Regulatory Compliance

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New SRA Notice Warns Against Funds Missing From Client Account

The SRA has published its new Warning Notice (21 June) warns against funds missing from a firm’s client account. The SRA has made it clear shortages will not be tolerated.

Whilst the SRA hasn’t reported any sanctions decisions relating to this issue in particular recently, the warning notice outlines the risks of firms failing to quickly address a shortage.

Firms will note the relatively recent closure of Axiom Ince last year, where the SRA reported the largest shortage in client account funds of £64m.

SRA's Warnings

The SRA’s warnings are as follows:

  • Firms have an obligation to replace immediately any money missing from a client account
  • Replacement of funds is to be carried out regardless of the underlying reasons – even where there’s been circumstances beyond the firm’s control for example by way of a cyber-attack, or administrative errors or, dishonest acts by employees
  • There’s a clear duty in the accounts rules to replace a deficiency, and managers of a firm are jointly responsible for doing so
  • Firms that continue to transact with a shortfall on their client account risk using other clients’ funds to facilitate those transactions

Employee Behaviour

The SRA provides indicators when identifying behaviour amongst employees that may indicate a problem. This includes failure to deliver bills or a written notification of costs, any suggestion of over-charging, and a sweeping up of residual balances.

Steps To Take

Paul Philip, chief executive at the SRA has said: “Caselaw is very clear that the client account is sacrosanct. However, firms do report shortages on the client account for a variety of reasons. Our rules are also very clear – you must make good on any deficit promptly. A shortage on the client account presents a risk to all clients for whom you hold money.”

  • Managers are advised to immediately investigate and take action against any member of staff who may have acted dishonestly regarding the client account, and to take regular steps to monitor, review and manage risks
  • If you identify that money is missing, you have a duty to take steps to ensure it’s replaced, in full, immediately
  • If you’re a manager of the firm, you have a duty to replace missing client money from your own resources. It may be necessary for you to obtain a loan to do this. It’s irrelevant that fault may not lie with you personally
  • You need to notify your insurer. You may be able to make a claim on your professional indemnity insurance. The obligation to remedy a breach of the SRA Accounts Rules 2011 is treated as civil liability for the purposes of clause 1 of the Minimum Terms and Conditions
  • If you identify a shortage, you should report the matter to the SRA in line with your obligations under paragraph 7.7 of the Code of Conduct for Solicitors, RELs and RFLs and paragraph 3.9 of the Code of Conduct for Firms

Enforcement Action

On enforcement action, the SRA warns that failing to replace client money will usually lead to an intervention. Even if money has been replaced, it may be that an intervention is necessary to deal with what caused the problem, such as dishonesty, in order to protect the clients and the public.

Firm Closures

The SRA has also addressed the issue in the context of firms heading for closure, given this can’t happen if there are client balances remaining in a firm’s account.

The SRA has advised any firms seeking to close that they should send all client money to clients, pay counsel fees and bill for outstanding costs.

The notice adds: “If your client account has a shortage, you cannot undertake any of these actions and therefore you cannot close your firm until the shortage is replaced.”

Get in touch

At Teal, we’re here to support your journey towards compliance that works.

We understand that compliance can be a daunting word, but it’s also the key to unlocking your firm’s full potential.

Our experts at Teal Compliance are here to help. Get in touch today to explore tailored solutions and ensure your firm stays ahead of regulatory requirements.

New SRA Notice Warns Against Funds Missing From Client Account Read More »

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Is your law firm’s website compliant with the SRA Price Transparency Rules?

If you’re involved in managing compliance at a UK law firm, you’re probably no stranger to the SRA Price Transparency Rules. But just how compliant is your website? In this blog post, we dive into what you need to know and how you can ensure your firm meets the requirements.

Understanding the SRA Price Transparency Rules

The SRA Transparency Rules, which came into force in December 2018, marked a significant shift in how law firms should communicate pricing and service details to their clients. Instructed by the Solicitors Regulation Authority (SRA), these rules aim to improve transparency within the legal sector enabling clients to make informed decisions about their legal matters.

Covering a range of practice areas, law firms must disclose price and service information in a clear and accessible manner.  These areas include:

  • Residential conveyancing
  • Probate (uncontested)
  • Motoring offences (summary offences)
  • Immigration (excluding asylum)
  • Employment tribunals (unfair/ wrongful dismissal)
  • Debt recovery (up to £100,000)
  • Licensing applications (business premises)

Also, it’s crucial to note that even if your firm doesn’t have an online presence through a website, you’re still required to provide this information upon request in alternative formats. This ensures that regardless of the means of communication, clients have access to transparent pricing information.

What the SRA Price Transparency Rules entail

The SRA Price Transparency Rules include a multifaceted approach to transparency and accountability within the legal sector. Beyond the disclosure of pricing and service information, firms have to adhere to additional requirements to enhance clarity and trust. Alongside publishing price and service details, firms must prominently display the SRA’s digital logo on their website, serving as a visual indicator of compliance. This badge reassures clients that the firm operates within regulatory guidelines, instilling confidence in the transparency of legal fees and services offered.

Additionally, the Rules also require firms to publish details of their complaints procedure on their website. This includes comprehensive information on how and when a complaint can be lodged, both to the Legal Ombudsman and directly to the SRA. By offering clear guidance on the complaints process, firms prove a commitment to accountability and client satisfaction.

Teal’s new compliance culture services partnership

As well as ensuring such a damaging and toxic environment doesn’t exist, how can we further test and measure the true culture we have in our workplace?  

At Teal we have always believed culture to be the bedrock of sound firm management and compliance. That’s why it’s the biggest, first, and most vital cog in our six Cs of compliance. Without a good culture, the others ‘Cs’ simply won’t work. It’s the foundation from which thriving firms are possible.

That’s why Teal is delighted to be launching its partnership with Gemma Ellison and the team at Heart Leadership.

Gemma said “I started Heart Leadership after spending 15 years in legal practice and so it is a profession I understand and deeply care about. I am committed to helping organisations create healthy and inspiring working environments, which I know, in turn, leads to enhanced wellbeing and higher performing teams. Often, as we move through the ranks of our industry, we are rarely told to fully consider culture and the fundamental impact it has on the working environment of our people. I want to help change that.” 

Insights from the Year Three Evaluation

The Year Three Evaluation of the SRA Transparency Rules shed light on the full adoption of the rules. While progress has been made, there are still significant challenges that law firms must address to meet the requirements effectively.

The compliance landscape

According to the evaluation, a majority of firms reported compliance with various aspects of the transparency rules:

  • 75% claimed to provide price and service information
  • 88% displayed the SRA clickable logo
  • 88% published complaints procedures
  • 76% detailed how to complain to the SRA/ Legal Ombudsman

However, when it comes to price and service information specifically, only 42% of firms stated they published all required details. This highlights a significant gap in compliance, with more than half of firms falling short in this crucial area alone.

The reality of compliance

In 2021, the SRA took proactive steps by requiring all law firms with websites to complete a mandatory declaration confirming compliance with the transparency rules. Despite these declarations, spot checks conducted by the SRA revealed a different reality.

