The Risk Outlook for 2017/2018 came out at the end of July this year with the following key priority risks:
- Lack of access to legal services;
- Standards of service;
- Investment schemes;
- Information security;
- Protecting client money;
- Money laundering;
- Independence and integrity;
- Diversity in the profession.
I think the majority of lawyers would have been able to predict most of the key priority risks this year since many of them impact daily in practice.
Let’s have a look at just a couple of these key priority risks and what they mean for lawyers and law firms …
No surprise that Money Laundering remains a priority risk since it is well established that the legal sector is an attractive market for those wishing to launder the proceeds of crime because of the perceived legitimacy it provides. The SRA reported a 20% increase in anti-money laundering related matters in 2015/2016 and currently state that this level has not increased or decreased in subsequent years with around 175 cases per annum; a third of which relate to residential conveyancing matters – by far the largest field of law for reported cases.
Money Laundering remains high on the agenda for most lawyers and practices following the rather hastily introduced and snappily named Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017 for short!) which came into effect on 26th June 2017 having been finalised at 9.20 am on 22nd June and laid before Parliament some 7 hours later at 4.30 pm that day.
The Legal Sector Affinity Group, which represents the legal sector regulators, including the SRA and other regulators, recognising that there was an extremely short lead in time from the final version of the Regulations, which differed from the draft Regulations, to them coming into effect have said that they will take a “sensible and pragmatic approach” where firms are taking steps to comply. However, notwithstanding the speed with which they came into effect, they are here to stay and firms must now take steps to demonstrate compliance.
Of course, the Regulations provide for one piece of HM Treasury approved (overarching) guidance to be produced by the Legal Sector Affinity Group which will apply across the legal sector but, at the time of writing, this has not been published and is eagerly awaited.
If you are struggling to find time to make sense of the new Regulations or understand whether you are complying, Legal Eye can assist. For details of MLR 2017 compliant documentation including Regulation 18 firmwide risk assessments, matter risk assessments, wording for your client care documentation or an updated AML Policy, call us on 0203 0512049 or email firstname.lastname@example.org
Of course, the “new” key priority risk is dubious or questionable investment schemes – although it isn’t new at all (the SRA first published a warning notice about such schemes in 1997 – almost 20 years ago). However, it has recently become an increasing risk for firms.
So, what are dubious or questionable investment schemes? In short they are, schemes to buy or sell products where promotors of such schemes involve solicitors to try to make the scheme look legitimate and provide some comfort to investors. It is reported that firms have also been involved in acting for potential investors as well as promotors or acting for both and client accounts have been used as a banking facility which is, of course, prohibited by Rule 14.5 of the SRA’s Accounts Rules – although some promoters have tried to get around Rule 14.5 by creating things like certifications (where none are needed) – as an attempt to create legal services and thus legitimise any transaction.
Such schemes are often targeted at vulnerable people, sometimes older people with access to capital – and are sold on the basis that they offer high returns in short timescales.
Such schemes that are known of have included:
- New build property abroad;
- Hotel room leasing;
- Bank instrument trading;
- Carbon credits and
- Diamond trading.
So, what should firms be doing? First and foremost, read the warning notices issued in recent months by the SRA about these schemes. Of the recent two, one was issued in September of last year and, as these schemes continued to be highlighted, a further notice was issued in June of this year.
Thereafter, firms must ensure that they:
- Conduct due diligence on scheme promoter;
- Don’t allow your client account to be used as a banking facility;
- Don’t agree to give artificial advice / services which would give the false appearance of an underlying legal transaction;
- Remain independent of a client;
- Don’t give anyone the impression they are a client if they are not;
- Don’t take unfair advantage of people;
- Consider the FCA Scam Smart page “Be a Scam Smart Investor” where you can check an investment you have been offered and avoid scams.
If you would like to know more about the SRA’s Risk Outlook 2017/2018, click on the following link: https://www.legal-eye.co.uk/webinars/ to hear Helen Glaze from Legal Eye and Paul Tucker from Lawyer Checker’s talking about the Risk Outlook and what this means for firms.