Law firm non-compliance

Regulatory obligations

The SRA is very clear in its high level thinking about what it expects of those it regulates, namely, “The SRA Principles comprise the fundamental tenets of ethical behaviour that the SRA expects all those it regulates to uphold”.

The seven SRA Principles should remain at the forefront of the minds of all those employed within law firms, as it will be against these that their conduct will be measured:

You act:

1. in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.
2. in a way that upholds public trust and confidence in the solicitors' profession and in legal services provided by authorised persons.
3. with independence.
4. with honesty.
5. with integrity.
6. in a way that encourages equality, diversity and inclusion.
7. in the best interests of each client.

A key issue to be remembered is that where there is a conflict between different Principles it is those that safeguard the wider public interest that take priority, for example, you can’t rest on acting in the best interests of your clients if to do so would mean you weren’t upholding the rule of law.

Reporting non-compliance

Under both SRA Codes of Conduct firms and individuals have obligations to report breaches, and if found to be serious, promptly report them to the SRA; this includes reporting matters you reasonably believe should be brought to its attention in order that it may investigate whether a serious breach has occurred. By way of example, you may need to report another firm where its conduct is called into question.

It is key that reporting to the SRA is not delayed by internal decision making, for example, partners should not wait to discuss a proposed report at a partners’ meeting in two weeks’ time; if a compliance officer believes something should be reported promptly (within 24-48 hours) they should be allowed to do so without hinderance, if their judgement can’t be trusted they shouldn’t be in the role!

Breaches found during our audit work

The following are the top breaches found in law firms for which we carry out file audit work:

• Anti-money laundering – proceeding with transactions even when due diligence checks have not been completed, and firms continuing to act after receiving online check reports that require further investigation, but where such investigations are not undertaken.
  
  
• Opening risk assessments – not being completed at all, or only in part in breach of the firm’s own firm-wide risk assessment and policies and procedures, some firms undertake assessments on a ‘tick-box’ basis only. Another failing was not providing a risk rating (low, medium, high).
  
  
• Commercial work terms and conditions – being unclear about the limitation of the firm’s liability to clients.
  
  
• Costs information – failing to provide costs updates as and when appropriate.
  
  
• Signed client care letters – signed letters not being held on file, or alternatively, evidence not held on file to show that clients had been asked at least twice to send back signed letters.
  
  
• Conflicts of interest – checks not thorough enough on the parties involved; some firms just check to see if other clients have the same name rather than checking on all the parties involved.

Breaches handled by the SRA/SDT

During the period January to September 2022, the top five breaches dealt with by the SRA/SDT were:

• Giving false witness – 7
• Theft from clients – 6
• Theft from firm – 5
• Conflicts of interest – 4
• Accounts rules breaches – 4

Sanctions levied by the SRA/SDT

The following sanctions were levied during the period January – September 2022:

• Struck off – 15
• Suspensions – 5
• Fines – 24
• Rebukes – 6
• Section 43 Order (non-solicitor ban) – 8

Possible reasons for non-compliance

After about 12 months of the operation of the new Codes of Conduct the SRA carried out a survey to see how firms were coping with them, and some key insights were gained which may explain why breaches are occurring:

• Are law firm staff familiar with the Codes?
  • Reasonably – 55%
  • Slightly – 21%
  • Not at all – 5%
    
    
• Do law firm staff understand the Codes?
  • Reasonably – 56%
  • Fairly well – 24%
  • Not at all – 1%
  • Don’t know – 1%
    
    
• Do firms think the Codes are a burden [more than the previous Code]?
  • Slightly more – 11%
  • Much more – 9%
  • Don’t know – 8%

It is clear from the above data that some firms need to provide more training to their staff so that breaches are as low as possible; better to act now than wait until the SRA visits after a problem arises!

Finally, be open and transparent when a problem occurs and report to the SRA as appropriate; covering up mistakes is worse than holding your hands up at the start!