Common areas of non-compliance identified during spot checks include:

  • Partial compliance with certain aspects of the rules, such as publishing price and service information while omitting complaint information
  • Selective compliance with rules for specific service areas, particularly among firms with multiple websites or sections dedicated to different areas of law
  • Incomplete publication of information regarding how services will be delivered and by whom
  • Improper display of the SRA clickable logo, hindering the dynamic link to firm information on the SRA website

Ensuring compliance

Ensuring compliance with SRA Price Transparency Rules is essential for law firms to maintain trust and transparency with their clients, as well as meet their regulatory requirements.

So, how can your law firm ensure compliance with the transparency rules?

1. Review your website regularly

Regularly review your website to ensure all required information is up-to-date, accurate, and easily accessible to visitors. Keeping a vigilant eye on your online presence ensures that potential clients can find the information they need without any hassle.

2. Utilise SRA templates

Take advantage of the SRA’s provided templates for suggested text. These templates can be invaluable in identifying any missing information on your website, helping you align with the requirements of the Transparency Rules more effectively.

3. Consider user experience

Prioritise the user experience on your website to ensure that clients can easily navigate and find the necessary information. Whether through specific webpages, intuitive online quote tools, or seamless connections to price comparison sites, prioritising accessibility enhances client satisfaction.  

4. Get expert help

If you’re unsure about compliance or need assistance, Teal Compliance offers website audit services. We can provide guidance and help you navigate any non-compliance issues, ensuring your firm remains aligned with regulatory standards.

Moving forward

The findings highlight the importance of ongoing vigilance and proactive measures to achieve full compliance with the SRA Transparency Rules. Law firms must not only ensure that they are meeting the minimum requirements but also strive for transparency and clarity across all aspects of their online presence.

As regulatory scrutiny intensifies and expectations evolve, firms need to review their compliance strategies, address identified gaps, and embrace best practices to uphold the principles of transparency and accountability.

Get in touch

At Teal, we’re here to support your journey towards compliance that works.

We understand that compliance can be a daunting word, but it’s also the key to unlocking your firm’s full potential.

Our experts at Teal Compliance are here to help. Get in touch today to explore tailored solutions and ensure your firm stays ahead of regulatory requirements.

Is your law firm’s website compliant with the SRA Price Transparency Rules? Read More »

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Compliance Planning: Are you ‘regulator ready’ for 2024?

In 2023 we saw increased levels of guidance and new directives from our industry regulators along with new legislation and ongoing changes in areas such as sanctions. Therefore, it’s never been more important to be on top of your compliance. Choosing the right partner to assist you is an important part of developing ‘Compliance that Works’ for law firms in 2024. Here, we consider some of the things you might want to contemplate when compliance planning, to ensure you feel confident, safe and ‘Regulator Ready’.

Preparing an annual compliance plan will allow you to breakdown and design an ongoing effort that’s more likely to permeate the whole firm and its behaviours, rather than having the sugar rush and panic of concerted efforts or crisis avoidance.

Where to start compliance planning

Before you prepare your annual plan, you need to ensure you’re up-to-date with the following: 

1. Guidance and legislation

Have you got round to reading the LSAG Guidance including the March and November updates and the significant areas covered including the 36 Principles and Proliferation Financing? Much has changed since the last version. There’s also been an update to some Sectoral AML Risk Assessments which you need to take account of, in addition to other guidance, including the results of Thematic Reviews.

Are you up to speed with the requirements of Sanctions legislation? Regulators are beginning to assess firms compliance, visiting them to see how they are coping, what their policies and procedures are.

So, make sure you’re up-to-date with these changes. 

2. Policies and procedures

Another great way to start the year is giving your AML policies and procedures a health check.

Don’t forget to provide updated training (another area subject to Regulatory scrutiny at present) and ensure that changes you make are embedded in processes, particularly as we know the SRA, Law Society of Scotland and CLC are committed to carrying out audits and are testing against LSAG Guidance as well as the Regulations.

3. Audits

Carrying out audits is a a good way to start a year. Are people appropriately documenting source of wealth and funds, are matter risk assessments completed appropriately and do they reflect the new guidance and policies, is there documented ongoing monitoring of matters? How about undertaking AML file audits to get the year off to a good start?

4. Risk assessments

You may need to revise your firm wide risk assessment if its more than a year old and record your risk assessment relating to Proliferation Financing. Don’t forget to keep copies of the old one, to evidence it is a living document.

A Sanctions risk assessment would be good idea too!

Compliance planning

It’s now time get the diary out and plan your compliance activity for the year ahead.


Now might be a good time to remind everyone of the importance of ensuring that file reviews and supervision are done. Don’t let this drift. Ensure any trends are identified and dealt with. Is training up to date? As well as AML and information security, what about equality and diversity? Have you only undertaken your Bribery Act training just the once, all those years ago? 

Regulators are now looking at how firms are dealing with a wide range of Economic Crime, not just AML – there’s Tax Evasion and Fraud too. Don’t forget recent recruits who might not have had all the required training. The Teal Tracker is designed to make this easy for firms to collate and track. Get in touch if you’d like to know more.


Are your information security measures adequate? They may well be tested – we know of firms that have been the victims of sophisticated hacking and ransomware, and it has lasting effects, taking many months (and disruption and expense) before things return to normal. 

This isn’t simply ensuring homeworkers are updating their anti-virus software. More essentially, are they carefully checking emails and client instructions in order to spot attempts by fraudsters to intercept the movement of completion monies? Is your accounts team in the loop?


We know that March is year end for lots of firms, so much of this month could be used up ensuring time is recorded, bills are raised, and general housekeeping dealt with to ensure the figures look as good as possible. However, there are some things to consider if time allows:

  • If you have the CQS standard, now would be a good time to review your compliance with it. Why not also check your Lexcel compliance if it’s also a standard you have obtained. Remember the requirements for training.
  • It’s a year since the latest LSAG guidance was published. It might be worth giving it a once over, just to remind yourself what it says.


New financial year means a new budget. This is where training should be considered, especially if you haven’t done anything recently.

You may also want to consider that independent AML audit that you’ve been putting off. Regulators are of the opinion that the vast majority of firms need one, no matter how small the firm may be. If you do a reasonable amount of AML regulated work, you need one. If you do conveyancing, you will be caught.


May should be a good time to consider your risk management. Do you have a disaster recovery (business continuity) plan? Now would be a good time to test it and learn from the experience. If you can’t test the whole process, you should consider checking one of the greatest risks, such as cybersecurity. Consider:

  • Is all your IT running the most recent updates?
  • Have you arranged a Penetration Test with your external IT support?
  • Have you arranged a mock phishing exercise to see how many colleagues click on dubious links?
  • Have you considered ‘Friday Afternoon Fraud’? 
  • Have you done any training?
  • Have you set training reminders?


Now’s the time to get to grips with all of that unbilled WIP. Close files, send them to storage, and destroy the really old records that went past their destroy date years ago.

Alongside this, ensure any client monies you have no reason to keep hold of are sent back to clients. You don’t want to get fined for failing to deal with residual client money


Since you did get round to checking CQS issues in March, how about going one step further and organising an independent CQS audit? Contact us to organise one.

