New Decision Notice from LSB 9 May 2019 SRA Standards and Regulations
Just published today an update from the LSB with this decision notice affecting COLP and COFA reporting download decision
SRA and SARs
SRA Discipline 26 Firms Following Severe Money Laundering Failings
26 Solicitors Regulatory Authority (SRA) regulated firms out of a sample size of just 59 law firms providing trust and company services (TCSP) have been placed into the SRA’s disciplinary process for inadequate money laundering procedures.
The review focused on the creation and administration of trusts and companies on behalf of clients, an area of law the government deemed to be at most significant risk of money laundering as criminals look to exploit the system and launder their ill-gotten gains.
The SRA speculate that two thirds of its regulated firms need to comply with Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR 2017).
The regulator will therefore be extremely disappointed to learn that almost 44% of firms legally required to comply with MLR 2017 are failing in their obligatory requirements to some extent.
The report found that too many risk assessments, which are considered as vitally important to MLR 2017, were viewed as inadequate. In total over a third of firms (24) had failed to create robust risk assessments with many areas of the regulatory strands missing completely. Worryingly, 4 law firms had failed to create any risk assessments at all.
Firms were accused of failing to complete the necessary customer due diligence (CDD), especially concerning Politically Exposed Persons (PEPs) and Suspicious Activity Reports (SAR).
Only a sixth of the sample (10 firms) had completed a SAR in the past two years, confirming the National Crime Agency data that the legal sector is struggling to comply with its AML regulatory obligations.
The recently published ‘Economic Crime – Anti-Money Laundering Supervision and Sanctions Implementation’ report found that legal service providers were particularly poor at completing Suspicious Activity Reports (SAR) that form part of a solicitors’ regulatory requirements when it comes to money laundering compliance. Of the 634,113 reports submitted between October 2015 and March 2017, 525,361 (82.85%) SARs were completed by credit institutions and banks.
In stark contrast, reports made by estate agents were a mere 0.12% (766) of the total, with independent legal professionals deeming it necessary to make 4,878 (0.77%) SARs reports. Overall, this means that the property sector completed less than 1% of all SARs reports.
In the past year, the 2,660 reports made by the legal sector represent only 0.57% of the total and a considerable decrease when compared to previous years.
The SRA will now write to 400 firms reminding them of their AML obligations and asking them to demonstrate their compliance with the MLR 2017.
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.”
SARs and SRA disciplining firms
New changes to CQS CPMS
a great article appeared in Legal Futures summarising the recent changes
Updated CQS Core Practice Management Standards Enforced From May 2019
All accredited Conveyancing Quality Scheme (CQS) firms must adhere to the new Core Practice Management Standards (CPMS) from 1st May 2019.
All CPMS regulations are now enforceable to all legal practices that have already gained CQS accreditation, as well as those working towards achieving CQS for the first time.
Following the Solicitor’s Regulation Authority’s (SRA) recent Residential Conveyancing Thematic Review which highlighted the fact that a handful of conveyancing firms were failing to provide adequate information to their clients concerning the different types of property ownership and potential buyer implications, CPMS standard 1.5 now asserts that all accredited practices must have a policy in relation to acting in a purchase of a leasehold property.
According to the report, 23% of the firms that were targeted and formally observed, did not explain the difference between freehold and leasehold titles.
Over a fifth of leasehold owners believe that they either do not remember or were not provided with information on the length of the lease and the myriad of additional charges like ground rent or service charges.
Many felt rushed in the final completion process with 26% of respondents not being provided with an advanced draft copy of their leasehold contract before they were asked to sign on the day of completion.
Furthermore, 17% also believe that their chosen solicitor had failed to clearly explain the features of their leasehold agreement. Over a third of first-time buyers were also frustrated with the information provided by their conveyancer.
Under the new rules, all conveyancers from May 1st, must clearly explain the length remaining on a leasehold lease, highlight the costs attached to the property like ground rent and service charges and review provisions and method of calculation.
The updated requirements also emphasise the increased importance that should be attributed to cyber hygiene. According to section 6.2, ‘practices must have an information management and security policy, which should be accredited against Cyber Essentials.’
