Having just issued their Autumn update of the Risk Outlook, the Solicitors Regulation Authority have again highlighted protection of client funds as a priority risk.
Whilst the annual report was released in July this year, the regulator continues to gather information and track emerging trends in order to highlight the most predominant risks within the legal sector. In turn, professionals are provided with a refreshed guide as to what to be alert to and update their risk management processes accordingly.
As well as setting out a general report of the sector and what professionals should be alert to, each Outlook highlights eight ‘priority risks’ which are updated as new trends emerge.
The priority risks
Information Security
Whilst this is not a new risk, the implementation of GDPR or General Data Protection Regulation means change will be on the horizon for firms in relation to their existing compliance strategy.
Set to come into force in May next year, an advice line has been launched by the Information Commissioner’s Office to help smaller businesses prepare.
The SRA also draw attention to the consequences for businesses who fail to comply with the existing regulation in regard to information protection. It highlights a case where a fine of £15,000 was approved by the Solicitors Disciplinary Tribunal against a solicitor who disclosed sensitive information which put someone at risk.
Protection of client money
This remains to be a key risk for the SRA, especially due to the growth in reports of bogus firms and email modification fraud.
Reports of the former, they state, have grown from around 70 per quarter to 170 in a period of just two years.
Once again, the report stressed the importance of having a risk management system in place to prevent these kind of threats and to be alert to questionable correspondence.
As well as taking care to protect client information, the report also recommended considering the use of a system such a Lawyer Checker to verify details of a third party law firm.
However, if a firm is targeted, the regulator also stressed the need to report any kind of theft or fraud, even where the money has been replaced.
Access to legal services
Also highlighted in the Outlook is the potential barriers consumers face when deciding to use a legal professional as well as the associated cost. According to their survey, just 27% of consumers shop around when in search of legal services, with only 4% using a quality mark to inform their decision.
The regulator stated that in a bid to improve the availability of information, they are currently consulting on whether to publish more of the regulatory data that they hold on firms.
Following the report from the Competition and Markets Authority, the legal sector is seeing a movement toward greater transparency in the market, with a number of regulators putting their own proposals forward on how this could be improved. The SRA’s consultation can be found here.
Standards of service
The SRA highlight the importance of handling complaints well when it comes to providing a professional standard of service.
In light of this, they expressed their concern over the service provided in certain areas, stating that they are undertaking investigations into certain firms. A warning notice issued by the regulator aims to clarify the required obligations.
Anti-money laundering
Citing a report from the National Risk Assessment of Money Laundering and Terrorist Financing 2017, the regulator highlights that the sector remains at high risk of money laundering exploitation.
However, whilst the extent of this risk depends upon numerous factors, the regulator highlighted that conveyancing, trust and company formation and misuse of client accounts were the biggest targets.
The latest Suspicious Activity Report from the National Crime Agency showed that whilst the number of reports had grown, submissions from the legal sector had seen a drop of almost 10%.
The SRA also drew attention to the renewed enforcement powers of HM Treasury, which now reinforce the obligation on law firms to report to the Treasury if they act for anyone subject to financial sanctions. Where there is a serious breach, penalties may be applied.
New obligations were outlined in July’s Outlook, and in regard to this, the SRA state that they will be seeking the views of professionals on their compliance experience.
Investment Schemes
The promotion of questionable investment schemes continues to be a key issue within the sector, with the SRA highlighting the impact that this can have on consumers.
It states that following such involvement, certain firms have been referred to the SDT, with one firm receiving a fine of £500,000.
A warning notice on this issue can be found here.
Diversity in the legal profession
Analysing the level of diversity in the profession, research conducted by Newcastle University Business School and the University of Leeds indicate a substantial growth in the number of female, Black, Asian and minority ethnic entrants. However, the findings also revealed that men remain more likely than women to become partners, especially in larger firms.
The regulator also draws attention to firms taking steps to promote gender equality, having published a review on how firms are pushing for greater diversity.
They also state that a report on the business case for building diversity in legal services will soon be published.
Independence and integrity
The SRA stresses the need for legal professionals to meet high standards; something which requires them to act with independence and integrity.
Warning about the consequences of being involved in tax avoidance, the regulator also highlights the potential penalties being brought in for those who have advised on schemes later defeated by HM Revenue & Customs.