Perhaps consider training for your COFA. It’s a good idea to ensure they get specific training. Remember training is a hot topic for Regulators, so make sure the COFA gets some too.


Staff will no doubt want a well-earned break which can present additional risks which you should now consider. How will you deal with holiday cover? How will you adapt to people being unavailable?

For those needing to get away from the same four walls, foreign travel might well be on the cards, and they could be venturing to where mobile reception is poor, and Wi-Fi is not secure. 


If you have spare time, you could look at improving your information security status by checking how you compare against the CyberEssentials standard, or CyberEssentials+. 

However, renewal time is likely to keep you busy all month.


It’s the anniversary of the SRA Transparency Rules each December and it’s something the Regulator is keeping its eye on. So, now would be a good time to start your review. 

Have staff changed? What about fee rates and other costs? Not just changes to your own firm, but think about delayed responses from third parties, busy Courts and other factors. Does your website need a review?

Remember, firms are being fined for lack of compliance.


It’s nearly the end of the year, so make sure those file reviews done.

If you have a considerable backlog, your colleagues really aren’t going to be grateful for another round of chasing them to get them done.

Why not get in touch with Teal to undertake some for you? We can help with both AML reviews and Regulatory ones, client care letters, conflict checking, costs updates and the like.


Now is as good a time as any to carry out a review of your risk register. If you don’t have one, it’s a good time to create one.

Your risk register should cover things like:

  • Complaints and claims
  • Identified trends from file audits and supervision
  • Business Continuity Plan review outcomes
  • SARs submitted (or not)
  • DSARs and information security issues
  • What went wrong and what went right
  • The year ahead – what are your audit and training plans for example?

It’s then back to that compliance planning for next year! 

Get in touch

At Teal, we’re here to support your journey towards compliance that works by mitigating the risk of legal compliance issues. 

Whatever time of year, if you need compliance assistance, our team of experts are on hand. We offer a range of compliance services to ensure you’re on track to achieve compliance success.

Compliance Planning: Are you ‘regulator ready’ for 2024? Read More »

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Finding the right legal tech solutions

Going back 10 years, finding the right legal tech was fairly easy, as case management systems were probably the only legal tech solutions law firms had to buy. Now, there are so many different technological solutions, how do you find out what legal tech is out there, and which is the best for you?

Finding the right legal tech is getting easier as the Law Society and the SRA are doing a much better job at signposting firms who are interested in legal tech solutions. The SRA has now introduced SRA Sandbox, which isn’t just for tech firms, but also for law firms that want to know what’s available. However, there’s still more that can be done.  

Suppliers also need to help get the message out to law firms and advise them on what due diligence questions should be asked. In AML, regulators have actually put an obligation on law firms to ensure that they’ve understood exactly how their legal tech works, the data sources they’re accessing, and how it solves their problems.

At Teal, we not only want to provide law firms with reassurance that we’ve gone through all the rules and requirements they need to comply with, but we also want to ensure they’re aware that if they use a technological solution, it’s not just got to be compliant. It also has to be tangibly better than before.  

This article provides helpful advice and things to consider when you’re finding the right legal tech solution for your firm.

Understanding the problems

You need to start the process by asking yourself ‘why’. Why do you need to a find legal tech solution? What problems will it solve? It’s only by understanding the problems you face in the first place, that you can really start your journey to find the right legal tech solution for you.

We all know what pain points may lead you to consider legal tech, such as the business isn’t making enough money, it isn’t profitable enough, or you can’t turn around the process quickly enough.

Not only do you need to understand the problems, but also the goals which you’re trying to reach. It’s only when you fully understand your problems and your goals, that you can really focus your efforts on finding the right legal tech to fix them.

How to work out what the problems are

This doesn’t need to be a difficult or time consuming exercise. It’s actually incredibly simple. Firstly, split the work types and ask questions such as:

  • Who’s delivering this task – lawyers or support staff?
  • How is this being delivered internally at the moment?
  • Is it part of a workflow?
  • How many units are the lawyers spending on it?
  • Could it be delivered by technology?

Once you’ve done this, you’ll start to see exactly what’s required. For example, you’ll notice if a fee earner is spending 9 units doing something which could be done by technology without taking any time at all.

An exercise like this should only take an hour or two and provides you with quick visibility of what your problems might be.

Collaboration of skills

The phrase ‘built by lawyers for lawyers’ often gets criticism. However, having lawyers building tech means they can add a level of knowledge which can be essential. Software developers who don’t understand policy, processes, and regulations can find that side of it really difficult.

However, software developers without legal knowledge build for the user experience (UX), whether the legal tech is for the client, the lawyer, or both. That UX is extremely important if the legal tech is going to work.

This is why building software collaboratively is key. It needs diverse thought when looking at what data lawyers need and what consumers need.

Collaboration within your law firm is also of paramount importance. When finding the right legal tech solution, different stakeholders, such as IT, the MLRO, finance, and the lawyers, will all have different questions. You should try to involve all concerned early on in the process to ensure transparency and that nothing is missed.

It’s all about a collaborative and diverse approach to solving problems.

The importance of integration

Integration is fundamental. However, first and foremost, it’s about problem solving with interconnectedness.

A lot of people in the market are talking about having an interoperable framework that’s going to solve all their problems. However, when finding the right legal tech, as we’ve previously mentioned, you have to start by asking ‘Why’. If you just focus on integration, you may end up with a number of technology integrations rather than having an interconnective framework.

Therefore, rather than focusing on whether the software solution integrates, the focus should be on how they all fit together as a framework.

Integration is expanding beyond our legal horizons. In the conveyancing world there’s a lot going on with regard to upfront material information. Estate agents are now starting to service information that previously has been in a conveyancer’s file before a conveyancer has even been instructed. This leads to many additional questions about what regulatory environment it sits in and how we pass that in a confidential manner between parties, in addition to making sure all the various boxes are ticked.

This is something we see coming in lots of legal work types, and that will bring a lot of opportunities. In AML, we can remove duplication and enhance the checks we’re doing from a fraud risk point of view. This will make sure those barriers are in place earlier in the process, which should hopefully make everyone’s lives easier.

Questions to ask software providers

Many law firms don’t have a tech team in place. For these firms, knowing how to ensure buy-in success when they don’t necessarily have the tech knowledge is difficult.  

Depending on your problems and your goals, the questions will be different. You may be looking at a process for cost optimisation, or one to deliver an exceptional client experience.

Before you start, you may wish to consider instructing a consultant to help you with this. They should deliver value for money, so don’t be afraid to pay someone for advice if you don’t know the questions to ask.

The basic questions to consider asking include:

  • How much is it going to cost, per user, per seat per transaction?
  • What are the returns on investment going to be?
  • Who’s going to deal with any training – is that provided?
  • Who imports the data from old systems?
  • What security does it have – is it encrypted, where is the data stored, etc?
  • Is it a web app and if so, do lawyers and clients have to download it?
  • If it’s a web app, is it available on iOS and Android?

