Legal Sector Affinity Group for England and Wales publishes new guidance on anti-money laundering and SRA sectoral risk assesment

The Legal Sector Affinity Group (LSAG) which is made up of representatives from the different regulatory and representative bodies in the legal profession, releases information and guidance for legal services professionals. The LSAG 2020 guidance provides a detailed commentary on recently amended UK regulations on money laundering (as well as the 2017 regulations).

The LSAG guidance provides an update to material previously published in 2018, updating the content to match the new regulatory environment. Key changes in the new publication include:

  • Expanded guidance on understanding source of funds and source of wealth
  • A new section addressing the need for firms to understand the technology they are using
  • Clarifications on high-risk sectors, accepting cash into the client account, customer due diligence (CDD) on referrals from another legal practice, timing of CDD/exceptions
  • Discrepancy reporting to Companies House, and other relevant registries from new duty/obligations introduced from January 2020

As well as this the SRA have produced further guidance, in light of a UK Government risk assessment, published in December, producing a legal sector-specific money laundering risk assessment, focused on the specific challenges of the sector.

Juliet Oliver, SRA General Counsel, said: ‘Tackling money laundering is a priority for all of us and we know the vast majority of firms are committed to keeping the proceeds of crime out of the profession. These documents offer comprehensive information on some of the better ways to achieve this. Our sectoral risk assessment identifies and discusses the biggest issues and emerging threats currently facing providers of legal services as they look to combat money launderers. It is complemented by the LSAG guidance, which covers all the bases of the 2017 regulations, plus a thorough review of how regulations and expectations on firms have evolved since then.’

Read the LSAG guidance here, or the SRA’s risk assessment here. 

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Legal Services Board releases options on ongoing competence

The Legal Services Board (LSB) has published anew report on ongoing competence in the legal services sector. Confirming that it plans to develop this thinking further and consult on how competence can be assured over the course of a lawyer’s career. In the report the LSB points out that whilst legal regulators have comprehensive measures on entry into the profession, however there are few checks to ensure that competence is maintained.

The report was produced following the call for evidence that was carried out in 2020. It has been compiled using extensive discussions with stakeholders across and outside the legal services sector. It also considers approaches taken in other sectors such as financial services, aviation, healthcare, engineering and teaching, which generally have more systematic ongoing competence checks.

From its research, the LSB has concluded that most consumers mistakenly assume that lawyers are subject to regular formal checks. It has suggested that this leads to a misalignment between the current practice and what the public expects. This is why the decision has been made that ensuring legal professionals’ ongoing competence is vital to ensuring consumers’ trust and confidence in the sector. The LSB’s view is that this would also help consumers avoid harm from poor quality legal services.

In its role as the oversight regulator, the LSB has a statutory duty to assist in developing regulatory standards in the legal sector. In the report, the LSB explains that it will proceed to develop and consult on new expectations for regulators, noting that these proposals are likely to encompass high-level expectations that legal regulators should:

  • set out the standards of competence that legal professionals should meet at the point of entry and throughout their careers; and
  • have mechanisms in place to:
    • identify legal professionals who are failing to meet those standards;
    • identify areas of increased risk to consumers;
    • respond when legal professionals fall short of the standards of competence;
    • provide appropriate protection when there is an increased risk of harm to consumers.

Helen Phillips, Chair of the Legal Services Sector, said:

‘Public trust and confidence are integral to the credibility of the legal services sector, and consumers need to know that their lawyers have the necessary, up-to-date skills, knowledge and attributes to help them with their legal problems. Many people assume that legal professionals are subject to ongoing formal reviews of their competence, but there are, in fact, very few routine checks once a lawyer has qualified. Legal regulators typically do not have systems or processes in place to identify or respond to concerns about competence. This is unusual and out of step with other professions which routinely adopt tools to ensure ongoing competence to promote public trust and confidence, and protect consumers from harm. We need to reshape legal services to better meet the needs of society, which includes ensuring lawyers remain competent throughout their careers. This will help increase trust in legal services, raise standards and improve access to justice.’

