SRA Developments in 2019
2019 has seen the Solicitors Regulation Authority (SRA) taking an increasingly assertive approach towards the regulation of solicitors and the protection of consumers of legal services.
A New Enforcement Strategy
On 7 February 2019, the SRA announced a new Enforcement Strategy to ‘focus on serious issues’ and confirmed that action will be taken against solicitors in relation to breaches which are ‘serious, either in isolation or because they demonstrate a persistent failure to comply or a concerning pattern of behaviour’.
The SRA stated that it will take action where an individual is personally responsible for such a breach. Individuals cannot avoid accountability and/or repeat similar behaviour simply by moving firms. In addition, the SRA will usually take action against firm – alone or as well as against an individual – where there it has breached its code of conduct. Action would be taken, for example:
- to mark a firm’s responsibility and to hold it to account for a breach, especially where it is not possible or proportionate to establish individual responsibility.
- when events demonstrate a failure which relates to the culture, systems, supervision arrangements or processes for which the firm, as a whole, should be held accountable.
- to encourage a culture of compliance and management of future risk.
The SRA confirmed that action in relation to systemic failure is likely to become increasingly relevant as reliance upon information technology and artificial intelligence increases.
In addition, on 7 February 2019 the SRA published its response to the Reporting Concerns Consultation of August 2018. The new reporting obligation is expected to be in place by the summer of 2019 and reads as follows:
- You must promptly report to the SRA, or another approved regulator, as appropriate, any facts or matters that you reasonably believe are capable of amounting to a serious breach of their regulatory arrangements by any person regulated by them (including you).
- Notwithstanding, you must promptly inform the SRA of any facts or matters that you reasonably believe should be brought to its attention in order that it may investigate whether a serious breach of its regulatory arrangements has occurred or otherwise exercise its regulatory powers.
This formulation is different from the version currently in force since the existing wording led some firms to conclude that concerns should not be reported until it had been determined that serious misconduct has been established, that is, at the conclusion of an investigation into suspected conduct failings. The new wording makes clear that there is no need for an investigation to be undertaken or a conclusion reached before a report is made. A report must be made in circumstances where it is reasonably believed that there are facts or matters that, if proven, are capable of amounting to a serious breach.
That said, the SRA does not suggest that firms should not investigate matters. Further, they are clear that compliance officers should exercise judgment in deciding whether any breach has occurred. The SRA will, however, come to its own conclusions as to whether further investigation is necessary.
A New Procedure Code
On 20 March 2019, the SRA announced a new Procedure Code and confirmed that the new regulations – intended to allow solicitors greater flexibility in how they work and making it easier for people to get help – will come into effect on 25 November 2019.
The new Code will be shorter and more targeted than the existing one and is intended to ‘focus on what really matters … protecting the public and their money’.
The removal of many prescriptive rules is intended to reduce the burden on solicitors and law firms and allow solicitors ‘greater freedom to use their professional judgement in considering how they meet the standards’.
The key changes being introduced include:
- The creation of separate codes of conduct for firms and solicitors
- Simplified Account Rules
- Permitting solicitors to carry out ‘non-reserved’ legal work from within a business not regulated by a legal services regulator
- Allowing solicitors to provide reserved legal services on a freelance basis
An Anti-Money Laundering Investigation with Teeth
On 7 May 2019, the SRA published its Money Laundering Thematic Review and announced the creation of a dedicated team ‘devoted to preventing and detecting money laundering [which would] continue to build upon the work of th[e] thematic review’.
Significantly, the thematic review focused on 59 law firms providing trust and company services (since that sector that been highlighted by the government as one of the legal service areas at highest risk of exploitation by criminals to launder money).
The SRA was at pains to point out that the review did not uncover evidence of ‘actual money laundering’ or identify firms with a declared intention to become involved in criminal activities. However, the did uncover a raft of breaches of the 2017 Money Laundering Regulations as well as poor training and processes.
The most significant area of concern related to firms’ risk assessments – a process that ‘should be the backbone of a firm’s anti-money laundering approach’. Of the 59 firms, 4 had no risk assessment at all and 24 were found to be inadequate and falling short of legislative requirements.
The SRA review also identified significant failings around customer due diligence (CDD), including inadequate processes in 14 firms to manage risks around Politically Exposed Persons. (That is to be balanced against 15 of the 59 demonstrating the effective implementing of CDD by turning down work from ‘evasive clients’).
As a result of the review 26 of the 59 firm now face disciplinary investigation. More generally, the SRA has published a warning notice reminding firms and individual solicitors of their obligations, particularly in relation to risk assessments. A further review of 400 law firms is now under way.
There can be little doubt that the SRA’s renewed regulatory vigour has at least as much bite as bark.
Gavin Irwin for the Professional Discipline Summer Newsletter
Categories: Newsletters