If Cyber Essentials certification is not gained, accredited firms must be able to evidence that they have considered the following in their information management and security policy:
- a register of relevant information assets of both the practice and clients
- procedures for the protection and security of the information assets
- procedures for the retention and disposal of information
- the use of firewalls
- procedures for the secure configuration of network devices
- procedures to manage user accounts
- procedures to detect and remove malicious software
- a register of all software used by the practice
- training for personnel on information security
- a plan for the updating and monitoring of software
- a procedure for the secure transmission of the practice’s bank information to clients and receipt of banking information from clients
- a procedure for verifying the banking details of other conveyancers and third parties to whom money is sent
- a procedure for communications with the practice’s bankers
Regulations 1.3 and 1.4 are also related to the prevention of money laundering and mortgage fraud. From today, all CQS practices should have a clear policy on ways to mitigate and manage money laundering and terrorist financing. This includes the appointment of a Money Laundering Reporting Officer (MLRO) who will be responsible for when to make disclosures to the authorities as well as providing clear procedures for checking the source of funds.
Friday fraudsters, property fraud and authorised push payment (APP) fraud have been increasing threats to law firms in recent years. Last year alone in the UK, £364 million was lost to APP fraud according to UK Finance, marking a significant increase on 2017’s figures.
Now, all practices must increase their due diligence on this issue by creating detailed policies which document procedures for dealing with high risk transactions as well as creating clear procedures for enhanced checking of client identity. Additionally, it is now mandatory to document and show how the practice will proceed when acting for a buyer where there is a significant risk of a fraudulent seller.
Is your firm ready for the CQS and CPMS updated standards? Do you feel confident that these new rules will create more rigorous safeguards for your law firm?
SRA focuses on high standards in shorter Handbook
SRA focuses on high standards in shorter Handbook
27 September 2017
The Solicitors Regulation Authority (SRA) is proposing a second phase of changes to its rules for solicitors to make them simpler and more focused on high standards, reducing the length of its Handbook by more than 300 pages.
The SRA’s Handbook sets out the standards it expects solicitors and firms to meet and the rules they should follow. The SRA has already consulted on the first phase of changes to create a simpler code of conduct and accounts rules. It is now consulting on its other rules, including how it approves firms, and assesses the suitability of those entering the profession.
The new Handbook is set to be around 130 pages and would keep rules that help maintain high professional standards, such as the need for compliance officers in all firms. However, it would get rid of some restrictive rules that add cost without sufficient public benefit. Changes include removing:
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- the need for early checks on students and trainees, so that character and suitability testing is focussed on point of entry to the profession
- the need for a solicitor owner or manager to seek SRA approval before moving firms or roles. In future, they will inform the SRA
- the, often misunderstood, rules around being ‘qualified to supervise’, which do not provide any guarantee of competence, but prevent solicitors establishing their own firms once they have qualified.
The SRA also proposes allowing a solicitor to provide reserved legal services, in certain circumstances, on a freelance basis to the public. They would not be able to hold client money or employ people, but would need appropriate indemnity insurance. This would simplify the current situation where there is a complex series of exemptions for solicitors who want to work in areas such as certain insurance services, law centres and doing pro bono.
Other changes aim to make the Handbook easier to use. For instance, the details of how people can appeal SRA decisions are now all grouped in one place.
The consultation also includes a revised enforcement policy. It aims to provide more clarity about how, and when, the SRA will, or will not, enforce. Factors it would take account of when considering action include intent, harm caused, patterns of behaviour, vulnerability of the client, seniority of the solicitor, and any remedial action taken.
The policy reflects the findings of the SRA’s ‘Question of Trust’ campaign which collected the views of 5,400 members of the public and profession. In keeping with the results, the SRA will continue to treat offences such as misuse of client money, dishonesty and criminal activities as the most serious.
Paul Philip, SRA Chief Executive said: “This is a simpler Handbook with a sharp focus on what matters – high professional standards and appropriate public protections.
“Pages of complex bureaucracy do not benefit anybody. Our approach rightly puts the onus on professional judgement and ethics. Most solicitors do a good job and earn the trust people place in them. But a small minority do not. Our enforcement policy makes clear when and how we will act if things go wrong. It is essential that both the public and the profession can have confidence that we hold solicitors to account and act in a fair way.”
The consultation also includes proposals for transitional arrangement for the introduction of the Solicitors Qualifying Examination (SQE). This is set to be introduced in autumn 2020. All those starting the qualification process from then onwards must take the SQE. However, the SRA wants to make sure that those who have started the process of qualification through the current routes have a fair opportunity to complete it. They will have until 2031 to qualify this way.