When finding the right legal tech solution, it can be really difficult to make those decisions. One thing you shouldn’t do is choose based on the fact that it’s working for another firm. As it’s all about finding the solution to your problems, what works for them, won’t necessarily work for you.

Therefore, once you’ve asked the basic questions, you really need to delve into the problems you have and get the suppliers to tell you exactly how the tech will meet your needs. By doing this, you’re more likely to find the right solution for you.

Get in touch

If you’d like to talk to us about our latest compliance legal tech, Teal Tracker, simply contact us and we’ll arrange for you to have a demo.

Finding the right legal tech solutions Read More »

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What’s the regulator guidance on source of funds and source of wealth?

Source of funds and source of wealth can be tricky because the regime we have is risk based. It’s not just about making sure you get bank statements. It’s also about the enquiries you make, the evidence you see, and what regulators think when looking at the work you’ve done.

Regulators want to know whether firms are doing this properly or not. Initially, the regulators were interested in firm-based risk assessments, did firms have one, did they assess the money laundering risks the firm was exposed to. They were then interested in whether law firms have their policies, controls and procedures in place.

Now, they’re looking at whether law firms are completing matter risk assessments. This is to ensure they have the right foundations for assessing the money laundering risks the firm is exposed to in respect of each matter. They’re also looking at identification and verification, including what checks you are doing, and what negative news are you looking at.

Eventually the focus will shift to source of funds and and source of wealth. This is because, you can’t stop money laundering by getting passports and utility bills. You can only stop money laundering by not moving dirty money. The enquiries you make in relation to source of funds and source of wealth are pivotal to the success of an AML programme. Therefore, I anticipate that regulators will start putting quite a lot of focus on that, on the basis that everything else is in place.

You can have perfect policies and procedures, with all boxes ticked. However, if a regulator can’t pick up a file and understand the source of funds and source of wealth work that’s been done, this is an issue. There therefore needs to be a proper process in place.

What’s the difference between source of funds and source of wealth?

Source of funds relates to where the funds of a transaction are coming from. You therefore need to consider what activity generated the funds, for example, salary, trading revenues or payments out of a trust. It relates directly to the economic origin of funds to be used in a transaction. Given funds are likely to be received via a bank account, source of funds would generally be evidenced by bank statements.

Source of wealth relates to how and why an individual has their wealth. You need to consider what activity generated their wealth, for example business ownership, inheritance or investments. Source of wealth can be investigated by taking reasonable steps to be satisfied that the funds used in a transaction appear to have come from a legitimate source.

The SRA on source of funds

A couple of years ago, the SRA released their findings and expectations when it comes to source of funds.

SRA Findings

The SRA’s findings included: 

1. ”21% did not evidence the client’s source of funds properly or at all“

What this tells you is that they’re not just checking to see whether you have some paperwork on file. They’re assessing whether it’s enough.

2. ”Companies used filed accounts, but these are old and have no relation on the current amount”

Filed accounts can actually be useful, even if they’re massively out of date. If you’re looking to prove a company is a properly trading business, having a history of filed accounts will help, especially if they’re audited. Although the client might not be showing you their current funds, a history of accounts will help you establish that the company has been trading properly.

That being said for you get the full picture of a company’s business you will need to make sure you have up to date file accounts.

SRA Expectations

The SRA’s expectations are:

1. ”We consider that carrying out and evidencing a source of funds check is crucial to comply…”

‘Evidencing’ is the important word here. One of the challenges we see, is lawyers being lulled into a false sense of security believing that their client isn’t a ‘baddie’. They can often talk themselves into thinking that they don’t have to look too deeply into source of funds and source of wealth. However, investigations need to be evidenced.

2. ”Obtain evidence of the funds early”

If there’s something in your source of funds and wealth information that leads you to a knowledge or suspicion, you’ll have to do a SAR. However, it’ll take at least 7 working days to do this.

You should therefore look at source of funds and source of wealth as early as possible so ensure the smooth running of a transaction. For example, if you wait a week before exchange of contracts before doing your checks, and you notice something suspicious, you’re not going to have time.

Although we understand just how busy lawyers are, this really is something that needs addressing early. Therefore, the processes built, not just in compliance, but also in file management, have to make sure that source of funds and source of wealth is plugged in at the right time.

The SRA and risk assessments for source of funds and source of wealth

The SRA are looking at risk assessments at the moment. As part of that, they want you to be risk assessing your client due diligence and your source of funds and wealth due diligence. A good question we suggest you ask is “Can I see on our file that you’ve considered the risk of money laundering after you have investigated the purpose and nature of the business relationship”. Usually, the answer is no.

When we’re auditing and file reviewing for our clients, it’s often difficult to see that this is happening. This is why we suggest having a 3-stage risk assessment:

  1. At file opening;
  2. When you review client due diligence (including source of funds); and
  3. Before the transaction takes place.

It’s a good way of documenting what you’re doing. It’s also a good trigger for fee earners to remind them that they need to be writing down their assessments because, in compliance if it’s not written down, the assumption is it didn’t happen.

Think of it like taking a maths exam. You get points for the correct answer, but you also get points for the working out, even if you’ve got the answer wrong. So, if something did happen, but you had all your source of funds and source of wealth evidence and you have written down that you have reviewed and assessed the risks, the SRA will take that into account. However, if it’s not written down, they’ll take the stance that you didn’t do it, and you’ll be in a lot more trouble.

Proceed of Crime Act (POCA) offences and the correlation between POCA and the Money Laundering Regulations (MLR)

What we often see is that lawyers feel source of funds and source of wealth is just a process they have to go through to get a file opened. This is understandable given the chance of a client actually being a baddie is slim, and the chances of being able to spot them is even slimmer. Some lawyers who’ve been trained for many years and do AML checks, hardly ever come across a baddie. It can seem like a very remote possibility and, therefore, a pointless task to them.

It’s rare that lawyers are sent to prison, and if they are, they’re more often than not baddies themselves. However, although the chance of a lawyer accidentally involved in money laundering going to prison is remote, it can happen. Take the case of Neil Bolton, a conveyancer in Manchester, who was went to prison several months. He acted for a baddie and pleaded guilty to a section 330, and for failing to comply with the MLR. He wasn’t the MLRO, he was a solicitor just doing his day job.

To prevent this outcome, you need to know about the correlation between both POCA and MLR.


If a POCA offence is committed, you can be sent to prison for up to 14 years. These offences are:

  • 327 – conceal, disguise, convert, transfer or remove (from the UK) criminal property
  • 328 – become concerned in an arrangement
  • 329 – acquire, use, or have possession of criminal property

You can also spend up to 5 years in prison if you commit an offence under s.330/1/2 – failure to disclose an offence.

In order to be at risk of committing one of those offences, you have to know or suspect, or someone else can infer that you should have known or suspected. It’s therefore all anchored on “Is there criminal property?”. So, the first question in your mental flow chart should be “Is there any criminal conduct?”. If there’s no criminal conduct that you suspect, then there probably isn’t any criminal property and you can’t commit an offence.

2. MLR

The penalties for not complying with the MLR are up to 2 years in prison and in order to comply you have to do 5 things:

  1. A matter-based risk assessment
  2. Identify your clients
  3. Verify what your clients have told you, by getting independent evidence to prove this
  4. Understand the purpose and nature of the business relationship
  5. Conduct ongoing monitoring

You’re only safe from criminal prosecution if you do all 5 of these.

3. POCA and MLR combined

These pieces of legislation don’t actually depend on each other. You can do all 5 things under the MLR, but if you suspect that a client is a baddie, then you’re going to commit an offence.

What lawyers often miss is that the opposite is true too. If a lawyer was acting for someone who definitely isn’t a baddie, for example, the Archbishop of Canterbury, but the work you’re doing for them is regulated, failure to carry out these checks is a criminal offence. If you don’t do your client due diligence, then the chances of you being able to spot a baddie is next to none and that’s why they make you do it.

When we talk about source of funds and source of wealth, what we’ve found is that many lawyers focus on whether the clients have the money. However, the focus should be on whether the money they have is dirty money. So, when thinking about source of funds and wealth policies, it’s not just about bank statements and utility bills.

Understanding the purpose and nature of a business relationship

Most lawyers usually go straight to source of funds and source of wealth but forget what other red flags they should be looking for. This falls under the purpose and nature of your business relationship, considering why you’re doing what you’re doing, why they’re asking you to do it and whether it makes sense. The guidance provides 5 questions which should be answered:

1. What is the purpose of the transaction?

You need to consider what the purpose of the transaction is: What’s the client hoping to achieve? Are they purchasing a property because they want to buy a new house?

For example, imagine someone with a corporate entity came to you as they wanted to purchase offices. However, there was no reason why they’d need to purchase offices as they run a garage. If they couldn’t give you a valid explanation as to why they were suddenly purchasing offices, you’ll need to investigate further. 

2. Is that usual for this kind of client?

Again, you have to look at the transaction the client is making and consider whether that transaction is usual for this sort of client. Think about what the client’s usual business practice is and whether this transaction usual for this type of business. If not, you’ll have to investigate further.

3. Is it an usually large or complex transaction?

This is a difficult one as there’s no tick box for this. Transaction sums and complexities differ from firm to firm, so it’s a difficult one for lawyers to get their heads around. The government understands we do need some more guidance on what’s considered ‘unusually large or complex’ and they’re currently looking at this.

However, the way we’d view an unusually large transaction would be to consider if it makes sense. For example, if a high-street hairdresser suddenly wanted to buy a £2m property, this would be an unusually large transaction for the type of work the hairdresser does.

When it comes to a complex transaction, again this is difficult, as some people believe everything is complex. What you need to look at here is whether the client is adding extra steps, or asking for steps to be removed as they want to rush it along, and considering if that makes sense. Some lawyers at this point would simply decline the work given the complexity.

4. Does it lack economic or legal purpose?

When considering if the transaction lacks economic or legal purpose, you should look at things like, whether they’re selling at an undervalue or an overvalue and why they’re doing this. For example, if someone wanted to rush everything through because of the stamp duty changes, this would make sense. However, if there’s no benefit for them in rushing a transaction, it would need further consideration and investigation.

5. Where is the money coming from and how did they get it?

Ultimately, this is what you’ll be investigating when it comes to your source of funds and source of wealth checks.

Money Laundering Regulations (MLR)

Unfortunately, there’s nothing in the legislation that tells you want you really need to do. That’s why lawyers find it so difficult to understand.

The only times you’ll spot reference to source of funds and source of wealth in the MLR is:

Regulation 28(11)(a) – Ongoing monitoring of a business relationship

Regulation 28(11)(a) states “scrutiny of transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, the customer’s business and risk profile;”

Relation 25(5)(b) – Politically Exposed Persons (PEPs)

Relation 25(5)(b) states “…take adequate measures to establish the source of wealth and source of funds which are involved in the proposed business relationship or transactions with that person;”

Regulation 33(3A)(c) – High Risk Third Countries

Regulation 33(3A)(c) states “…obtaining information on the source of funds and source of wealth of the customer and the customer’s beneficial owner;”

It would be better if we had confirmation of how far back you need to go, or how many documents you need to see. However, the reality is that having a formulaic approach sounds helpful, but it doesn’t work everywhere.

That being said, we would recommend that you have a process base line policy, you wouldn’t want the police to knock on your door and ask why you didn’t do it on this one. This is why we would ask for proof of documentary evidence for 6 months, wherever the funds have been.

Do you have to do a source of funds check if it’s a UK bank account?

This is a common myth which we’ve heard through our ‘Ask Teal’ service several times. Some lawyers think because money has come from a UK bank account everything is fine. But this isn’t the case.

There have been several UK banks fined for money laundering. Most recently was the NatWest who were fined almost £250 million for laundering approximately £365 million through their bank accounts. Baddies were going into various branches and depositing large sums of cash, one of which was £700,000 which was taken into a branch in a black bag.

Even if a bank suspects something and files a SAR, that doesn’t mean you don’t have to carry out the appropriate source of funds and source of wealth checks. There could be ongoing police investigations which you’re not aware of, and the banks are unable to tell you about. So, you really can’t use that as a safety blanket.

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Brown paper torn to reveal the words "lessons learned" underneath

The Case of Nirosha Jayawardena and its Nine Key Lessons

In an ever-changing landscape, keeping abreast of new developments is essential in the legal profession. This week, I delved into the intriguing case of Nirosha Jayawardena, a solicitor who recently found herself suspended from practice by the Solicitors Disciplinary Tribunal for one month.


The decision was an outcome mutually agreed upon by Ms. Jayawardena and the Solicitors Regulation Authority (SRA). Alongside the suspension, there were several stipulated conditions about her future conduct.


The Unraveling of a Complex Case

The case drew me in due to its facts and unique circumstances, which I believe underscore vital points for everyone in the law firm to keep in mind. It serves as a stark reminder of how weak anti-money laundering (AML) controls coupled with non-compliance to Accounts rules can potentially result in substantial losses for small firms.

Within the case, we saw the firm fall prey to fraudulent individuals masquerading as property owners. These fraudsters successfully manipulated the firm into selling properties and directing the proceeds into their pockets. In dissecting what transpired, multiple compliance failures came to light.


Nine Key Lessons


  1. Small Firms are Targeted

It’s a common misconception that only large firms fall prey to nefarious activities. While it’s true that some criminals target big firms, low-complexity impersonation frauds often zero in on smaller firms. These firms may lack the technological advancements or stringent sign-off procedures that larger firms have invested in, making them an easier target.


  1. Repeat Offenders

What’s peculiar about this case is the audacity of the fraudsters. After successfully duping the firm once, they brazenly tried their luck a second time. That’s the unsettling nature of fraudsters. They will often test the waters with a legitimate instruction to gauge the firm’s security measures. If successful, they will exploit the vulnerability repeatedly until caught/detected.


  1. Disruptive Methods for ID Verification

In the case of Jayawardena, the client conveniently couldn’t visit the office but was able to arrive in a taxi. Such disruptions to standard protocols serve to distract the lawyer, hindering their ability to spot discrepancies.


