Regulation and compliance at the coalface

It is just over 100 days since the SRA Standards & Regulations (STaRs) were introduced, so it was good to get a feel for how they were working in practice; the SRA highlighted a number of key areas:

Accounts Rules

• Client money - your obligations to look after client money are covered by the SRA Code of Conduct for Solicitors (SCCS), not the SRA Accounts Rules; the Accounts Rules are a framework for compliance
  
  
• “Promptly” – has to be defined by firms taking account of their own and their clients’ circumstances
  
  
• Returning client monies – monies must be returned to clients when there is no longer a reason to hold them; retaining them could be seen as using the client account as a banking facility
  
  
• Residual balances – requests for disposal over £500 have been significant and have raised real questions from the SRA over why such monies have been held for so long
  
  
• Staff training – there is a lack of accounts training for support staff
  
  
• Third-party Managed Accounts (TPMA) – the use of such accounts is growing; use has to be in the best interests of each client
  
  
• Transfer of funds – you must only transfer funds from client account if work has been done or disbursements have been incurred; doing so before this could place client money at risk.
  
  
• “On-demand” – you need to take a reasonable approach to this, for example, a client asking for their money back late on a Friday afternoon should not expect the return of monies that day but early the following week; the SRA would not see this as an unreasonable approach.
  
  
• Interest – a fair amount of interest is not “no interest”; it has to be in the best interests of each client taking account of relevant circumstances

Codes of Conduct

• The SRA will be carrying out thematic reviews of compliance after 1, 3 and 5 years, starting in November 2020
  
  
• Guidance – more guidance on the STaRs is coming in due course
  
  
• SRA powers – the SRA is pushing for enhanced fining powers to bring law firms into line with Alternative Business Structures (ABS) where it can fine entities up to £250m and individuals up to £50m
  
  
• Reporting to the SRA (SCCS 7.8 & SCCF 3.10) – if it doesn’t smell or look right you should report it so the SRA can investigate and determine whether a breach has occurred

Professional Indemnity Insurance

• The market has very much hardened for those firms not seen as a good risk
  
  
• Insurers want to “look under the bonnet” of firms; they will not just be satisfied with what is on a proposal form
  
  
• Liaise with underwriters early when looking at renewal and “sell” your firm to them; be completely open and transparent (shouldn’t need to be said but insurers say it does!)
  
  
• Get signed terms of engagement from clients in all cases
  
  
• New types of claims are coming onto the radar (leasehold, cladding, etc.); insurers expect you to notify them as soon as you think you could be exposed to future claims

Cyber-crime

• The cyber threat is not being taken seriously enough by law firms
  
  
• 43% of businesses have suffered a cyber attack
  
  
• 74% of businesses see cybersecurity as a priority issue
  
  
• 75% of businesses don’t have effective cyber policies

The coalface is clearly a pressurized and dangerous place to be, but if you want to work there you need to ensure you are mitigating the risks that you could face!  

---

We provide everything you need to manage risk and compliance and meet your quality standards. Our solutions have been created by a team of experts from Socrates and Riliance to provide your firm with complete learning and compliance solutions. Our complete legal offer includes a specialist collection of interactive eLearning courses, risk management software, and risk and compliance services delivered by a team of experts.  

Download our brochure for more details.