances effective customer due diligence did result in firms turning down work. Fifteen firms had done this, with one of the main reasons being evasive clients.

As a result of the review the SRA have put 26 firms into its disciplinary processes. The SRA has also published a warning notice reminding the profession of their obligations, particularly in relation to firm risk assessments. And the SRA has begun a further review of 400 other law firms to check compliance with the Government’s 2017 Money Laundering Regulations. This review will be led by a new dedicated anti-money laundering unit, being set up to bolster resources to prevent and detect money laundering.

Go to the warning notice

Paul Philip, SRA Chief Executive, said: “Money laundering damages society, supporting terrorists, drug dealers and people traffickers. The stakes are too high for solicitors to be anything but fully committed to preventing money laundering and the crime its supports.

“Most solicitors take their responsibilities seriously, but too many firms are falling short. Those firms should be on notice that compliance is not optional. They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action.”

In the last five years, the SRA has taken more than 60 cases, linked to potential improper money movements, to the Solicitors Disciplinary Tribunal. These cases have seen more than 40 solicitors being struck off, voluntarily coming off the roll, or suspended from practising.

SRA raises concerns over price transparency and legal support during property transactions

A review of how solicitors offer conveyancing services has raised concerns over how open they are about costs and whether they are doing enough to make sure buyers understand any potential contractual obligations.

The SRA’s “Residential Conveyancing Thematic Review” found that while most solicitors are doing what they should, there are a number of areas of concern.

While all the firms reviewed gave clients quotes before agreeing to work with them, the SRA found that in one third of cases (34%) these initial quotes did not include fees for additional work which should have been reasonably anticipated at the outset.

Typically, these missing costs related to processing bank transfers, accessing online portals, mortgage administration fees, electronic ID checks or administering gifted deposits.

Not only can this leave buyers having to pay unexpected costs, but there is a concern that some firms may be providing unrealistic initial quotes in order to win business.

The SRA also found that 37% of firms failed to be transparent about the mark-ups they added to the fee a bank charged for making a telegraphic transfer. In some cases, this led to clients being charged as much as 10 times the fee set by the bank.

There were also issues about solicitors not properly explaining the long-term implications of complex contractual clauses. In nearly a quarter (23%) of leasehold purchases it was found that solicitors did not explain the difference between freehold and leasehold models of ownership, instead relying on their client to get this information from elsewhere.

This is of particular concern, as leasehold purchasers can find themselves liable for fast rising charges, such as ground rents. In the long term, such payments may not only become unaffordable, but they may make it very difficult to sell the lease on.

Anna Bradley, SRA Chair, said: “It is disappointing to see examples of poor practice in conveyancing, which is so important to so many people. While many law firms and solicitors provide a good service and act in their clients’ best interests, those who don’t are letting down not only their clients, but also the profession as whole.

“People should be able to rely on their solicitors to be open about what their services will cost, and to explain the potential financial and legal implications of any transaction. When solicitors fail to do this, for example in relation to long term leasehold charges, they may be leaving their clients open to ever increasing and potentially unaffordable financial liabilities.

“We will now be looking closely at how firms are publishing their pricing for conveyancing through our programme of monitoring firms’ websites. We have already published information for the public on the issue of leaseholds and we will be sharing this report with the Government as it considers leasehold reform.”

As a direct result of the review six law firms were referred to the SRA’s internal disciplinary processes.

Other key findings of the review included:

  • All firms visited proactively communicated with clients at key stages and are increasingly using innovative techniques such as text, social media and online portals to do so.
  • 91% of firms acknowledged they had received requisitions from HM Land Registry that could have been avoided.
  • Nearly two-thirds (63%) of firms are already preparing for the move to HM Land Registry’s planned e-conveyancing platform.

In compiling the thematic review, the SRA visited a representative sample of 40 firms offering conveyancing services and conducted detailed analysis of 80 property deals. The review report will be shared widely so that law firms across England and Wales can learn from both the good and poor practice that it sets out.

Read the full report

SRA puts firms on notice for money laundering compliance checks

The SRA have today announced a plan to carry out rigorous checks on law firms to make sure they are meeting their anti-money laundering obligations.

The regulator will shortly be writing to an initial sample of 400 firms asking them to demonstrate compliance with the Government’s 2017 Money Laundering Regulations. There are around 7,000 SRA-regulated law firms who fall under the scope of these Regulations.

The SRA want to make sure that firms have a money laundering risk assessment in place and are implementing it. A risk assessment is required by legislation and should be the backbone of a firm’s anti-money laundering approach. If firms are not complying, they will go into the regulator’s enforcement processes.

Each case will be judged on its facts, but if there are serious issues or a lack of willing to resolve issues promptly, disciplinary action will be taken. The SRA also plan to carry out further compliance checks where sector-wide issues are found.

Paul Philip, SRA Chief Executive, said: “Money laundering is far from being a victimless crime and must be taken seriously. Solicitors, as enablers of moving funds around, can willingly or unwittingly be part of the problem. So we expect firms to be vigilant and they, in turn, can expect us to be robust in our enforcement action where solicitors firms are involved in money laundering or are not complying with the relevant legislation.”

The SRA stated that in the last five years, more than 60 cases – linked to potential improper money movements – were taken to the Solicitors Disciplinary Tribunal. This has resulted in more than 40 solicitors being struck off, voluntarily coming off the roll, or suspended from practising.

To learn more about our comprehensive to help you meet the requirements of the regulations, click here.

SRA confirms November launch date for new Standards and Regulations

The SRA have today confirmed that its new Standards and Regulations will come into effect on 25 November 2019, not this spring as previously advised.

Anna Bradley, chair of the SRA, said the revised date was a sensible move to give everyone – regulators and the regulated community – the chance to amend its methods. She added: ‘By stripping away outdated and unnecessary rules and giving solicitors more flexibility to design and deliver their services around their clients, our new regulations are designed to help people access a wide range of high quality services with the confidence that proper protections are in place. That can only be good for the public and the profession.’

The new regulations will be supported by the SRA’s revised enforcement strategy, which was introduced in February 2019, and sets out to provide greater clarity on the regulator’s approach in cases of potential misconduct.

The SRA has promised a range of guidance over the coming months including initial documents covering areas such as the Accounts Rules, practical application of the SRA Principles and which type of firms and individuals need authorising.

Coinciding with the introduction of Standards and Regulations, November will also see the SRA Digital Badge becoming a mandatory requirement for all regulated firms who run a website. First launched on a voluntary basis in December 2018, the badge uses smart technology to confirm to website visitors that a specific firm is regulated. It also provides a firm-specific link to information on the protections that this status provides to potential customers.

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: www.sra.org.uk/transparency

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.