Read the full report here, or the LSBs comments here.

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Legal Services Board annual regulatory performance review pushes improvements in performance and governance

The Legal Services Board (LSB) has published annual reports on the performance of the eight legal services regulatory bodies. Each  one of the eight providers regulates a different type of lawyer in England and Wales, and has control over its day to day operations. However under the Legal Services Act 2007 (the Act), they have the same obligations and are assessed against the same 27 outcomes across five standards. The standards are: regulatory approach, authorisation, supervision, enforcement, and well-led: governance and leadership.

The report has found that the performance of most of the regulatory bodies has improved since the last assessment in November 2019. Notably, the Council of Licensed Conveyancers (CLC) and the Solicitors Regulation Authority (SRA) have met all the outcomes required across all standards. However, the report also found that although regulatory bodies are generally performing well against the authorisation, supervision and enforcement standards, there is a lower level of achievement in meeting the standard required for outcomes under the regulatory approach and well-led standards.

The LSB is therefore considering further actions including:

  • Undertaking a thematic review around regulatory approach in the coming year, depending on regulatory bodies’ progress in meeting the standard required.
  • Several of the not met ratings are associated with the quality and clarity of applications for statutory approval of changes to regulatory arrangements and practicing certificate fees. Whilst some regulators appear to be experiencing little difficulty in meeting these standards, the LSB recently started a review of its rules and guidance in this area.

In last year’s report, the LSB raised concerns over some regulatory bodies not fully embedding the regulatory performance framework into their governance arrangements. The LSB has subsequently launched targeted reviews of the Bar Standard Board (BSB) and Faculty Office (FO) on performance against the well-led standard. These reviews formally began in September 2020 and are scheduled to conclude in early 2021.

Matthew Hill, Chief Executive of the Legal Services Board, said:

“Independent regulation protects the public and benefits the profession, and we have seen some welcome improvement across the regulatory bodies, particularly in their enforcement of standards and increased independence. However, there continue to be areas where improvement is needed. No regulatory body that is putting the public first in its decision-making and acting transparently to promote the regulatory objectives set out in the Act should have any difficulty in meeting the standards of good regulation. We expect the regulators to take the performance assessments as indicators of where improvements are needed to ensure they have the right mechanisms in place to carry out their regulatory duties effectively and efficiently. Appropriately regulated lawyers who deliver consistently competent and ethical services will give consumers stronger confidence in the sector and help build a legal services market that better meets the needs of society.”

Read the full report here. 

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Legal Services Board Consultation on legal sector strategy

The Legal Services Board (LSB) is seeking views on its draft strategy for the legal services sector and on its draft business plan 2021-22. Welcoming responses to the consultation by 5 February 2021.

The consultation is as follows:

Draft Strategy for the Legal Services Sector

In November 2020, we published our State of Legal Services 2020 report. This offers an in-depth review of the legal services sector following ten years of independent regulation.

Our report concludes that despite the achievements of the last decade, the legal services market is not working as well as it should be and that the basic legal needs of many citizens are not being met.

The challenges facing the sector have been condensed into three strategic themes: fairer outcomes, stronger confidence, and better services. In the strategy, we identify priority areas of focus over the next three years (2021-2024) and outline how we plan to make a difference to these areas.

Collaboration is key to delivering fairer outcomes, stronger confidence, and better services. In identifying priority areas of focus over the next three years, we call on individuals and organisations to step forward and identify how else they can make a difference.

Draft Business Plan 2021-22

Our draft business plan 2021-22 lays the foundations for helping the sector to overcome the challenges of fairer outcomes, stronger confidence, and better services. We plan to do this by continuing our work on diversity and inclusion, consumer engagement, and technology and innovation, as well as our statutory functions.

We also plan to begin work on the scope of regulation, consumer vulnerability, and on our policy framework, as well as exploring areas such as legal expenses insurance, legal support for small businesses and an idea for ‘simple legal products’.

