At the end of November 2021 the SRA produced a useful report with a summary of what it expects from the firm it regulates and conclusions from the firms it had reviewed that year.

Here is a link to it. Below we have summarised the main points. If you have questions about AML please contact us by filling in the form below. We have a number of AML services to help firms which you will find in the Compliance services accessed from the top of this screen (menu on the mobile view) or just ask us. We will bespoke to your needs.

The main pints of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the regulations) are summarised by the SRA as:

• To produce a firm-wide risk assessment, which underpins the firm’s AML regime.
• Flowing from the risk assessment, to produce AML policies, controls and procedures and to monitor compliance with them.
• To carry out appropriate due diligence on clients and matters, based on their level of AML risk.
• To train all relevant fee earners in their AML obligations, and to repeat this regularly.
• To arrange an AML audit to check, subject to the firm’s size and nature
• to appoint a Money Laundering Reporting Officer (MLRO) and, where appropriate, a Money Laundering Compliance Officer (MLCO).

The SRA have produced guidance on some of these areas :

• SRA 2019 firm-wide risk assessment guidance
• SRA Sectoral Risk Assessment, which is regularly updated
• our 2020 review, drawn from a series of 74 visits to firms
• guidance for firms who provide tax advice.

The principal people responsible for compliance are:

• Money Laundering Compliance Officer (MLCO)
• Money Laundering Reporting Officer (MLRO).

The Three pillars of success

Every person in a firm has a responsibility to make sure that it is not used for money laundering, and that relevant reports are made of any suspicious activity. MLCOs and MLROs form the keystone of the firm’s efforts. The success of the firm’s AML regime as a whole is likely to depend on suitably knowledgeable, skilled and authoritative people holding these roles.

Below, the SRA set out what they consider to be the three main attributes a successful MLCO or MLRO should have:

• Authority: The ability to command respect, to make decisions and to follow them to completion, and the ability to access and use all information held by the firm.
• Independence: A focus on the firm’s legal obligations rather than short-term gain, the ability to make decisions without being influenced by other fee earners or by clients.
• Resources: To be given the time and space to consider what the best course of action should be, to have provision, where possible, for a deputy to cover for them, and supportive colleagues.

The MLRO & MLCO should ask themselves if they have the authority, independence & resources to properly carry out their roles.

Between April & September 2021 the SRA reviewed 50 firms. It found that largely the MLRO & MLCO had sufficient authority & Independence. However with regard to adequate resources the picture was more patchy:

"Resources

• The majority of MLCOs and MLROs said that having enough time to carry out their duties was the most important resource.
• Of the 54 MLCOs and MLROs we spoke to, the majority did not have any reduction in their fee-earning targets to take account of their extra responsibilities.
• Only 48% of MLCOs and MLROs had a deputy to share the work and provide cover for them."

The SRA recommend that a deputy be appointed. This makes a lot of sense as it adds resilience - no single point of failure.

Our own findings

We carry our reviews of firm's compliance documentation (Compliance Stress Test, AML Review etc). We find that:

• people often have not updated their AML policies
• have not carried out an Independent AML Audit to check implementation of their AML Policies & procedures
• have not appointed an MLCO
• do not carry our regular training of staff on AML

Contact Us for Assistance

Fill in the form below or contact our lead consultant: Ingemar Hunnings: on 07887 524507 or [email protected]

When a law firm is facing an SRA inspection, the first thing to establish is what the SRA wants to inspect, which is likely to relate to what caused the inspection. This will be the area on which the SRA will focus. Then the firm needs to consider the context, such as its practice areas, whether it operates a client account or just business accounts, anything unusual that it does, any relevant or potentially relevant past history of the firm or any of its employees. If the SRA comes across something else, outside of the reason for the inspection, while doing their work, this may also fall within the inspection. So, it is worth looking out for other potential problems (see box "Case study"). However, the cause of the inspection will be the SRA's main area of interest. Examples of why the SRA might inspect include to investigate a reported breach of the SRA's Accounts Rules, a client complaint or to check the firm’s anti-money laundering (AML) policy and practice (www.sra.org.uk/solicitors/guidance/investigations-on-site/).

Law firms may also be interested in preparing in case they face an SRA inspection at some point in the future. In some respects, this is more difficult to do, as the preparation will be unfocused as it involves checking everything. For this reason, Hunnings Consultancy has developed a compliance stress test that endeavours to cover every possible area of inspection, including the SRA Code of Conduct (the Code), SRA Accounts Rules, SRA Transparency Rules, AML policy and practice, General Data Protection Regulation (2016/679/EU) (GDPR) and information security. The next step is a gap analysis, which involves comparing the firm's actual performance with its desired performance, followed by a report on what needs to be done, with prioritisation.

