09:30 – 14:45 BST
23 June 2017
We are working on new guidance for law firms, which we aim to publish shortly, following the announcement of new money laundering regulations by the Treasury.
The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 have been published here:
We are reviewing the full detail of the requirements. We will then work with other regulators across the UK to provide updated guidance for law firms. Solicitors can also contact our Ethics Guidance helpline if they have queries.
Robust anti-money-laundering arrangements are important and a priority for the sector, law firms and the global economy. We expect law firms to comply with their legal obligations and are urging law firms to familiarise themselves with the new regulations as soon as possible, and take action to comply.
However, we recognise the short lead-in time businesses have been given to implement the new requirements. We will take a proportionate and pragmatic approach as firms take steps to comply with the new requirements.
Money laundering is a priority risk for us. Further information is available here:
The draft SRA Accounts Rules 2018 were published by the SRA on Wednesday 14 June 2017 and have been reduced to just seven pages containing twelve rules.
As expected, the Solicitors Regulation Authority (SRA) has, as a result of feedback received during their consultation on proposed changes to the SRA Accounts Rules, backed down on their controversial plan to change the definition of client money.
Whilst the majority of the consultation responses received by the SRA were supportive of the aim of simplifying the SRA Accounts Rules, there was widespread criticism of their proposal to amend the definition of client money so as to exclude payments on account of costs and certain disbursements as having to be treated as client money, as it is under the SRA Accounts Rules 2011 which are currently in force.
The revised definition of client money now includes money held or received by a firm in respect of fees and any unpaid disbursements if held or received prior to the delivery of a bill for the same. In our view, the whole issue of the treatment of a firm‘s fees and the billing process is likely to require further consideration by the SRA. Rule 4 of the draft SRA Accounts Rules 2018, states that, “where you are holding client money and some or all of that money will be used to pay your costs, you must give a bill of costs, or other written notification, to the client or the paying party and this must be done before you transfer any client money from a client”. Significantly, the phrase ’properly require‘ which features in the equivalent provision in the current SRA Accounts Rules is no longer in use. It is the presence of the words ’properly require‘ that prevents a firm from transferring funds from client to office bank account where a bill has been sent to the client but the work covered by the bill has not yet been completed. This important point is not covered under the draft SRA Accounts Rules 2018 which, at face value, seem to permit monies to be transferred from client to office bank account if a bill has been given to the client for ’work to be undertaken’, i.e. a payment on account of costs.
Another significant change, perhaps inadvertent on the part of the SRA, is that the obligation to send or give a bill to the client prior to transferring costs from client to office account now applies to the firm‘s ’costs‘ rather than the firm’s ‘fees’. Critically, the definition of ‘costs’ comprises the firm‘s profit costs and disbursements whereas the definition of ’fees’, which is used in the equivalent provision within the current SRA Accounts Rules, is purely the profit cost element of the bill. Therefore, it would appear, that under the draft SRA Accounts Rules 2018, a firm will not be able to transfer funds held in client bank account, to cover disbursements paid out of office monies on behalf of the client, prior to giving a bill to the client.
The rules relating to the handling of monies from the Legal Aid Agency have changed significantly as well. Under the draft SRA Accounts Rules 2018, monies received from the Legal Aid Agency can, as is currently the case, be paid into the firm‘s office account. However, the obligation to either pay any unpaid disbursements, or transfer the corresponding funds from office to client account, has been removed. The SRA consider that removing the provision for disbursements to be held in a client account if they are not paid within either 14 days (payments received where a funding certificate is in force) or 28 days (payments received under a civil or criminal contract) does not mean that firms will be able to hold payments from the Legal Aid Agency in their business account indefinitely. If, for example, a firm does not pay an expert’s fee and thereby delays a client‘s matter, this would constitute a breach of the SRA’s rule to make payments promptly and is also likely to be a breach of the SRA Code of Conduct.