  1. Passport Errors

In a busy legal environment, it can be tempting to overlook small details. However, every document, especially identification ones, should be meticulously scrutinised. Fraudulent documents are surprisingly accessible and can range in quality. The case underlines the importance of spotting typos or unusual language in documents.


  1. Ignoring the AML Policy

Needless to say, adhering to your firm’s policy is crucial. Unfortunately, instances of non-compliance do occur. It’s essential to make sure that all guidelines reflect actual practice. Having procedures in place that are habitually ignored only serves to undermine the entire policy.


  1. Breach of Solicitors Accounts Rules

Impersonation frauds often hinge on payments made to third parties. This case underscores the importance of handling such transactions with extreme caution. Reinforce this within your firm and ensure that the rationale behind such payments is captured in writing.


  1. Ignoring Warnings in Customer Due Diligence (CDD)

Knowing how to interpret electronic verification search results is a must. Document what your next steps are if the checks don’t pass. Ignoring warning signs can clearly lead to a cascade of issues down the line.


  1. Failure to Retain and Verify ID Copies

The Regulations mandate that CDD must be retained for 5 years past the end of the business relationship. This case emphasises the importance of not only keeping a copy of the ID but also following through with verification processes like authenticity checks on passports and driving licenses.


  1. Mandatory Training Courses

An intriguing element of this case was the requirement for Jayawardena to undergo training courses on AML and Accounts Rules. This is a prudent move and, as an trainer, one I wholeheartedly endorse.

While this might seem daunting, remember that knowledge is power. Let’s learn together and fortify our defenses against these ‘baddies’.


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British pound notes scattered on a table with a calculator, pen and glasses

New SRA fining powers for AML – Be careful as they’re going to use them!

The Solicitors Regulation Authority (SRA) has long desired more robust punitive capabilities against traditional law firms. They have historically possessed the ability to impose significant fines on Alternative Business Structure (ABS) firms and can forward cases to the Solicitors Disciplinary Tribunal (SDT) for an agreed decision’s endorsement. However, there are now new SRA fining powers. These powers were broadened, enabling them to impose a fine of up to £25,000 without SDT referral and approval.

Recent case study

A recent noteworthy fine was imposed on an Oxfordshire-based two-partner firm, Ferguson Bricknell, for Anti Money Laundering (AML) breaches. The firm was penalised £20,000 for violations of the Money Laundering Regulations and the SRA’s Standards and Regulations. 

Although £20,000 might appear insignificant to some, for a small firm, it’s a considerable sum! If you consider a £200 hourly rate at 20% profitability, a lawyer would need to work for more than 14 weeks to generate the profit to cover it. This is because fines are paid from profit; there’s no special budget set aside for them!

The full decision is a worthwhile read, providing insights into the firm’s declaration to the SRA of a compliant Practice Wide Risk Assessment. The SRA periodically requests firms to confirm their compliance with certain regulations and verifies this by checking a sample of firms. In this instance, the SRA disagreed with the firm’s assessment of compliance and investigated further into its AML conformity.

Key take aways from the case

The case provides valuable insights into the SRA fining powers and their approach, and offers seven key takeaways:

Number 1

When the SRA communicates with a firm, ensure a response is made. If your Compliance Officer for Legal Practice (COLP) is the recipient, ensure they’re checking their spam emails as the SRA’s emails often land there.

Number 2

If you claim compliance, be certain that you’re indeed compliant. There is an abundance of guidance, including free templates for Practice Wide Risk Assessments. Never claim compliance if it’s not the case.

Number 3

Keep up with reviews. Set reminders and take action. To show that you’ve reviewed a document, log the date and reviewer’s name (and approval if needed) within a version control table in the document.

Number 4

Consider establishing an independent audit function. Although not mandatory for all firms, it’s crucial for those of significant size and nature. The audit doesn’t have to be external, but in smaller firms, it must be conducted by someone independent of the people who oversee the policies, controls, and procedures.

Number 5

Regularly train your staff. The latest Legal Sector Affinity Group Guidance emphasizes annual refresher training. Additionally, the Money Laundering Reporting Officer (MLRO) and the Money Laundering Compliance Officer (MLCO) should receive specialist training for their roles.

Number 6

Conduct a matter risk assessment, as required by the 2017 Money Laundering Regulations. The SRA expects to see an assessment on every file falling within the regulations’ scope, with enough information to judge the risk assessment’s accuracy.

Number 7

Perform source of funds and wealth checks when necessary. Make sure it’s complete before accepting or moving any transactional money through the client account.

The case underscores the SRA’s commitment to enforcing AML Compliance. They’ll act against non-compliant firms, even if there are no actual money laundering allegations. Firms are expected to take their responsibilities seriously, with disciplinary actions waiting for those who don’t.

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Two women, one advising the other on paperwork

Think you’re not a Tax Adviser? Think again!

On 23 November 2020 the SRA released guidance that may have been missed by many of you.

What’s the purpose of the SRA Guidance?

The purpose of the guidance was to draw to the attention of firms the need to consider whether they fell within the new definition of a tax adviser under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘the regulations’) which, on 10th January 2020, widened the scope to be:


“a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.”

What’s the consequence of the SRA Guidance?

The consequence of the guidance issued in November 2020 was that:

“If the change in definition to tax advisers that came into force on 10 January 2020 brought your firm into scope of the regulations, you must tell us and apply for approval of your beneficial officers owners and managers before 10 January 2021”

For those of you who don’t ordinarily provide tax advice, the pertinent words in the new definition of a tax adviser are “provides material aid, or assistance…, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.”

The SRA defines material aid and assistance as ‘Non-advisory services that are in scope and that will help the client to comply with their tax responsibilities eg filing papers with HMRC on behalf of a client’.

The SRA’s broad definition of through a third party includes the instruction of a tax specialist, accountant etc on behalf of your client.

In short completing and/or filing an IHT form on behalf of your client, instructing an accountant on behalf of your client to advise on the tax implications of a matrimonial or employment settlement, or drafting a trust to manage a PI settlement will all likely fall within the scope of being a tax adviser.

What you need to do

If you believe you fall within the scope you will need to give consideration to whether your CDD processes (particularly within your private client, matrimonial, and litigation and employment departments) satisfy the requirements of the regulations.

If you are a firm that already provides tax advice, and particularly where you are instructed by another professional on behalf of their client, you may be in scope of the regulations to the extent that you will need to consider carrying out appropriate CDD on the underlying client. According to the SRA the question of ‘who is the client’ when services are provided via a third party is clear, it is always the person whose tax affairs are the subject of the advice, assistance or material aid.

And, not forgetting your obligations to the SRA, you should also give consideration to informing the SRA and seeking the appropriate approval of your beneficial officers, owners and managers by completing the FA10 (for firms newly authorised or newly in scope of AML authorisation) or FA10b (for firms who already have AML authorisation) as soon as possible.

Read the full SRA Guidance.


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If you’re still unsure and would like further guidance or support, why not find out about our Ask Teal service which covers all things compliance. Alternatively contact one of our experts today. 