Flexibility will continue to be a key feature of our approach in 2021-22. This will enable us to adapt our work to support the sector as the full effects of Covid-19 continue to unfold, and to take account of wider public policy reviews that may shed light on additional areas of work.

See more details about the consultation here, the consultation document here, the strategy document here or the business plan here.

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UK Competition and Markets Authority review of legal services market

The UK Competition and Markets Authority has released an updated report based on its initial findings on the legal services market published in 2016. The report recognises the improvements that have been made in increasing the transparency of the price, service and quality of legal services, but said there was more to do to increase “the intensity of competition between providers”, calling for reforms particularly in the currently unregulated sector of the market.

The unregulated sector has grown significantly over the past few years, largely due to the rising use of legal technology products. The report raises concerns over the current regulatory framework and the focus on professional titles and reserved activities, as opposed to the risk profile of activities. Which it suggests could restrict competition, create unnecessary costs and leave a regulatory gap.

The CMA has recommended three actions within the existing regime which would help “deliver reform in stages”.

  • First was creating a mandatory public register of unauthorised providers for certain legal services and mandating that they offer redress options to consumers.
  • Second was that the Legal Services Board (LSB) should carry out a review of the reserved activities.
  • Third was the independence of regulation from professional representation. The CMA noted that “significant improvements” have been made as a result of revised internal governance rules imposed on bodies like the Law Society and Bar Council by the LSB.

Andrea Coscelli, the CMA’s chief executive, said: “This is an incredibly important sector that people often turn to at a time of great need, which is why the CMA made recommendations to improve consumer outcomes, including through increasing transparency, as well as to address concerns about the way in which the sector is regulated. It is positive to see changes that have already been made, but more progress is needed. We encourage the Ministry of Justice, the Legal Services Board and other legal services regulators to continue to work towards reform and to make sure the sector works well for consumers long into the future.”

Read the full review here or the LSB’s response here.

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Solicitors Regulation Authority publishes data on the profile of solicitors in its enforcement processes

As part of its wider work on providing clear reporting on the operational aspects of its work, the Solicitors Regulation Authority of England and Wales (SRA) have published their second annual report on their enforcement activities. The ‘Upholding Professional Standards’ report summarises the handling of over 9,500 reports and 3,600 investigations in the 2018/19 period. Particularly looking at issues such as sexual harassment, the use of non-disclosure agreements, and money laundering.

The report includes a review of the diversity characteristics of solicitors involved in the enforcement processes over the course of the year. This includes those reported to, investigated by, or who have had action taken against them by either the SRA or the Solicitors Disciplinary Tribunal (SDT).

Key findings of the review include:

  • 26% of concerns raised with the SRA related to black, Asian and minority ethnic (BAME) solicitors, while 18% of the overall solicitor population is BAME. This figure rose to 32% in cases that were investigated.
  • 67% of concerns raised with the SRA related to men, whereas 49% of the overall solicitor population is male. This figure rose to 73% in cases that were investigated.
  • Cases concluded by the SRA or at the SDT for ethnicity were in line with the representation seen at the investigation stage, with a further uplift to 85% for findings against men at the tribunal.
    The data available for disability was very limited, making meaningful analysis difficult.

Anna Bradley, Chair of the SRA said: “We are committed to transparently reporting the details of our operational work and I am pleased that this year we have been able to include the profile of people in our enforcement processes. This again shows an over-representation of black, Asian and minority ethnic solicitors, and men, in both the concerns raised with us and then investigated, when compared to the diversity of the profession as a whole. We must look at what is happening here. We have made significant changes to our enforcement processes and reformed our regulation over the last few years, but the picture remains the same and it is unclear why that is the case. Since 2007 we have held three independent reviews into our processes to make sure they are fair and free from bias and none found any evidence of issues with our processes. Notwithstanding this, we will look again at our decision making. Importantly we think it is now time to also examine why we are seeing so many more concerns about BAME solicitors reported to us than should be the case in the light of the profile of the profession. It is a picture seen across many regulators; some of the potential factors may be wider societal issues and others may be particular to the legal sector. So we will commission independent research in this complex area, reaching out to the profession, key groups and expert voices as we shape this work.”