It is important to realise that we have only seen part of the story so far. Whilst the SRA have simplified and shortened the SRA Accounts Rules, they have indicated their intention to publish additional guidance on the correct interpretation and application of the proposed new SRA Accounts Rules to be read in conjunction with the new rules. So, whilst we have a streamlined version of the SRA Accounts Rules, it is evident from the list of the areas where the SRA intend to issue further guidance, that we will be gaining a substantial amount of new material which will, inevitably, end up being treated as if they were rules rather than simply guidance! The SRA have identified the following areas where additional guidance will, most likely, be issued:
The SRA have stated that the draft SRA Accounts Rules 2018 will not come into effect before the Autumn of 2018. Before then, there will be a further consultation process with the scope for additional amendments to be made before the final version of the SRA Accounts Rules 2018 are presented to the SRA Board for approval.
Download the draft SRA Accounts Rules 2018 below:
The regulator yesterday opened the tender for a provider to administer the Solicitors Qualifying Exam from September 2020.
The tender document reveals that the SRA intends to keep controls over the exam’s content and standards, making the pass mark subject to the approval of the chief executive. The SRA will also own all intellectual property in the SQE brand, which will be licensed to the successful supplier.
The SRA will not pay the supplier, although it may provide some funds to cover the upfront costs. Suppliers will set candidates fees, subject to SRA approval, which must remain ‘broadly stable’ and represent ‘value for money’ for the candidates paying.
According to the documents, the regulator will insist on ‘open book access’ to the assessment supplier’s accounts to determine whether fees being charged are fair and reasonable and to justify any increase. It is stressed in the tender document that the regulator is not necessarily seeking the lowest fee proposed, although there are no suggestions what the fee should be.
To ensure candidates are not charged excessive fees, any profits beyond a certain level from the SQE will be paid into a ‘re-investment fund’. The level of this cap is unspecified.
The document adds: ‘The SQE is not an income generating exercise for the SRA and we do not wish to retain excess profits for ourselves. We will decide how this money is spent either in connection with the improvement of the SQE or to provide financial assistance to candidates.’
The SRA states the exam must be a ‘rigorous, valid and reliable assessment’ that ensures newly qualified solicitors have the competences required for effective practice.
As expected, the qualification will be in two parts: a computer-based exam testing legal knowledge and a series of practical assessments.
The chosen assessment supplier will conduct its work in an ‘open and transparent way’ to help universities, training providers, publishers and employers prepare for implementation.
The SRA confirms it is prepared to work with a supplier already engaged in training – a potential conflict of interest revealed this week by the Gazette.
In response to this issue, the SRA adds: ‘We will only contract with an assessment supplier who is either not engaged in the delivery of preparatory training for the SQE or who can assure use that there is a separation of these activities to avoid any perceived or actual conflict of interest of distortion of the training market.’
The closing date for final submissions is 1 September, with shortlisted bidders notified by 1 November and a contract issued next March.
Following consultations last year, SRA are today publishing their decisions and consultation response documents.The SRA Board has agreed:· New SRA PrinciplesOur new Principles clearly and concisely state the high ethical standards we expect of those we regulate.· Two new Codes of ConductThe code for individuals sets out the professional standards and behaviours we expect of solicitors in practice. Our code for firms provides clarity on what their responsibilities are as regulated businesses.· Solicitors offering services outside SRA regulated firmsSolicitors will be able to offer non-reserved legal services outside of firms overseen by the SRA or another approved legal services regulator. This will let them take the high standards, training and consumer protections that attach to their role to a greater number of consumers through new, innovative business models.· Revised and streamlined Account RulesThe new rules strip out unnecessary bureaucracy and focus on what matters: keeping clients’ money safe.Extensive engagement around 11,000 peopleThese decisions were reached after extensive engagement with a wide range of our people and organisations, both before and during the consultation. We have listened to and responded to feedback from solicitors, law firms, the general public and representative bodies. We will continue to involve and update everyone as we move forward.New Handbook will not be implemented before Autumn 2018We will be consulting on phase 2 of Looking to the Future, which includes the rest of our rules and our approach to enforcement, later on this year. All of the Handbook changes will be implemented together.We encourage you to stay involved as we work on phase 2. If you would like to discuss any of these issues, you can contact me at crispin.passmore@sra.org.uk
IT security – keeping money and data safe
£1 billion was lost to business from online crime (2015-2016)
£2.3 billion was lost by global businesses from email fraud (2013-2015)
75% of cybercrime reports to us are Friday afternoon fraud
£1.57 million was paid by businesses in ransoms (2016: Q1)
43% of all cyber attacks are aimed at small businesses
9 security breaches in 2015 featuring more than 10million personal records being exposed
Sources: Action Fraud, CRN, FBI, Symantec IT security – keeping money and data safe
Leading experts discuss cybersecurity risks to coincide with our spring update to the Risk Outlook.
