SRA Risk Outlook Spring 2017

Risk Outlook

Spring 2017 update

We have updated our priority risks online tool which provides an at-a-glance view of the Risk Outlook. This useful, practical resource includes trends information, case studies and tips on how to manage risks to your firm.

What is new?

Firm fined £80,000 for AML breach by SRA

Clyde & Co hit with biggest joint fine for money laundering breach

Three partners at a City of London law firm have been hit with the biggest joint fine ever handed out by the Solicitors Disciplinary Tribunal as part of a £70,000 penalty for breaching money-laundering rules.

Clyde & Co, an international law firm that specialises in insurance, maritime and aviation law, was found to have allowed a client bank account to be used as an escrow facility in 2013, which breached professional regulation.

The tribunal fined the three partners – Christopher Duffy, Simon Gamblin and Nick Purnell – £10,000 each. The rest was levied against the firm as a whole.

All three are understood to have admitted breaching the professional rules. The tribunal also found that they had technically failed to adhere to the Money Laundering Regulations 2007.

A statement from the Solicitors Regulation Authority said that the three partners “failed to heed the guidance in the Law Society’s fraudulent financial arrangements warning and/or the warning notice on money laundering, in that they acted as escrow agent in transactions on behalf of a client that had the hallmarks of dubious financial arrangements or investment schemes”.

The regulator added that the firm also “failed to have in place adequate procedures to deal with dormant client balances”.

In a statement given to The Lawyer magazine, the firm said it acknowledged that “the firm and three of its partners did act in breach of the SRA accounts rules and money-laundering regulations, which also led to breaches of certain SRA principles and code”.

It maintained that the mistakes were inadvertent and made honestly. “It is not alleged that the firm or the three partners lacked integrity, probity or trustworthiness, or laundered or misappropriated money,” the statement said.

  • The SRA has clarified the recent fine levied on Clyde & Co, the City of London law firm that was found to have breached money-laundering regulations. The firm itself was fined £50,000 in addition to three individual partners being fined £10,000 each, bringing the total penalty to £80,000. Earlier reports suggested that the total fine was £50,000.

SRA and LeO to examine how well firms handle complaints

The Solicitors Regulation Authority is turning its attention to how law firms handle complaints, commissioning its first piece of research on how firms’ processes can influence the quality of service clients receive.

The regulator announced today that the £50,000 study, jointly funded with the Legal Ombudsman, will examine if there are any issues to consider about the effectiveness of firms’ complaints processes.

The regulator said it wants to understand firms’ approaches to dealing with complaints and understand any barriers they face to handling complaints well.

Examples of good and poor practice will be highlighted. The regulator also wants to ’gain a consumer perspective’ on firms’ complaints handling.

Last year oversight regulator the Legal Services Board published updated complaints guidance for regulators.

The board, in a decision document published in July, said a review in 2015/16 suggested complaints-handling processes were not achieving the desired outcomes. ’While data shows improvements in complaints handling with some [approved regulators], other data shows that the number of “silent sufferers” remains high – those that know how to complain, but are unwilling, due to a lack of confidence that the profession will resolve their complaints,’ the board added.

The SRA’s latest research is part of its 2016/17 research programme.

According to an SRA board paper published in December, previous research exploring consumer experiences of using asylum and family legal services found that some consumers ’lacked awareness of the availability of redress and that there is a misconception that pursuing redress will have an adverse impact on the outcome of their case’.

Research companies London Economics and YouGov have been commissioned to conduct the latest research, which will involve speaking to firms and members of the public.

The research has been budgeted to cost between £50,000 and £55,000, including VAT.

LSB to have new chair

Exclusive: LSB to have new chair after Pitt decides against applying for reappointment

15 March 2017

Pitt: 70 days’ work for the LSB a year

The Legal Services Board (LSB) is to have a new chair in the coming months, after incumbent Sir Michael Pitt took himself out of the running for a second three-year term, Legal Futures can reveal.

When Sir Michael’s predecessor, David Edmonds, was appointed for a second term, it was done without the position being advertised, but the Ministry of Justice (MoJ) has this time decided to hold an open competition.

Sir Michael’s term comes to an end on 31 April 2017, and the LSB has confirmed to us that he has decided not to apply for reappointment.

The process will be conducted under the new Cabinet Office governance code on public appointments and the main board of the LSB was told recently that an appointment will not be made until late June/early July.

As a result, the MoJ appears to have breached the code. This says that departments should build sufficient time into their planning for ministers to decide against making a reappointment or extension and holding a process to appoint a successor.

It adds: “There is no automatic presumption of reappointment; each case should be considered on its own merits, taking in to account a number of factors including, but not restricted to, the diversity of the current board and its balance of skills and experience.”