Read the report here, or more about the SRA’s comments here.

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Solicitor’s Regulation Authority conference on upcoming qualification changes

The Solicitor’s Regulation Authority of England and Wales (SRA) has published video recordings of its 2020 conference on the Solicitors Qualifying Examination (SQE). The SQE is a new qualification system being implemented in England and Wales over the course of this year.

Conference topics included provider and firm strategies around the changes, changes to qualifying work experience, and how the changes will affect diversity in the profession.

View the full conference recording here. 

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Updated UK national risk assessment of money laundering and terrorist financing

The UK Treasury has published an updated UK National Risk Assessment of Money Laundering and Terrorist Financing. This follows the previous update from October 2017 and sets out the key money laundering and terrorist financing risks for the UK, and how these have developed since the first publication in 2015.

Specifically, chapter 10 documents the UK Government’s view of the key money laundering risks associated with legal services.

Key risks:

  • Legal services is at high risk of being abused by criminals seeking to launder money
  • These risks increase when legal professionals fail to carry out their obligations under the money laundering regulations (MLRs) or take a tick box approach to compliance
  • Specific services provided which may be most vulnerable to abuse remain conveyancing, Trust and Company Service Provision (TCSP) and the provision of client account facilities. Other areas of risk include sham litigation, notarial services, cryptocurrencies and crowdfunding
  • The risk of legal services being used for terrorist financing purposes remains low
  • The assessment notes that most legal firms comply with their AML obligations and there has been an improvement in technical compliance. However, it further states “there are a significant minority of Legal Service Providers which do not focus on AML compliance and some still lack an understanding of the risks they face”.

Graham MacKenzie, Head of AML at the Law Society of Scotland has said “The legal sector risks, findings and trends noted in the new UK National Risk Assessment are generally consistent with the findings of our AML supervisory assurance work, and we welcome the more nuanced tone taken by the government in recognising not all conveyancing or TCSP work warrants a higher money laundering risk rating. I’d advise firms to now review, and (where necessary) refresh their firm-level risk assessments under r.18 of the Money Laundering Regulations. There is a wealth of information available on our website to support firms in this process, and lookout for new, fully revised UK legal sector AML guidance which will also be released later this month. We ourselves are obliged to review and refresh our supervisory Scottish legal sectoral risk assessment, previously published in March 2018 following the publication of the UK national assessment. This process will start shortly, and the document will be made publicly available on our website.”

Read the full updates here. 

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Entity Regulation, Litigation Rights and the Changing Meaning of Professionalism at the Bar of England and Wales

Abstract

Entity Regulation, Litigation Rights and the Changing Meaning of Professionalism at the Bar of England and Wales The Legal Services Act 2007 provided a framework for a liberalised marketplace for legal services. The most significant responses to this by the Bar appear in the Bar Standards Board Handbook, which was first released in January 2014. This included changes allowing for barristers to engage in litigation and enabling the Bar Standards Board to regulate entities rather than just individual barristers. This article places these changes within the existing theoretical understanding of the legal professions and professionalism, and argues that they open the door for a significant shift in the way that the discourse of professionalism is used in relation to the Bar.

Mason, Marc, Entity Regulation, Litigation Rights and the Changing Meaning of Professionalism at the Bar of England and Wales (2020). Legal Ethics, Forthcoming,

Read the full article on SSRN. 

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Bar Standards Board of England and Wales updates Brexit guidance

The Bar Standards Board (BSB) has updated its handbook to reflect changes for lawyers practising in the UK. The new rules were implemented at 11pm on the 3st December 2020, and affect Registered European Lawyers (RELs) who are practising at the Bar of England and Wales, and European lawyers wishing to be admitted to the Bar. Provisions were also implemented affecting Swiss lawyers practising under the Swiss Citizen’s Rights Agreement.

The rule changes are primarily focused on definitions around licence to practice, and home qualification, as well as lawyer insurance arrangements.

Read the BSB’s full list of updated rules.

 

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