There was general agreement that law firms are an attractive target for criminals not only because they can hold large amounts of money but also valuable client information. Three key themes from the roundtable were that:
Our roundtable involved leading agencies and experts from a range of sectors to discuss how businesses can tackle the risks of cybersecurity. As well as us, there were representatives from the Information Commissioners Office, Barclays, Advent IM, National Crime Agency, IASME & UK Cyber Forum, bgi.cyber.uk ltd, Pelican Underwriting, QBE Insurance, Cyber Strategies, PA Consulting and Microsoft.
The roundtable coincides with the publication of our spring update to its Risk Outlook, which highlights seven priority risks for the legal sector. It shows that three quarters of all cybercrimes reported to us involve email modification fraud. Half of all such reports are email modification frauds against conveyancing proceeds. It says any field of work which involves client money is at risk, with probate another common target.
We are committed to taking a constructive and engaged approach with firms when they fall victim to cybercrime. However, the risk update does highlight that we will take action where firms are not proactive. For instance it has this year issued rebukes in cases where a firm has failed to report the loss of client money or been slow to remedy client losses.
Paul Philip, SRA Chief Executive, said: “We all benefit from information technology, but that means we are all vulnerable to cybersecurity risks. These risks evolve rapidly. Whether it is money or sensitive client information, law firms are an obvious target. It is the job of firms to take steps to protect themselves and their clients, but we want to help.
“So in addition to regular updates and conversations with firms, we also want to make sure we learn from insights across all sectors. It was clear from our roundtable how similar the issues are. By working together we will be in much better place to stay cybersecure.”
The update of the Risk Outlook is available here:
We published a detailed report into the IT security at the end of 2016:
The SRA is going ahead with the Solicitors Qualifying Examination. Plans were approved during its 12 April board meeting.
The idea of a centralised exam attracted widespread criticism, including from the Law Society, when it was first floated in early 2016. A second consultation, on revised proposals that were generally considered an improvement, closed in January.
The LSB wants promotion of the use of independent feedback platforms, more data accessible through comparison tools and better information available to assist consumers when they identify their needs.
On this final outcome, regulators are urged to either enhance the existing Legal Choices website and pursue alternative mechanisms such as partnering with existing websites like the one run by Citizens Advice.
But regulators are warned off creating their own accreditation schemes and reminded this is still the role of representative bodies.
The LSB said its policy is that frontline regulators should set the minimum standards required of firms, with schemes to promote higher standards left to others.
Neil Buckley (pictured), LSB chief executive, said his organisation is encouraged by the ‘collective goodwill and early progress’ from regulators since December and is keen that this continues.
He added: ‘The LSB has long been clear that there is a need to increase competition in the market and a major part of achieving this will be to ensure there is better information available for consumers in relation to price, quality, redress and regulation.’
One frontline regulators have published their action plans, these will be assessed against the LSB’s preferred outcomes.
Responding to the Legal Services Board (LSB) recommendations following the Competition and Markets Authority (CMA) market study, Bourns said: ‘It is helpful that the LSB has set out its thinking on how the frontline regulators may implement the CMA’s recommendation.