No reappointment or extension can be made without a satisfactory performance appraisal.

The MoJ did not say why it has decided on an open competition rather than reappointment. A spokesman said: “The process of appointing a new chair to the Legal Services Board is underway. The post will be advertised this month and the government encourages applications from those keen to ensure greater diversity in the legal profession.”

Sir Michael receives a non-pensionable remuneration of £63,000 per annum for a commitment of at least 70 days a year.

He has cut a far less controversial figure in his tenure than Mr Edmonds, but effectively came to the same conclusion as his predecessor that radical reform of legal regulation was needed, with publication last year of the LSB’s “vision for legislative reform of the regulatory framework”.

LSB revises its diversity guidance

Wednesday, 15 February 2017

LSB revises its diversity guidance

The Legal Services Board (LSB) today issues its revised statutory guidance for regulators on diversity. The changes introduced place a focus on improved outcomes, ensuring all regulators take their work in this area beyond data collection.

The revised guidance allows regulators freedom to deliver their own, targeted approaches to improve diversity in their respective professions, whilst also making sure that much needed progress will be made across the sector.

Legal Services Board Chief Executive, Neil Buckley, said:

“Diversity is a key issue on which the LSB places great significance. We believe that a more diverse profession will support the delivery of legal services and encourage innovation in the sector.

Our new guidance gives regulators greater flexibility and will help the sector find new ways of developing the diversity of the workforce and assist in collecting and using the valuable data gathered in the last five years. The guidance will support the excellent work some regulators are already doing in this area, and encourage those still developing their approach to continue to work towards a more diverse profession.

We will be reviewing the progress made by regulators in August 2017 and expect the regulators to have started to use the greater flexibility offered by this guidance to make positive strides to address this issue.”

LSB to examine SRA governance and TLS

Legal Services Board  to examine SRA governance and The Law Society see letter to Paul Tenant OBE Interim CEO from LSB

LSB letter to TLS 17 Feb 2017

Call to give SRA power to strike off solicitors

Call to give SRA power to strike off solicitors

Posted By Neil Rose 

Disciplinary cases involving solicitors are now akin to High Court trials and there needs to be a major overhaul that would make the Solicitors Regulation Authority (SRA) responsible for handing out all sanctions, including strike-offs, a former prosecutor has said.

Iain Miller said the Solicitors Disciplinary Tribunal (SDT) should turn into an appellate body for those unhappy with SRA decisions.

Mr Miller, a partner at City firm Kingsley Napley who acted for the SRA for many years but now advises law firms, said the “current long-winded system of disciplining solicitors is inefficient and costly and must not be allowed to survive much longer”.

At the moment, the SRA can only rebuke solicitors and fine them up to £2,000 – for any more severe sanction, it has to refer them to the SDT. Mr Miller said this “flies in the face of more streamlined regimes”.

He pointed to the high-profile case involving Phil Shiner, which ran for more than two years with costs expected to hit £500,000. If Mr Shiner is unable to pay, then the costs will be borne by the wider profession.

Mr Miller said: “Doubtless those involved in investigating, preparing, presenting and determining the Shiner case did so with skill and diligence. However, the system means that it simply could not have been done quicker or at less cost. The problem is a structural one and that must change.

“Under the current model, once the SRA receives a complaint, it must investigate, seek a response from the subject, decide whether to refer the matter to the SDT, prepare its application, deal with any interlocutory applications and directions, and then wait for a listing slot. Hearings are akin to High Court trials.

“While a process in which the initial decision is taken by a disciplinary tribunal is common within a professional regulatory scheme, it is less common in the financial and services sectors. There is no legal requirement to have such a disciplinary tribunal process.”

He said an alternative model would be to allow the SRA to take the initial enforcement steps subject to appeal to a tribunal. That is the model applied to alternative business structures, he pointed out, where the SRA is able to fine up to £250m, subject to a review by the tribunal.

The SRA has been pushing for an increase in its disciplinary powers for some years.

Proposed SRA SQE reform criticised by Society of Legal Scholars

Law professors lambast proposed reform of solicitor qualification

A planned radical overhaul of the solicitor training regime is “fundamentally flawed”, says a report from senior academics.

The proposed reform – which involves a centralised exam for all those aiming to qualify as solicitors in England and Wales – risked creating a two-tier system that “will damage the reputation of all solicitors”, according to the report.

In a damningly critical analysis, the 118-year-old Society of Legal Scholars says that the proposals have been put forward despite research showing that the legal profession is “broadly happy with the current system”.

The society, whose 3,000 members are mostly legal academics at universities, criticises the Solicitors Regulation Authority, the body that has mooted the reforms, for having “failed to provide robust evidence as to inconsistency of standards in the present system”. In a jibe seemingly aimed at riling the solicitor watchdog, the academics predicted that if the reforms were implemented “the Bar … will truly be able to say that barristers are better educated in the law than solicitors”.

