Law firm risk mitigation and compliance continues to be one of the more costly areas of legal practice and its complexity is ever increasing. So, what should law firms be looking out for in the coming months?

Rebecca Atkinson

Rebecca Atkinson

Sanctions, sanctions and more sanctions

As of 16 December 2022, UK government sanctions prevent law firms from providing trust services to anyone connected to Russia, unless that arrangement was already in place before that date.

Further, in October 2022 the UK government announced that a new wave of Russian sanctions were being put in place which would ban the provision of ‘transactional legal advisory services’ to those connected to Russia. This is a departure from previous indications that legal services would not be banned. As at the time of writing, detail has not been forthcoming, and it is not clear when this new wave of sanctions will take effect. Keep your eyes peeled.

AML compliance still top of the SRA agenda

In October 2022, the SRA published its annual AML report for 2021-2022 which set out that their focus for the coming year will be choosing firms to assess based on their risk profile, providing targeted and timely guidance for firms through a programme of lunchtime webinars focused on discrete AML topics, monitoring the areas of AML risk they have identified and increasing their work in the sanctions space.

If firms undertake work in the AML regulated space and haven’t had an SRA visit for a while, they must make sure they are ready for one.

SRA fining powers and a new regulatory objective

Further to a consultation by the SRA, the maximum fine the body can impose on firms and individuals rose from £2,000 to £25,000 on 20 July 2022. The SRA has already utilised these new powers by fining a solicitor £15,000. However, very little detail about the facts and mitigation have been released, causing concerns about transparency.

The Economic Crime and Corporate Transparency Bill provides the SRA with the ability to fine law firms and individuals unlimited sums for economic crimes. Economic crimes are defined under the Bill and include fraudulent evasion of VAT, untrue tax declarations theft, false accounting, dishonestly retaining wrongful credit, forgery, offences under the Proceeds of Crime Act 2002 or the Terrorism Act 2000, fraud, bribery and more.

The new power will enable the SRA to impose an unlimited fine where it finds a failure on the part of an individual or firm in the following:

  1. the prevention or detection of economic crime; or if
  2. the failure consisted of an act or omission which had the effect of inhibiting the prevention or detection of economic crime.

The bill also proposes a new regulatory objective be added to the Legal Services Act 2007. This objective is 'promoting the prevention and detection of economic crime'. This would therefore create a formal workstream in the Legal Services Board repertoire.

New enforcement strategy on the cards

The SRA enforcement strategy sets out how the SRA uses its enforcement powers in relation to a failure to meet SRA standards or requirements. The strategy also sets out which factors the SRA considers when determining if conduct is serious enough for investigation and penalty (and is therefore a useful tool for COLPs and COFAs). The current version of the enforcement strategy was published 21 January 2022, and a new strategy is due March 2023 – firms should ensure they read it when published.

Further to much feedback, the Legal Ombudsman is changing its scheme rules with effect from 1 April 2023. This includes a change to the Ombudsman's time limit to accept a complaint, from six years from the date of act or omission, or three years from when the complainant should have realised there was cause for compliant, to one year for both. This is welcomed.

Firms must ensure their complaints procedures and terms are changed to reflect this new time limit. If complainants are operating under old time limit information, the Ombudsman is likely to use discretion to accept a complaint beyond the one year limit.

 

Rebecca Atkinson is general counsel at Howard Kennedy

Topics