Responsibility for compliance

The principal responsibility for regulatory requirements in a law firm falls on the shoulders of its compliance officers: the compliance officer for legal practice (COLP), compliance officer for finance and administration (COFA), money laundering compliance officer (MLCO), money laundering reporting officer (MLRO) and the data protection officer (DPO). This responsibility is personal to them. Compliance officers have specific responsibility for ensuring that the firm, its partners and employees comply with the SRA's regulatory requirements. They are also responsible for recording any breaches and reporting these to the SRA, where necessary (paragraphs 9.1 and 9.2, the Code).

However, the owners have ultimate responsibility for how the firm is run and its legal services are delivered. In particular, they must make sure that it complies with all legislative and regulatory requirements (paragraph 8.1, the Code). This means making sure that the firm has all the necessary systems in place in order to achieve that objective.

The owners of a law firm can also exert significant influence over the business of the firm. However, they should not do anything which causes the firm, or anyone in it, to breach their own regulatory obligations (paragraph 2.1(c), the Code).

Anti-money laundering

The SRA holds responsibility for ensuring that law firms comply with AML. The SRA has recently indicated that it expects firms to conduct independent AML reviews in order to independently assess this. Indeed, checking on a firm’s AML policy, controls and procedures is one of the main reasons for an SRA inspection. Breach of the AML regulationscould be especially onerous for the MLRO and MLCO as breach of the AML regulations could ultimately lead to imprisonment.

Therefore, the MLRO and MLCO should carry out regular reviews of the firm's AML policies and procedures to ensure that they are up to date. Regular file reviews should also be done to ensure that risk assessments are being implemented.

In addition, firms should not overlook the need for staff training. The MLRO and MLCO need to keep up to date with training so they can carry out their responsibilities. Then they need to train staff on what they expect them to do. This can seem like a huge inconvenience when trying to service client needs and meet targets. However, the firm cannot avoid it and the other partners of the firm need to allow the MLCO the ability and resource to be able to do this properly. They are doing this on behalf of the business and the consequences if not done properly can be serious. Training will, of course, count towards continuing professional development (CPD) (see Know how "The CPD hour is dead: what next?", www.practicallaw.com/1-634-8536). It is best if the MLCO trains the staff, as this will embed their own learning and also deliver the message that management regards this as serious. They will also understand the nuances of the business and the policies, controls and procedures that they have written better than an external trainer.

Other compliance roles

The COFA has principal responsibility for the firm’s compliance with the SRA Accounts Rules. The COLP must be a manager, owner or employee of the firm, and they supervise the COFA and are responsible for the rest of the firm’s compliance with the Code.

Firms may also have a DPO who is responsible for ensuring compliance with the GDPR and Data Protection Act 1998 and is the principal point of contact with the Information Commissioners Office. It is strange that so many law firms do not currently have a DPO, considering that solicitors handle and process substantial amounts of sensitive client data. There are news articles about data breaches or cyber attacks every week; it is clear why the SRA is looking to ensure that protection against the effects of cyber attack and data breach becomes a mandatory part of the professional indemnity insurance cover. It is possible to outsource the DPO role, so that a law firm can buy in just the hours that they need. Indeed, there is an argument to say that an external DPO is better as they can be more impartial and perhaps, therefore, more rigorous.

The COLP, COFA and DPO must keep up to date with their training, which qualifies as CPD. Training of staff and checking implementation through file reviews is important. Law firms should keep records and ensure that they have systems that easily allow staff to record their compliance. There may be things that the firm can do make it easier for staff to perform and record their compliance, such as establishing clear policies and procedures on conflict checking, AML, identity checks and risk assessments. If compliance is hard to do, then it is less likely that it will be done.

Policies and procedures

The office procedure manual (OPM) is normally where the firm will have all of its policies and procedures, as required by the Code and SRA Accounts Rules. It is usually huge and there is a tendency for it to be a dead document, gathering dust on the shelf. However, it is there for a reason. It needs to reflect what goes on in the business. It needs to be kept up to date and should be a really helpful resource for all staff for when they want to know how the firm does something. It will be helpful for firms to provide a staff manual or handbook that is more focused at the staff level. Obviously, it is based on the OPM, but the OPM has the firm-wide policies, whereas a staff handbook can make this more relevant to the employee and therefore more likely to be followed. The OPM is likely to be one of the first things that the SRA will want to inspect.

Checking Accounts

The SRA is much more concerned about how a law firm manages its client account than its office or business account. It is problems relating to protecting client money that lead to most SRA interventions. If a firm keeps on top of this, it is likely to avoid the SRA’s most punitive measures. Firms need to carry out regular monthly reconciliations of both client and office accounts, and run reports on residual client account balances, aged WIP, aged debt, inactivity, cashflow and reserves. If the firm does not have the resource internally to oversee this adequately then this can be outsourced to a specialist, who can be the additional eyes and ears for the compliance officers.

Case study

Recently, a law firm contacted Hunnings Consultancy, just a week before it was due to undergo an inspection by the Solicitors Regulation Authority (SRA). Obviously, there was great urgency. The firm was unprepared and indeed, as it turned out, it was quite appropriate for the SRA to want to take a closer look at it. Within the week, Hunnings Consultancy:

*          Carried out a compliance review.

*          Sorted out any breaches of the SRA Transparency Rules on the firm's website.

*          Completed a risk assessment across the entire firm.

*          Produced breaches registers, and completed these.

*          Delivered a customised, up-to-date office procedures manual.

*          Organised anti-money laundering training.

*          Checked the firm's accounts and brought the client accounts up to date.

*          Briefed the firm's partners and employees ahead of the meeting with the SRA.

“This article first appeared in the December 2021 issue of PLC Magazine”

Here is a link: http://uk.practicallaw.com/resources/uk-publications/plc-magazine. 

Contact

Should you want more information or need help, please fill in the contact form below

or contact our lead consultant: Ingemar Hunnings: 07887 524507 or [email protected]

Let me tell you a story.

Some while ago, in a province in India, there was a problem with too many cobra snakes. Too many people were being bitten. So, the local officials decided to offer a price on the head of every cobra brought in dead to them. The policy seemed to be very successful and soon lots of dead cobras were being delivered to them. There were some clever people who looked at this and saw an opportunity. Instead of hoping they might find one of the dwindling supply of cobras, they decided to set up a business to breed cobras. They then would have a guaranteed supply of income. Smart business move. However, the local authorities were not impressed when they found out. Using tax-payers money to enrich a local business was not what they had intended. So, they shut down the scheme. Deprived of their income, the people running the cobra business also shut down – and released the cobras from their farm. Result: there were then More cobras in that province than when this all started.

I love this story and have had it earmarked for this article for some time. It so perfectly illustrates the point. I’m sure you can think of other examples from your working or home life when you’ve proceeded with the best of intentions with the aim of achieving an objective, but with less success than you’d hoped. It’s hard enough when you are dealing with inanimate objects, processes and suchlike. When you start dealing with people it moves to a completely new level.

What can you do to try to mitigate against the operation of this ‘Law’? Here are a few bullet-pointed suggestions

• Clearly defined goals – work out what you want to achieve. Do you all agree on what the problem is that you are trying to fix? If not hammer that out or you will be fighting each other Make sure there is buy-in to make the pain and effort worthwhile.

• Visualise the outcome – here I’m talking a bit more practical than the theoretical outcome when setting the goals. What will it look, smell and feel like? What is atmosphere in the business going to like once you have reached the end? Then you have a chance of defining what success looks like. What would you intend to do next?

• Think through the journey – it might be that what you are proposing is a simple change in policy – or it might be a project or a process change. Whatever it is, walk yourself through it: as yourself, as the person you are asking to do this, as colleagues who might be affected. Then think it through again asking yourself if there might be any unintended consequences that might work counter to your objectives (there could be some that might be collateral benefits – let’s not forget the potential positives)

• Take it too the Streets – by this I mean that, bright as you are, you may not see all the angles. You are nearly always stronger working as a team. Be sure to bring into the testing people from all levels of the organisation. You might be surprised by the insight that they bring. It could also be your best way of picking up potential damaging unintended consequences that could cause collateral damage. Much of this might be perception. It might seem a wrong perception, but if it’s there, it is real and its impact will need to be considered when assessing how to proceed. Better you know before than after it has wrecked your chances of success.

• Measure & Learn – how do you know how you’re doing if you don’t measure? So, you’ll need to define parameters against which you can measure. You’ll need to decide how you will gather the data to measure. There may be verification issues. There may be data storage issues. How often do you measure? How do you present the data? You should think this all through before you start. If gathering the data is going to be a very onerous, you are likely to get less data and less good data. I’m a great believer in evidenced-based decision making. Otherwise, where is the objectivity? Will you just be doing this at the end, or will you be doing this at intermediary stages? Once you have analysed the data, build into your process a time for reflection and learning to improve. Take the time & effort to write it up and reflect on it. I appreciate that this is quite a scientific approach. Normally lawyers shy away from this sort of thing. But I would argue that the rigour is important for your business. Then take the learnings, discuss and ask ‘How can we improve’. That’s when the work starts. Tedious, but it’s how you get yourself into a ‘Continuous Improvement Loop’.

Here is the URL for the UK:

https://www.gov.uk/order-coronavirus-rapid-lateral-flow-tests

You need a degree or equivalent to sit the SQE exams. It can be obtained outside the UK. Either way it has to be checked by the SRA’s 3^rd party validating service (they use Atlantic Data).

You will need to give Atlantic Data this information:

• university/institute
• course
• classification (result)
• qualification
• enrolment and graduation years

Atlantic Data will ask for your degree/qualification certificate or student ID number.

To start the process you log into your MySRA account and select 'Start new applications' and 'Apply to check that your qualification or work experience is equivalent to a degree'.

There is a fee (currently, 2023, £160 for UK applicants). If overseas qualifications, Atlantic Data will use UK ENIC. Here’s a link to information: https://enic.org.uk/Qualifications/SOC/Default.aspx

The SRA page giving this info may be accessed here: https://www.sra.org.uk/become-solicitor/sqe/degree-equivalent/check-validate-qualification/

Why not use the search to find other information in the blogs about the SQE & QWE.

Should you not have a solicitor who can 'Confirm' your QWE then

WE CAN HELP

Our ‘External QWE Confirmation Service’

If you are looking for help with an application for exemption from the SQE2 exam

WE CAN HELP

Also lots of info on our YouTube Channel: https://www.youtube.com/@hunningsconsultancy999/videos

There’s a quiet revolution happening which I think has the potential to bring about quite some change in how many solicitors firms operate and affect their economic model.

Many firms seek to drive down the cost of production and drive up profit by employing paralegals to do less complex and lower value work. I know. When I was in practice we did that. They were usually law graduates who had passed their LPC. Often people were enticed with the potential to be considered for a Training Contract after they had worked in the firm for a while. We all knew that the Aspiring Solicitors had to obtain a Training Contract in order to proceed with their career to become a solicitor. That gave the solicitors firms power and control and pick of the bunch. They held all the cards. Many firms operate now with several or indeed large numbers of paralegals. That’s their business model.

I think this will change. The SRA has changed the way that people qualify as solicitors. The LPC method is being phased out. In its place the SRA has introduced the SQE. An Aspiring Solicitor still needs a law degree. However, instead of following in a linear fashion to take their LPC and then obtain and complete a training contract, each stage dependent on completing the former, now they have 2 exams to take: SQE1 & if they pass it SQE2. Instead of the Training Contract, they have to acquire and have signed off 2 years Full Time Equivalent (FTE) Qualifying Work Experience (QWE). The idea is that this is done BEFORE they sit the SQE2, as it prepares them for this exam (which tests them for 16 hours on real life scenarios, applying law, practice, ethics & conduct). Importantly, they can reach back in time for QWE already done. QWE does not need to be done in a formal training contract. It can be acquired working as a paralegal. Indeed, it the work does not even need to have been done in a law firm, in England & Wales or even working on English & Welsh law. The QWE is all about acquiring the competencies & skills the SRA believes one needs to acquire to be a good solicitor.

This is game changing. You may employ paralegals who are paid less, but no longer may a firm hold them there dangling the possible prospect of a Training Contract. Whilst working they are gaining their QWE. They can qualify. Ah, you might say – they need me to confirm their QWE. I could refuse to do that and so there’s no change. I control their career progression. This question was raised at a webinar I attended when the SRA were speaking. The person from the SRA paused and then said “in that scenario we might be interested in speaking with the solicitor about THEIR conduct”. That is seismic. The message I took from this is that it is not acting in accordance with good conduct as a solicitor for you to hold back the progression of an Aspiring Solicitor to qualification.

This is one point. A second is that the SRA has specifically allowed Aspiring Solicitors to go to a solicitor outside their organisation to have their QWE confirmed. [I have helped several Aspiring Solicitors by acting as External Confirming Solicitor so that their QWE has been accepted by the SRA.] Thirdly, there is nothing stopping the Aspiring Solicitor going to another firm more willing to support them.

The dynamic and power balance is changing. Does that mean that paralegal will disappear? I don’t think so. All is not gloom and doom. Aspiring Solicitors will still need to get their QWE. However, they will perhaps be more discerning. They may be more willing to vote with their feet. They may well be moving on or qualifying after about 2.5 years whether you want them to or not. (I write 2.5 years because most will be studying for their SQE exams at the same time as working. If they take 1 day out a week to study that equates to about 2.5 years to get their 2 years FTE QWE.) That might be something to build into your financial planning.

Churn hurts the profitability of your firm. A colleague & I once worked out that it cost the firm in lost turnover at least £60,000 each time a fee earner left and had to be replaced. That was without the recruitment costs. So, how to reduce churn as much as possible. The SRA has been very careful to design the SQE top fit with the government’s Apprenticeship Scheme. You could put your paralegals through this as Graduate Apprentices. That would mean that 95% of their study costs and their exam costs would be paid for by the government. The other 5% you, the firm, would have to pay (by my calculation roughly £2,000). It’s 100% if your firm is large enough to pay the apprenticeship levy (few solicitors firms are).

Feel free to contact our lead consultant, Ingemar Hunnings, for more info about the SQE & QWE. There is a Contact Form below. If you search 'QWE' or 'SQE' in the blog search you will find several articles giving information about this.

If you have or are a consultant solicitor the IR35 will be high on your agenda. We are not experts on this but have come across this resource for expert advice to ensure that you are compliant. Expert advice and insurance against HMRC investigations. This has been recommended to us, so we thought we'd share in case this might be of help.

https://www.ir35shield.co.uk/

(Please note we are not endorsing this and you should carry out your own due diligence and seek advice on accounting & tax matters from your accountants.)

For advice about running your law firm, please feel free to contact us. There is a Contact Form below on this screen.

Whilst here, may we invite you to have a look at our services, accessed from the top of this page, or browse or search our other blogs. They tend to be to provide information & assistance to the legal, business & professional services sectors. Mostly about the business of running your business.

The government has decided that the Fast Track will be extended to cases valued up £100,000 and thus that Fixed Recoverable Costs will be extended accordingly. Clin Neg are excluded because they are the subject of a separate review. There are 4 categories of complexity which will determine the level of costs allowed.

In case you missed it, below is a link to the LS Gazette article which sets out some detail with the suggested figures. Also below is a link to the full Impact Assessment and Government Response, should you wish to read it.

It doesn’t say when this will be brought in, but they are at the rules-drafting stage. You’ll need to do some prep and modelling to see how this will impact your business.

Links: 

Law Society Gazette article: Click here

Original Papers: Click here for access

Contact:

Should you wish to explore how this might affect your firm finances feel free to contact us for a chat. One of our consultants is an expert in Law Firm Finance and Ingemar is an ex-litigator. [email protected] or 07887 524507

We provide AML training both for businesses in the Legal Sector and for FCA regulated firms. 

SRA regulated firms - did you know that Lexcel requires firms to review policies and training EACH year? 

The Legal Sector Affinity Group Anti-Money Laundering Guidance states that all employees and agents should receive training at regular and appropriate internals both to update on new developments and to refresh existing knowledge. All new employees should receive AML Training. 

The FCA adopts a similar approach and of course the legislation & regulations are the same.

We train on AML. Normally this is remotely done and charged at £200/hr + VAT (+ £50+VAT for prep for each training session). If you are booking just 1 hour the price is £250 + £50 for prep + VAT, to cover question, over-run and to reflect that fact that more than 1 person may attend.

Other AML Support

We provide a lot of AML support to businesses in the Legal Sector. Please see below for a summary and links for further information. (Watch this space for assistance coming for certain businesses in the Financial Services sector as well.)

• AML Policy Documents & PWRA Review (PWRA is Practice Wide Risk Assessment)
• Independent AML Audit
• AML Updating Retainer
• Office Procedures Manual (OPM) 
• SRA Audit or Inspection on AML - we help firms with this. Charged at £200/hr. It is best to contact us as soon as you receive notification from the SRA. They will ask you to answer some preliminary questions and submit your policies for review. How you answer them can help or hinder how the audit or inspection goes.
• AML & Sanctions Manual

(Sanctions Regime compliance - see separate services for this on our website.)

Other Training from HCL

Sanctions Regime Compliance Training
SRA Accounts Rules Training
COFA Training
GDPR & Data Protection Training
Cyber Security & Fraud prevention Training

Contact Us

Feel free to contact us, ideally by using the 'How can we help you?' form below.

If nothing else, the pandemic has showed the value of good financial awareness and the value of cash in the bank. I think the economic outflow of the pandemic is still to hit us. Those businesses with a strong cash basis and good awareness of their finances will be in a stronger position to take advantage of the opportunities that arise. If you're looking for someone to talk with, we are fortunate to have as one of our consultants an expert in small and mid-tier law firm finance.

(He's already doing forecasting for some of our client firms. (He's also an expert in Benchmarking in the Legal Sector and the SRA Accounts Rules.)

If of interest contact us:

Ingemar on 07887 524507 or [email protected]