The consultation Looking to the future: phase two of our Handbook reforms runs until 20 December. As part of this programme of work, the SRA is also consulting on publishing better information to help the public make legal choices. The consultations are available at: www.sra.org.uk/consultations
Online consent tick boxes to be banned
| Online consent scam outlawed in fight over personal data |
| Automatically ticked consent boxes that allow companies to harvest and exploit valuable personal information are to be banned in an overhaul of consumer protection laws for internet users.
DNA profiles and browsing histories are also to be included in a new definition of personal data, with companies facing criminal prosecution if they fail to protect users’ identities, report Francis Elliott and Mark Bridge. Ministers will today spell out the details of a Data Protection Bill to be introduced in the Commons next month. It will include the right of adults to request the deletion of social media content they posted as children. While that measure was expected, ministers will say that they intend also to expand the definition of personal data to include IP addresses and cookies. Matthew Hancock, digital policy minister, said that the bill would contain the most robust, yet dynamic, data laws in the world. “It will give people more control over their data, require more consent for its use and prepare Britain for Brexit,” he added. Experts said that it could have far-reaching effects on companies that trade in anonymised data harvested online. Some offer cheap genetic tests for genealogy and then sell the information to medical researchers. |
CML is now UK Finance
From 1st July the Council of Mortgage Lenders is integrated into a new trade association, UK Finance. For the time being, all UKF mortgage information will continue to be published on their website, and UKF member-only mortgage information will only be available on UK Finance site.
UK Finance represents around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation takes on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. Please go to www.ukfinance.org.uk for wider content and updates from UK Finance.
AML Masterclass from Amy Bell
AML Masterclass in London from Amy Bell Thursday 15th June 2017 at 1300
DESCRIPTION
The Masterclass is a 3.5 hour course, which looks at the requirements for the MLRO, and includes the changes which will be needed to implement the upcoming Money Laundering Regulations 2017.
The course includes:
In-depth review of the Proceeds of Crime Act, including test for Suspicion
Analysis of the proposed Money Laundering Regulations 2017 and how to prepare to comply
o Changes to CDD
o Appointment of a compliance officer
o Reporting obligations to the SRA
o Risk Assessment requirements
o New Data Protection requirements
Making reports to the NCA and understanding their responses
Horizon scanning: 5MLD and the SARs regime review
https://www.eventbrite.co.uk/o/amy-bell-compliance-13921236255
Solicitors’ agents could face prison
The Bar Council has warned unregistered barristers acting as solicitors’ agents that they could face prison if they do not comply with a ‘narrow’ area of law.
In guidance published this week the body said anyone working as a solicitor’s agent needs to ‘consider carefully’ whether they meet requirements outlined in the Legal Services Act 2007.
The guidance, which follows a similar warning published last year, has been reiterated because ‘it is understood that there are a number of unregistered barristers currently appearing in court as solicitors’ agents’.
It also references two recent hearings McShane v Lincoln (June 2016) and Ellis v Larson (September 2016), in which solicitors’ agents were judged not to have rights of audience. In McShane the case centred on a pre-action protocol for low-value personal injury claims in road traffic accidents. Ellis was focused on a similar claim.
The council warned that the decision of District Judge Peake, an ‘experienced district judge’ in McShane, that the agent did not have rights of audience is ‘likely to be persuasive’ in other similar cases.
The conditions under which solcitors’ agents can be exempt under the LSA 2007 are: that the individual must assist in the conduct of litigation; must be under instruction from an authorised person (usually a solicitor) and that the hearing must be heard ‘in chambers’.
‘All individuals undertaking work as solicitors’ agents are urged to consider carefully whether they fulfil the requirements upon accepting every new instruction and when attending at court,’ the council said.
It added: ‘It is a criminal offence for a person to carry on a reserved legal activity unless he is entitled to do so, such being triable summarily or on indictment, the latter carrying a maximum penalty of two years’ imprisonment.
‘The Bar Council is concerned to promote compliance with the act, since this is in the interests of the proper administration of justice, the protection of consumers and the protection of unregistered barristers who might otherwise open themselves up to potential criminal liability.
‘They should consider with care whether the nature of their work properly enables them to describe themselves as assisting in the conduct of litigation in the narrow sense explained.’
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