A Focus On Regulatory Change And What It Means For The Legal Sector
The legal sector has faced a barrage of regulatory change in 2018 and 2019 with the added storm clouds of Brexit only increasing the pressures felt by the legal profession.
Since the new price and service regulations came into effect on December 06, 2018, the Solicitors Regulation Authority (SRA) have published their new updated standards and regulations and regulators are adopting a harsher approach to issues of non-compliance.
Last year, the SRA intervened and closed down 33 law firms; the lowest figure in over 10 years. However, regulatory compliance remains a major issue for legal regulators.
Whilst focusing on the conveyancing sector earlier this year, the SRA’s Residential Conveyancing Thematic Review found that too many law firms were failing to fully adopt price and service transparency regulations.
34% of firms that were reviewed had failed to offer a customer an accurate quote, despite the fact that many disbursements involved were considered predictable fees that are frequently used in the majority of property transactions. These included standard procedural tasks like ID checks and property bank transfers.
The conveyancing sector was also accused of failing to properly communicate with clients during the conveyancing process. 23% of observed conveyancers did not explain the potential delays a complex property type can cause or explain the effect long-term implications of certain complex contractual clauses could have.
Within a leasehold transaction, 23% of conveyancers failed to explain the obvious differences between leasehold and freehold property ownership to their clients, meaning many were misinformed.
According to complaints information from the Legal Ombudsman, for 2018, a feeling of misinformation of poor communication was a consistent theme. Over 1,560 complaints were made to the legal ombudsman (LeO) in regards to the legal sector. Of this number, 600 complaints related to costs issues. The majority of complaints (36%) involved communication issues with a further fifth disillusioned by unexpected delays.
According to objective three of the SRA’s Looking ahead to 2018/19, published in the latest edition of their annual report, SRA members will “increase the availability of relevant and timely information to help people make informed choices in the legal services market.” The regulator has pledged to monitor transparency rules, helping firms to comply with regulatory change and is something that all law firms should be preparing to improve.
As we enter the second half of 2019, more law firms will be expected to tighten their processes around money laundering prevention.
The legal sector’s ability to comply with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 was criticised by the Treasury Committee’s ‘Economic Crime – Anti-Money Laundering Supervision and Sanctions Implementations’ report.
Of particular note were the reducing numbers of Suspicious Activity Reports (SAR) being completed by the legal sector in 2018. The 2,660 SRAs reports completed by legal service providers made up only 0.77% of the UK’s total reports. In contrast, the financial sector’s 500,000 plus reports constituted around 82% of the total figure and compared with the 4,878 reports that were made by the legal profession in 2015, reporting is decreasing.
This vast underreporting was corroborated further by the SRA recently after observing the Anti-Money Laundering (AML) processes of just 59 law firms. 26 of the 59 law firms providing trust and company services (TCSP) were placed into the SRA’s disciplinary process because their AML strategies and policies were deemed significantly inadequate.
The SRA have speculated that at least two thirds of their members are able to comply with the AML 2017 regulations. However, only 44% of the sample group were legally compliant with current regulations. Additionally, over 66% had failed to produce a robust risk assessment with many missing key strands of the new regulations. As money laundering is a major consideration of the SRA’s forth objective for next year, it is clear that law firms will need to consider their obligations to AML or risk regulatory sanctions.
On November 25, the SRA are set to replace the current handbook with the new SRA standards and regulations in order to streamline the current handbook which has been viewed as overly prescriptive.
SRA regulated firms will need to ready themselves for creating more robust processes to prevent data breaches by ensuring that the Compliance Officer for Legal Practice (COLP) takes a leading role in developing staff awareness of their obligations and preventing them from taking any ‘dangerous steps.’
Law Society regulation changes, driven through Lexcel England and Wales Version 6.1 Standard for Legal Practices and the new Conveyancing Quality Scheme’s (CQS) new Core Practice Management Standards (CPMS), a greater emphasis is being placed on ensuring firms are able to prevent data breaches by creating clear processes for both the physical space and their online presence.
Hopefully, by the end of the year, if a clear and favourable Brexit outcome is announced, regulatory change will subdue somewhat. However, complications with the EU and the UK’s imminent split could always cause future headaches for the legal sector.
Here’s hoping for calmer waters ahead.
Find out more information and details on The Cashroom here.
This article was submitted to be published by The Cashroom as part of their advertising agreement with Today’s Legal Cyber Risk. The views expressed in this article are those of the submitter and not those of Today’s Legal Cyber Risk.