A solicitor who transferred nearly £1.3m to an offshore bank account in Belize has been suspended for a year for breaches of the money laundering regulations and accounts rules.
The Solicitors Disciplinary Tribunal (SDT) said that by doing so, Susan Barrington-Binns “may have, however unwittingly, effectively facilitated the movement of monies during the course of a suspected pension fraud”.
The tribunal said trust in the profession was undermined “whenever a solicitor is involved in a suspicious transaction which involves the use of their client account as a bank”.
The SDT went on: “The police have not charged the respondent with any criminal offence, not have they charged the respondent’s clients with criminal offences at the time of this hearing.
“However, it is understood that a decision may be made by the Crown Prosecution Service in respect of her clients in or about the spring of 2017.”
The tribunal took into account that Ms Barrington-Binns – who was admitted in 1999 – eventually admitted all the allegations made by the Solicitors Regulation Authority (SRA) against her and its ruling took the form of a judgment on an ‘agreed outcome’ with the regulator.
An earlier attempt to have an outcome agreed by the SDT was rejected because of the lack of any practising restrictions on the solicitor once she returned to practice.
The allegations relating to breaches of the money laundering regulations centred on the receipt of around £1.3m on behalf of a client, referred to as DG, from the Cornerstone Friendly Society (CFS), which entered liquidation in June 2015 “following a police investigation into fraud and money laundering allegations regarding pension investments”.
The SDT said almost £1.27m was then transferred from the client account of Barringtons Legal to an offshore bank account in Belize “without proper due diligence as to the source of the funds”.
Ruling in SRA v Barrington-Binns, the tribunal said the sole practitioner received the money from CFS in October 2013, and recorded the following month that the client was “reputable” and there were “no money laundering issues”.
However, acknowledging receipt of the money in February 2014, the bank in Belize asked for supporting documentation on the source of the funds. Ms Barrington-Binns replied that DG had satisfied all the law firm’s due diligence for money laundering purposes.
The SDT said the solicitor should have been alert to “suspicious features” of the transaction, including that the money came from a friendly society, the CFS account statement was not a bank statement and that the money was being sent to an offshore bank account in Belize.
Ms Barrington-Binns not only failed to obtain bank statements relating to the source of funds, she “failed to obtain from DG any documents evidencing the provenance of the £1.3m” and there was no evidence she saw any documents establishing a link between CFS and DG.
The tribunal accepted that she had “genuine links” to Belize, having lived and worked there and being an attorney at law in the nearby Turks and Caicos Islands, but she was still required to have regard to the money laundering regulations.
She was found to have allowed her client account to be used as a banking facility by DG, failing to consider whether there were underlying legal transactions for the transfers of £1.27m to Belize and of £235,000 back to CFS.
The sole practitioner was “failed to be alert” to the transcation’s suspicious features, breaching SRA principles 3 and 6, and failed to have sufficient regard to the Money Laundering Regulations 2007 and the Law Society’s Warning Card.
On the accounts rule breaches, the SDT found that there had been a “substantial failure to comply” by Ms Barrington-Binns for a period of over two years.
“The accounts were not properly written up to show dealings with client and office money. That resulted in the respondent being unable to prepare proper reconciliations over that period.”
However, the tribunal said that although the solicitor failed to operate a proper client account, there “did not appear to have been any loss of client money”.
In mitigation, Ms Barrington-Binns said she had previously undertaken work for DG, she trusted him and he told her that CFS was a related company and that the money received was from the sales of property and investments.
The tribunal concluded that a striking-off order was not merited in the absence of dishonesty or lack of integrity. A suspension of 12 months would ensure that the solicitor was “meticulous in her compliance with the rules” in the future.
At the end of her suspension, the SDT ordered that Ms Barrington-Binns should be subject to conditions preventing her from being a sole practitioner, acting as COLP or COFA, or being the sole signatory on any client account.
She was ordered to pay costs of £6,000.