In addition to creating a single qualifying exam, the SRA wants to widen the route to that final hurdle, meaning that a qualifying law degree or the conversation course, the current graduate diploma in law, will no longer be required.

Therefore, SRA officials are likely to suggest that the society’s arguments are based on a degree of self-interest. Indeed, the society’s response to the SRA proposals says: “Most jurisdictions around the world require possession of a law degree as a complement to a centralised assessment. There are real risks that the qualification of solicitor will be devalued in international perception.”

SRA fines COLP who misunderstood obligations £7500

Compliance Officers for Legal Practice (COLP) and Compliance Officers for Finance and Administration (COFA) have vital roles in the regime of outcome focused regulation of the SRA.

This is aimed at giving the most appropriate result for legal services consumers. The positions of COLP and COFA are key in creating a compliance culture within a firm, and allowing a focal point for risk identification to form, as well as a key point of contact for the SRA.

The roles involve taking responsibility for the systems and controls of the firm, ensuring appropriate processes are in place so those involved with the firm comply with the SRA handbook.

Full awareness of the obligations involved in being a COLP or COFA are of upmost importance, in order to ensure the right steps are taken should any relevant issue arise within the firm.

The true extent of this required awareness has been demonstrated in a recent case, where a newly appointed compliance officer ‘fundamentally misunderstood his obligations’, resulting in a fine of £7,500.

Having been in the post for just one year, the Solicitors Disciplinary Tribunal also banned the officer from being a COLP or COFA.

Steven David Hulme was had been working at Lancashire based Orbis solicitors, where he was employed as an assistant solicitor. The firm was subsequently closed down on the 7 April 2016 by the Solicitors Regulation Authority, following suspicions of dishonest action from Anne Bradley, the founder and director of the Orbis.

Hulme began working at Orbis in April 2006 and in 2013 went on to become the firm’s COFA.

A SRA forensic investigation took place in February 2014, which revealed a cash shortage of £84,666.63 in the firm’s client account. This amount consisted of professional disbursements which had not been paid, received into the office account between 8 August 2011 and 30 January 2014. These should have been paid out within two days of receipt.

Hulme argued that he was aware of the breaches in his defence. As well as being discussed in board meetings, he had also recorded them in the Accounts Rule Breach Record of the firm which he maintained.

Although he agreed that the breaches should have been reported to the SRA, Hulme stated that he had alerted Anne Bradley in her capacity as the firm’s compliance officer for legal practice. He said that Ms Bradley assured him that she had reported the breaches to the SRA.

£5,000 was agreed as an appropriate sanction by Hulme and the SRA.

However, having considered the seriousness of the misconduct, the tribunal believed a higher fine should be ordered of £7,500. In addition to this, attached to Hulme’s practicing certificate should be the condition that he may not be a compliance officer.

The tribunal commented on Hulme’s misunderstanding in regards to his obligations in regards to acting as the COFA of the firm.

‘The tribunal considered that [Hulme]’s misconduct was serious. There was a substantial shortage that subsisted on the firm’s client account over an extended period of time. The respondent was aware of that amount, and indeed recorded the breach in the Accounts Rules Breach Record he maintained. He had agreed to act as the firm’s COFA, but had fundamentally misunderstood his obligations in that regard.’

It was also agreed by Hulme that he would pay the SRA costs in the sum of £2,250.

Following a separate investigation, Bradley was suspended from practicing as a solicitor for five years on 16 November 2016. This was a week after Hulme’s tribunal.

COLPs and COFA have important responsibilities and this case highlights the need to be aware of them.

Recording breaches is a fundamental part of the role, both in terms of documenting and increasing firm knowledge on where issues may be arising

SQE consultation opens round 2 from SRA


Paul Philip, SRA Chief Executive, said: “We think there is a strong case for the SQE and this consultation spells it out in more detail. We have taken on board a wide range of views and gathered more evidence, and I would like to thank the many organisations that have helped us to refine and develop our proposals.

“Ultimately, we want to make sure that the solicitors of the future have the high standards and skills needed to compete both domestically and in a global market. And we know that, internationally, an entrance examination is common practice in other major jurisdictions, from New York to New Zealand. We believe the SQE will enable us to be sure that all solicitors have the competences required to do the job.

“I would encourage everyone to let us have their views about the proposals set out in the consultation and to take the opportunity to influence the future qualification requirements for solicitors.”

At the same time as publishing its latest consultation on the SQE, the SRA is publishing a summary and analysis of responses from the first consultation, together with copies of the individual responses it received.

The consultation runs until 9 January 2017 and can be found online at: