Strategic Planning For Firms - Lessons For Best Practice

Strategic Planning For Firms - Lessons For Best Practice


This webinar provides an overview of recent SRA and SDT regulatory decisions, considering the regulatory landscape from the perspective of those who have been on the receiving end of the SRA’s supervisory activities.

About the presenter: Tim Prior, is a director of PNCR Legal and a Quality Assurance Risk Management Consultant. I've been a solicitor since 1986 and am a Certified Fellow of the Institute of Risk Management. Since the late 1980s, he has specialised in Professional Indemnity work and is a regulatory inspector for the Council of Licensed Conveyancers, is contributed to Frances Silverman’s Conveyancing Handbook and wrote the Lexcel risk management toolkit.

The SRA is responsible for regulating 143,702 practising solicitors and 10,420 law firms in the England and Wales. The vast majority of solicitors are hard-working and conscientious, keen to provide the best possible service for their clients. However, when it comes to compliance, it is easy to take your eye off the ball, particularly if you don’t work for a firm that has its own risk and compliance team.

The SRA will investigate all reports and depending on their conclusions can issue a range of penalties, at the lower end of the scale these can result in letters of advice, a rebuke or a fine up to £2,000 (for traditional practices). For more serious misconduct, the SDT can strike off or suspend solicitors and can impose unlimited fines.

What are have been the historic trends?

In 2016/2017, the SRA received just over 10,000 reports about solicitors or law firms which were referred to its supervision team. No action was taken on 40% of them, although the SRA will keeps all reports on file in case a pattern emerges.

Out of the 6,045 that were investigated, one third of issues related to incompetent or negligent client care and delay. Worryingly, 410 reports concerned the failure to hold qualifying indemnity insurance.

Dishonesty and misuse of client funds are rightly seen as being the most serious issues, so it is encouraging that these were not responsible for more than 15% of the reports. The SRA took action in 400 cases, with a further 117 more serious matters being referred to the Solicitors Disciplinary Tribunal. 59 solicitors were struck off and a further 18 suspended.

During the 2016/2017 year, the SRA intervened into 50 firms with the top three reasons being unspecified rule breaches, suspected dishonesty and Accounts Rule breaches. This is the highest it has been for three years but is still less than at the height of the recession when it reached 89.

Regulatory decisions appear to be on the increase as, in the 12 months from August 2017 until July 2018, the SRA has published 619 decisions on its website. This may however include some duplication as, for instance, where the decision was to refer a matter to the SDT it will be published again when the SDT outcome is known. 

2018 started with a flourish as the SRA published 96 regulatory decisions in January, and a further 102 in February, significantly higher than the more usual 30 to 40 decisions a month. Over the next four months, there were a further 148 decisions (with 46 in July and 18 in the first half of August). That means that, in the first six months of 2018, the SRA has published 346 decisions. These figures compare with the 275 decisions published in the six months to December 2017.

A significant number of the regulatory decisions in any month relate to conditions on practising certificates. The vast majority concern the imposition of conditions relating to the roles that the holder can perform (whether as COLP, COFA, manager, client account signatory or in relation to the holding of client money). They also cover matters such as the delivery of accountant’s reports or the requirement to attend training but a few will record that conditions have been lifted.

More serious issues covered include the misappropriation of client monies, the handling of matters for which no-one has the appropriate expertise, knowledge or experience (such as dabbling in carbon transfer transactions or complex international property deals), non- compliance with the Accounts Rules, the issuing of proceedings which are fraudulent or when without instructions, misleading the court, the forging of deeds or witnessing signatures in dubious circumstances or allowing a client account to be used as a bank.

Of course, many of the underlying transactions are property related with strong suspicions of property and identity fraud and little evidence of effective client or matter risk management. One case showed no evidence of any due diligence on the source of funds from clients and third parties and no record on file of instructions received.

Significant cases of serious misconduct

As a lesson in how not to handle the administration of an estate, it is hard to beat the conduct of the sole practitioner who was winding up an estate valued at almost £2m. He ended up before the SDT for making unsecured loans from the estate totalling £370,000 to unrelated clients, which resulted in him being struck off.

The deceased died in October 2013 and a Grant of Probate was obtained six weeks later. The deceased’s house was sold in early 2014 for £485,000. So far so good. However, the six residuary beneficiaries, all charities, were becoming increasingly unhappy not least because the sale proceeds were not distributed until ten months after completion (for reasons connected with the SDT referral).

One charity alleged that the property had been sold at an undervalue as it had been sold later the same year for nearly £300,000 more. That is a lot of home improvements. Instructions to sell shares immediately when they were worth £1.35m were ignored. Over three years later, still unsold, they were allegedly worth almost half that. (A missing share certificate did contribute to the delay, but the solicitor had been aware of this before his client died. A replacement was not obtained until November 2016).

One charity asked for confirmation that insurers had been notified and was told that the ‘insurance position’ was in hand. The matter was in fact reported 7 months later, after renewal of the firm’s PI insurance, one would hope after full disclosure to insurers of the date of his knowledge. There were also allegations of over-charging and of significant delays in the administration over a period in excess of three years. Serious breaches of the SRA Accounts Rules had also not been reported to the SRA.

Of course, it’s not only your professional staff that need to be well managed. In one case, an unqualified member of staff who had worked in the firm’s conveyancing department for 5 years contemplated cheque fraud. She intercepted a cheque, changed the payee to her name, drafted a letter which purported to show that the cheque had been sent to her and then took the cheque to a cheque cashing shop, at which point she lost her nerve – and her job. While most accounting risks relate to payments made from client account, this example shows that procedures for processing cheques received must also be rigorous. In another example, a cashier who had been with the firm for 3 years stole funds from client and office accounts for which he received an 18 months’ sentence.

What can we learn from these decisions?

Well, monies in client account are obviously sacrosanct, so any failure to comply with the very strict SRA Accounts Rules is likely to result in some form of disciplinary action, although the extent thereof will often depend on the presence or otherwise of dishonesty. Whether the SRA’s planned simplification of these rules will make any difference to the statistics will be something to watch in 2019.

It is important to ensure that there is a three-way process separation for payments from client account so that one person cannot request, authorise and process a payment. It is also important to ensure that cashiers (and others) are properly supervised. COFAs in particular must not abrogate their responsibilities.

Appropriate supervision is always essential, with some peer review between partners advisable. Sole practitioners should consider a buddy system with a trusted colleague in another practice which can work well for both file reviews and business continuity, although it is important to ensure that clients know that such a system is in place.

Compliance officers need to take their responsibilities seriously, taking care to report material breaches to the SRA. Failure to do so will give the SRA and the SDT more ammunition with which to criticise your conduct. Many of the conditions imposed on Practising Certificates prevent solicitors from being compliance officers in the future. Which some, I suppose, might welcome. The roles carry onerous responsibilities.

This webinar forms one of a series of webinars available on our Quality Assurance and Risk Management portal for client.  Topics range from operational risk management to matter opening procedures and anti-money laundering. To learn more visit our solicitors webpage.

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