Think you’re not a Tax Adviser? Think again! Read More »

laptop, phone, mug of coffee and pad on a desk

A look at the new Freelance Solicitor Model

In November 2019, the SRA introduced a new model of operating for so-called ‘freelance solicitors’. The intention of the freelance solicitor model was to allow solicitors greater flexibility when providing services. We were told that the changes took place as the regulator felt that the previous arrangements created an unnecessary and restrictive ‘artificial entity’ model around solicitors operating as individuals. Prior to the changes, sole practitioners were required to have their practice authorised as a ‘recognised sole practice’.


What is a Freelancer?

A good starting point is to look at what the SRA means by ‘freelance solicitor’. This term is used to describe a self-employed solicitor who:

  • is practising on their own;
  • doesn’t employ anyone else in connection with the services they provide;
  • is practising in their own name (rather than using a trading name or through a service company);
  • is engaged directly by the client with fees payable directly to the solicitor;
  • and without that practice being authorised. So, essentially, we’re talking about individuals who are genuinely self-employed.

Rules and Regulations

Freelancers are subject to various rules and regulations. The three key ones to note are as follows:


The SRA Authorisation of Individuals Regulations 2019 (the Regulations)

  • You must have practised as a solicitor for a minimum of three years since admission or registration.
  • You are self-employed and practise in your own name, and not through a trading name or service company.
  • You must take out and maintain indemnity insurance that provides adequate and appropriate cover in respect of all of the services that you provide or have provided (this includes both reserved and unreserved legal services), and that takes into account any alternative arrangements you or your clients may make.
  • You are not permitted to employ anyone.
  • You are engaged directly by the client, and the client pays their fees directly to you.
  • You may only hold client money in limited circumstances, i.e. when it’s for payments on account of costs and disbursements that you have not yet billed where:
    1. any money held for disbursements relates to costs and expenses incurred by you on behalf of your client and for which you are liable, and
    2. you have told the client in advance where and how that money will be held.

SRA Code of Conduct for Solicitors, RELs and RFLs (the Code)

Freelance solicitors are regulated in the same way as other solicitors and are subject to the provisions of the Code.


The Transparency Rules

Those freelancers providing reserved legal services are also subject to the requirements of the Transparency Rules. This includes publishing costs information where they offer any the services listed in the rules, publishing details of their complaints’ procedure, and telling clients that they will not be covered by insurance on the SRA’s minimum terms and conditions and that alternative arrangements are in place.

As a more general rule, freelance solicitors will need to ensure that clients fully understand the implications of their “freelance” status and any additional risks to the client. This should include informing clients if they are unable to benefit from the SRA Compensation Fund.


Other key regulations to think about

Freelance solicitors will also need to consider whether they are an “’independent legal professional” (ILP) for the purposes of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). The MLR 2017 apply to freelancers providing legal or notarial services to others as part of financial or real property transactions. If you are an ILP, you’ll need to comply with the regulations, which includes having a risk assessment, policies and controls and procedures in place. You’ll also need to separately register with the SRA to comply with the MLR 2017.


What activities can Freelancers undertake?

The Regulations differentiate between those performing reserved legal activities and those just providing non-reserved legal activities – essentially differentiating between the areas of law considered riskier and those of low-risk. As you’d expect, the restrictions are more stringent for those undertaking the former. There are six reserved activities which you’ll find listed at Section 12 and Schedule 2 of the Legal Services Act 2007. If you’re planning to work as a freelancer, it’s important that you familiarise yourself with these:

  • Exercise of a right of audience
  • Conduct of litigation
  • Reserved instrument activities (includes conveyancing and linked matters)
  • Probate activities
  • Notarial activities
  • Administration of oaths

Historically, you’ve only been able to provide these types of services as a solicitor through an entity that is authorised to do so. However, if you’re a solicitor practising on your own account, you can now provide these types of services without needing to be authorised as a recognised sole practitioner if you meet the conditions set out in Regulation 10.2(b) of the Regulations.


More on the Restrictions in Regulation 10.2(b)

Experience: Whilst solicitors solely providing non-reserved legal activities don’t need to meet the three years’ PQE requirement, newly qualified solicitors will need to be mindful of the need to satisfy the competency requirements set out in the Code, which still apply.

Employing others: Despite this restriction, the SRA Ethics guidance (“Preparing to become a sole practitioner or a freelance solicitor”) clarifies that this isn’t intended to stop freelancers from contracting with others to provide pure administrative support to help them to provide their services, so long as they don’t “employ” those people. This would, for example, enable you to work in a Chambers model where the Chambers provides administration and other business support. It would also enable freelancers to receive similar services from a serviced office type arrangement.

It’s also important to note that if you do decide to employ someone to assist you in connection with the services you provide (including a paralegal or secretary), your clients will not benefit from protection under the SRA Compensation Fund (see Regulation 5.2, SRA Compensation Fund Rules) – you must be genuinely practising on your own.

Professional Indemnity Insurance (PII): Another apparent rational for the introduction of the revised regime was the SRA viewing that the high cost of purchasing PII on minimum terms was deterring entry to the market of sole practitioners wanting to practise independently.

Now, freelancers who carry out purely non-reserved activities are not required to have any PII. However, prudent freelancers should consider whether having no cover is in their own, and indeed their clients’ best interests. Conversely, freelancers carrying out reserved legal activities must have “adequate and appropriate insurance” in place, but do not need to comply with the SRA’s minimum terms. Cover must be for all of the work done as a solicitor and not just any reserved activities. When speaking with insurers or brokers, it’s advisable to let them know if you’ll be seeing clients at home or working from home on a regular basis, to make sure you obtain appropriate cover. When arranging cover, factors to think about may include an assessment of maximum probable loss for each work type, your claims history (if any; number/type/value/frequency of client matters) and likely client profiles. You should also record how you reached your decision on the level of cover so you can produce this if asked to demonstrate that you meet the “adequate and appropriate” requirement.

Although the cost of insurance can sometimes be prohibitive, freelancers should also consider taking out run-off cover if they decide to stop practising – at least until the risk of claims has fallen away. If solicitors decide to move back into private practice, this may be something that new employers will look for.

Insurers will undoubtedly be looking closely at the risk and compliance framework that freelancers put in place to ensure that any risks are being properly managed before they offer cover; so this is likely to be a key focus for those wanting to take advantage of the new model of working. Here at Teal we work closely with insurers and can help you to ensure that you have an appropriate framework in place that will satisfy your insurers’ requirements. Please do not hesitate to contact us if we can assist.

Restrictions on holding client money: Given the limitations on holding client money, if a client needs to pay or is due to receive other types of client money (such as damages or money from an estate), a freelance solicitor will need to make alternative arrangements to safeguard these funds – for example via a third party managed account such as Shield Pay.



As a freelancer solicitor you’re strictly prohibited from adopting any kind of entity structure, such as a limited company, limited liability partnership or partnership and can only operate under your own name. This means that you’ll be personally liable for your actions in the same way as a sole trader.

Law Society guidance (see link below) envisages that individuals may consider working together with other like-minded solicitors in a Chambers-style arrangement, with practices complementing one another. Each freelancer in the arrangement remains individually regulated and may, for example, just offer non-reserved legal activities, whilst others may offer reserved activities or perhaps offer both.


