The Solicitors Regulation Authority (SRA) is the largest regulator of legal services in England and Wales, covering around 90% of the regulated market. They oversee more than 220,000 solicitors and around 9,500 law firms. Recently, the SRA published a suite of annual corporate reports on its operational work during 2021/2022. This combined set of corporate reports covers areas including education and training, enforcement, approval of new firms and solicitors, and the activity of the compensation fund for the period November 2021 to October 2022, the regulator’s financial year.
Anna Bradley, Chair of the SRA Board, said: “Our annual reports offer an overview of our operational work last year. Overall, we are content that this work is efficient and effective but are aware that there is always room for improvement.”
Access the full suite of reports here: Corporate reports for 2021/22
2. SRA’s Corporate Report for Professional Standards and Enforcement
In this blog, our compliance team looks closer at the SRA’s corporate report for professional standards and enforcement, which covers the SRA’s commitment to maintaining professional standards and its enforcement strategy.
The upholding professional standards report provides valuable insights into the prevailing enforcement themes. It prioritises its expectations and enforcement strategy in several critical focus areas, particularly strengthening anti-money laundering (AML) initiatives within the legal sector which we summarise below.
You can access the full report here:
3. Money Laundering Concerns and Findings
Criminals often target the legal sector, particularly those who handle property transactions, to legitimise criminal activity, given the substantial inflow and outflow of funds in law firms and solicitors’ client accounts. Acknowledging this risk, the SRA, as part of its role in the Legal Sector Affinity Group (LSAG), has provided several guidance notes on how firms can combat money laundering and an overview of its money laundering work within this recent reporting year.
The SRA’s anti-money laundering (AML) efforts, which is reported to a different financial year, so these statistics relate to 5 April 2021 to 4 April 2022, involved 163 firm inspections and 109 desk-based reviews. There were 252 reports of potential AML breaches, an increase from 196 cases in 2019/20, similar to the 273 cases reported in 2020/21. The most common themes on AML reports included:
- A failure to carry out or complete customer due diligence (CDD) – a law firm checks a client is who they say they are.
- A failure to carry out a money laundering risk assessment.
- A failure to carry out a source of funds check.
Consequent enforcement actions led to total fines of £287,000. Additionally, the SRA made 20 suspicious activity reports to the National Crime Agency. More details about these operations can be found in the SRA’s AML report, highlighting the industry’s ongoing battle against money laundering and the SRA’s unwavering dedication to maintaining professionalism in the legal sector.
The most up to date annual report on preventing money laundering will be published separately in October 2023.
At The Strategic Partner, we have recently published several articles covering the regulator’s approach to money laundering regulations. Links to some of these can be found below:
- The Importance of Source of Funds Enquiries: Understanding Your Obligations
- Strengthening Compliance: Supporting the COLP and COFA in Law Firms
- Learning From a Recent Case: Why Robust Risk and Compliance Procedures Are Crucial
4. Greater Fining Powers and Agreed Approach With SDT
In July 2022, the Ministry of Justice increased the SRA’s fining powers from £2,000 to £25,000 for solicitors, law firms and non-solicitors working in those firms. This increased responsibility means the regulator can act in more cases without referring them to the Tribunal.
Matters necessitating restrictions on future practice or penalties exceeding £25k will still be referred to the Solicitors Disciplinary Tribunal (SDT). Cases of high public interest, violation of laws, or misconduct based on protected characteristics will continue to be referred to SDT. The move is designed to protect public confidence in the profession and discipline serious attitudinal issues. In addition, the anticipated Economic Crime and Corporate Transparency Bill, expected to become law later this year, proposes to provide unlimited fining powers related to economic crime, which, upon becoming legislation, will lead to a revision of the approach with the SDT.
We have recently published several articles covering the regulator’s approach to enforcement. Links to some of these can be found below:
- Firm Fined for Compliance Failures
- SRA Fines Firm Employee for Breaching Internal AML Policies, Controls and Procedures
- SRA Uses New Fining Capacity to Issue Solicitor With £18,750 Fine
However, the SRA has more robust powers concerning an alternative business structure (ABS), also known as a licensed body, which will have non-lawyer ownership or control of the business. Under these circumstances, the regulator can impose a fine of up to £250m on the firm and up to £50m on its managers and employees.
5. How Confident Are You About Compliance
With the SRA’s ongoing emphasis on regulation requirements and enforcement strategy for those who fail to meet their obligations, firms are encouraged to take their responsibilities seriously, allocating adequate resources to fulfil their regulatory duties. Key areas firms should prioritise include:
- Performing necessary risk evaluations.
- Confirming adherence to regulatory requirements in conducting a Regulation 21 Independent Audit under Anti Money Laundering Regulations (MLR) 2017.
- Regularly updating all policies, controls, and procedures (PCPs).
- Customising all PCPs to align with the company’s mode of operation.
- Developing solid file review schemes with robust reporting structures.
- Implementing strong training programs that can be evidenced through reporting.
Our goal is to ensure the firms we work with have and retain a compliant structure enabling the firms, their managers, and owners to focus on running their businesses and servicing their clients.
If you believe your firm may be at risk or wish to confirm your firm is achieving the required standard, we offer a range of solutions at The Strategic Partner, including:
- Regulation 21 AML 2017 Independent Audit – A review of the firm’s approach to regulation and compliance to include AML procedures with the audit meeting the requirements of Regulation 21 of the AML 2017. The output of which provides the firm with a written gap analysis and solutions to remedy any issues that rise and ensure the firm is compliant, find out more
- Training – Our typical AML Training includes:
- AML Trainingfor ALL staff to meet the firm’s obligation to provide annual training.
- 1-2-1 training for the MLRO and MLCO on their obligations and requirements.
- Practical training for those involved in client onboarding to ensure their ID and AML checks are correctly completed.
- File Reviews/Auditing – At TSP, we engage with firms undertaking file reviews where we consider your procedure, staff, systems, and files to ensure the procedures are up to the required standard and being implemented at case level with a report of the outcome.
Our packaged risk and compliance solutions provide guidance and support to firms on a range of topics and include: –
- Our Risk, Regulation and Compliance Service (including AML),provides firms with the necessary Policies Control and Procedures (PCP’s) – that are in line with CQS requirements and the standard of the relevant quality mark – alongside training, supervision structure, an annual independent assessment and reporting. This solution ensures that firms and their staff are compliant and remain so. It also clarifies what to do in the event of a mistake and/or a breach occurs.
- Our extended service, Risk, Compliance, AML Guidance and Register Administration, provides an outsource solution for firms where The Strategic Partner not only manages and maintains the risk registers and provides guidance to all staff (inc. Partners), we also produce monthly risk and compliance reports.
The combination of these two solutions provides a law firm with a robust and cost-effective risk and compliance strategy that ensures staff have access to expert guidance as it is needed.
6. About The Strategic Partner
The Strategic Partner is a law firm knowledge hub. We work with law firms and professional indemnity insurers, advising and guiding on compliance and risk management techniques to assist and reduce instances of claims or regulatory breaches.
We offer a range of services and consultancy tailored to the Legal sector. We have gained a wealth of knowledge and experience in the overall management of law firms and work with them to achieve profitability, stability, and efficiency. Our goal is to become a valued and respected partner to our member law firms, consistently providing high-quality services and solutions.
7. Get in Touch