Regulatory activity on the increase by Sponsor Aon

There are, undoubtedly, lessons to be learned from Solicitors Regulation Authority (SRA) and Solicitors Disciplinary Tribunal (SDT) decisions but, before considering some of the decisions in detail, we’ll look at recent SRA’s statistics as they’re useful in showing an overview of regulatory trends.


There are 143,702 practising solicitors, the vast majority of whom 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 your firm can’t afford its own risk and compliance team.


The SRA reports that, in the 2016/2017 year, it received 10,112 reports about solicitors or law firms, 6,045 of which were investigated by its supervision team.  One-third of issues related to incompetent or negligent client care and delay.  Worryingly, 410 reports concerned the failure to hold qualifying indemnity insurance.  Those matters where no action was taken, including many self-reported material breaches, will be kept on file in case a pattern emerges. 


The most serious issues are those involving dishonesty and misuse of client funds which were responsible for some 15% of the reports.  The SRA took regulatory action in 400 cases, with 117 of the most serious cases being referred to the SDT.  Fifty-nine solicitors were struck off and a further eighteen suspended. 


During the same year, the SRA intervened into fifty 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 last recession when it reached eighty-nine.


The SRA has not yet produced its report on the 2017/2018 year but analysis of decisions published on its website reveals that regulatory decisions appear to be on the increase.  In the twelve months to July 2018, the SRA published 621 decisions although this may include some duplication.  For instance, a decision to refer a matter to the SDT may be published again when the SDT outcome is known.


2018 didn’t start well.  The SRA published 96 regulatory decisions in January, and a further 102 in February, both significantly higher than the more usual 30 to 40 decisions a month.  Over the next four months, there were a further 148 decisions (with 45 in July and 36 in August).  In the first half of 2018, the SRA published 346 decisions, up from the 275 decisions published in the last half of 2017.


At the lower end of the scale, these can result in a rebuke, a condition on your practising certificate, a fine up to £2000 (for traditional practices) or a combination thereof.  The vast majority of conditions concern the roles that the holder can perform (whether as COLP, COFA, manager, client account signatory or in relation to the holding of client money).  Others 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.  For more serious misconduct, the SDT can strike off or suspend solicitors and can impose unlimited fines.


Some of the more serious decisions concern the misappropriation of client monies, the handling of matters without the appropriate expertise, knowledge or experience (such as dabbling in carbon transfer transactions or complex international property deals), and non- compliance with the Accounts Rules.  Contentious failings include the issuing of proceedings which are fraudulent or when without instructions and misleading the court.  Other examples include the forging of deeds, the witnessing of signatures in dubious circumstances or allowing the 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 revealed no evidence of any due diligence on the source of funds from clients and third parties and no record on file of instructions received.


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.  This was only the tip of the iceberg though.  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.  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 seven months later, after renewal of the firm’s PI insurance, although it is not clear whether there had been full disclosure to insurers.  There were also allegations of over-charging, significant delays and the failure to report serious breaches of the SRA Accounts Rules.


Of course, it’s not only 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 five years contemplated cheque fraud.  She intercepted a cheque, substituted her name as payee, and drafted a letter to ‘prove’ that the cheque had been sent to her.  When trying to cash the cheque, she lost her nerve – and her job.  While most accounting risks relate to payments from client account, your procedures for handling incoming cheques must also be rigorous.  In another example, a cashier who had been with the firm for three years stole funds from client and office accounts.


Monies in client account are 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 separation of 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 essential, with some peer review between partners.  Sole practitioners may find it more difficult unless they can set up a buddy system with a trusted colleague in another practice which, as a minimum, could cover file reviews and business continuity.  Do ensure though that clients know that such a system is in place.


Even without the support of a compliance team, compliance officers and solicitors alike must take their responsibilities seriously.  Take care to honour your reporting obligations as failure to do so will give the SRA and the SDT more ammunition with which to criticise your conduct.  With indications that regulatory action may be on the increase, don’t take your eye off the ball.

For more information on this article, please contact:

Jennifer Knight, Senior Client Manager, Aon UK Limited

On 07554 334 735



Whilst care has been taken in the production of this article and the information contained within it has been obtained from sources that Aon UK Limited believes to be reliable, Aon UK Limited does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the article or any part of it and can accept no liability for any loss incurred in any way whatsoever by any person who may rely on it.  In any case any recipient shall be entirely responsible for the use to which it puts this article.
This article has been compiled using information available to us up to 31 August 2018.

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