The process for getting set up as a freelancer

To get started, you will need to notify the SRA that you intend to practise on your own and whether or not you will be providing reserved legal services. If so, the SRA will then check whether you meet the conditions set out in the Regulations mentioned above.


Risks for law firms

Law firms should consider training staff on freelance solicitors and the implications for firms – for example, given the restrictions on holding client money, freelancers will be limited in the undertakings that they will be able to give.

Given the requirements for freelancers to contract personally for services, and the ban on freelancers holding client money, the SRA considers that the arrangements are unlikely to appeal to a sole practitioner who is currently running a business and employing staff and instead, are more likely to appeal to those who wish to undertake ad hoc freelance work or set up in a chambers style model.

When the new model for freelancers was first discussed, it received a considerable amount of negative commentary in the press, mostly relating to lack of regulation. However, as mentioned above, the Code still applies to all freelancers.

The Gazette reported back in early March 2020 just prior to lockdown, that 71 solicitors had already registered with the SRA as freelancers. The model is likely to be attractive to solicitors with a good client following or with small practices – so clearly poses a threat to firms, although quite how extensive the threat will be, only time will tell.


Useful links

Here are some useful links

  • Law Society Practice Notes – Click here
  • SRA Freelancer Notification – Click here
  • SRA Guidance – Preparing to become a sole practitioner or SRA regulated solicitor – Click here
  • SRA Guidance – Third party managed accounts – Click here
  • SRA Compensation Fund Rules 2021 – Click here

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A look at the new Freelance Solicitor Model Read More »

Two train tracks merging

Merging under pressure and compliance due diligence

There are firms that, for one reason or another, are finding themselves in unexpected commercial difficulties that make their longer term viability questionable. Radical reconstruction by consolidation through merger may be the only alternative to closing doors for good, with all the unsavoury knock-on consequences that this entails. 

So now – more than ever – there are likely to be opportunities for merger to the potential benefit of both parties and compliance due diligence is extremely important.


Compliance due diligence 

In any potential merger situation, it is becoming increasingly clear that compliance needs to be at the top of the priority list. Overall, it is a great indicator as to the overall management style of the merger target as, on a broader scale, the major regulatory standards are placing an increasing significance on the wider principles of good governance as an underpinning ethos to the compliance that they foster.

So… if you’re an ‘acquiree’, what do you need to do to prepare the firm for marketing, and as an ‘acquirer’ what do you need to look for?

They are actually two sides of the same coin. If you are the firm looking for help through merger, it’s similar to a job interview – prepare, prepare, prepare, and then prepare. This applies to training all levels of staff in what we are doing and why. Make sure that everyone is on board as their future employment may depend on it.

As an acquirer, the due diligence cannot be too thorough, especially in the current climate when many personnel are likely to be dispersed.


The SAR Principles

The overarching standard is of course the SAR Principles, revised and reduced from ten to seven in November 2019. They are as follows and should be thoroughly interrogated:

“You act:

  1. in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.
  2. in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.
  3. with independence.
  4. with honesty.
  5. with integrity.
  6. in a way that encourages equality, diversity and inclusion.
  7. in the best interests of each client.”

In support of these Principles the firm needs to have a COLP and COFA and you should check that the roles are filled by someone who is appropriately qualified and trained – and takes the role seriously.

You are seeking to adduce evidence that the firm not only talks a good talk but actually delivers on those verbal assurances. There will usually be two aspects to the proof needed that there is such delivery.

You will need to check that there are Standard Operating Procedures that are encapsulated in systematised written format. These will, or should, form recognisable parts of the firm’s Operations Manual.

It maybe that there are a number of different manuals though e.g. the Data Protection or Lexcel Manuals. If the Manuals are stored electronically the fact that they’re all in the same ‘Compliance’ area is indicative of how orderly the firm’s management processes are. Hopefully the Manuals will all be assembled ready for inspection – a well organised firm should have sufficient confidence in its systems to know what a merging firm will be looking for.

You will need empirical evidence. This will take the form of findings from interviews, both formal and informal, and from written records relating to inductions, training and Personal Development Reviews or Appraisals. There will be clues as to the effectiveness of the firms’ governance with such items as structural organograms and procedures for escalating responses for incident handling.

Minutes from meetings of all types, and policy review schedules can also be very helpful aside from broader good governance you should check for clear documentation of the firm’s supervisory structures.

There is increasing emphasis being placed on this in the SRA principles as well as the GDPR / DPA legislation.


How do you find it? 

The paper (or electronic equivalent) trail is self-explanatory – time consuming but worthwhile. Gathering empirical evidence is more challenging but probably more revealing.

The firm’s COLP and COFA will always be interviewed. Further interviews should be carried out with a good cross-section of all staff and include front and back office staff at all levels. Remember that conversations solely with partners/senior management will give a slanted perspective.

Insurances – Appropriate levels of PII insurance will be checked together with the firm’s Complaints and Claims registers in support of this. How these are administered is a good indicator of the general management style of the firm and attitude towards compliance. Appropriate cover in other areas to complement the firm’s Business Continuity Planning will also be checked.

Supervision – From the point of view of supervision checks you should speak to both supervisors and supervisees on whether issues are dealt with on a one-to-one basis or in teams; whether training needs are formally identified and how the training is delivered and monitored. This is especially important in the new era of remote working in which firms are currently operating. This topic has been explored in other recent blogs on the Teal Compliance website.

File Reviews – These are another rich source of data and are a vital part of delivering the quality required by the SAR. Check how often they are carried out and by whom and what happens to the results of the reviews.

Training Schedules and Attendance Records – These are very revealing about the firm’s overall attitude towards compliance and its effective implementation especially when read in conjunction with staff interviews for cross-referencing. The firm’s approach towards conflicts avoidance should be carefully monitored.

The firm’s management of its central Key Dates diary should be similarly examined.


How do you evaluate it?

It is advisable not to rely on just one opinion and to apply some sort of consistent level of scoring on how compliance is being managed.

Results from interviews are likely to be more subjective so a structured series of open questions contained in a questionnaire will help towards achieving consistency.


What is it telling you? 

Working on a “RAG” (Red, Amber, Green) method of assessing levels of compliance it would be highly unusual and deeply suspect to come up with a full pack of Greens. It is a useful indicator but not the whole story. What you are really looking for is the overall style of approach to the whole portfolio of regulatory compliance.

Every firm will have setbacks or issues occurring that expose actual or potential weaknesses in a firm’s breach prevention armoury. These are of themselves not necessarily the most important thing. What really matters is, how the firm approaches dealing with the actual or potential issues, and the overall compliance-embracing culture of the firm, and how the firm works to embed and keep embedded this culture at all levels.

If you are in any doubt about carrying out this sort of exercise then you shouldn’t hesitate to ask for outside help. A third pair of eyes can in any event add an element of objectivity that may be difficult to maintain internally when people are either enthusiastically – or unenthusiastically – polarised about a merger project.

Get in touch

If you’d like to know more about how Teal’s compliance services can help, simply contact our experts today. 

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