Risk Outlook 2016/2017
The Risk Outlook 2016/17 - Our priority risks are a guide for legal services providers who want to understand where we are focusing our attention, what matters to us and why. For each risk, we explain:
why it matters, trends, actions that we are taking, and actions that providers can take to help manage the risk.
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The legal market is changing rapidly and we need to keep pace by changing the way we regulate. Whether through reducing unnecessary bureaucracy, or moving away from complex and confusing rules, we want to free up firms to innovate and grow, while ensuring proper public protection.
Many of the risks in this report will be familiar to you. This does not make them old news - the challenges around areas such as cybercrime and money laundering are changing rapidly and require constant vigilance. You will find the latest intelligence and insight to help solicitors and firms manage these risks effectively.
We have also included one new priority risk this year – access to legal services.
We know that people who take independent legal advice are happier with the outcome of their legal problems than those who do not. Yet there are too many people who either cannot afford, or choose not, to access legal services.
Our report shows that things are slowly moving in the right direction. More people are now shopping around for legal services, yet the majority still are not. There is a long way to go and we are committed to playing our part. By changing the way we regulate - ensuring high standards while lowering barriers and driving costs down - we want to help tackle the problem of unmet legal need and build public trust in legal services.
You may notice that there is one risk, or opportunity depending on your point of view, we have not included in this year’s outlook – the potential consequences of the EU referendum. In our view it is simply too early to draw conclusions, but we are monitoring developments closely and are planning an Autumn Risk Outlook Brexit update.
Everyone can agree that the situation is uncertain. But I do not see this as the time to put the brakes on reforms that will support a healthy legal market, improving access to justice and public confidence. On the contrary, the forthcoming changes mean we need modern regulation and a vibrant domestic and international legal market more than ever before.
We are consulting at the moment on further freeing up firms and solicitors to deliver the services the public need. We are also entrusting them with responsibility to manage their own risks. We hope the Risk Outlook helps you do just that.
What is the Risk Outlook?
The Risk Outlook provides an overview of risks to
- the protection of people who use legal services
- the operation of the rule of law
- the proper administration of justice.
The purpose of the Risk Outlook is to
- set out our position on risk in the legal services market
- show the priorities to which we will allocate our resources
- explain how we will control these risks and act in the public interest
- help solicitors and firms manage risk.
How to use the Risk Outlook
Our priority risks are a guide for legal services
providers who want to understand where we are
focusing our attention, what matters to us and
For each risk, we explain:
- why it matters
- actions that we are taking, and actions that
providers can take to help manage the risk.
Where relevant we also provide details of potential
changes on the horizon. Our assessment of risk
is based on a wide range of input from across the
The risks that matter to us will be much the same
as the risks that concern solicitors and law firms
– for example, providing a proper standard of
service, increasing access to legal services and
protecting client money.
To get best value out of the Risk Outlook, providers
should think about how these risks apply to their
practice – you are the expert in your business.
For small firms we have tailored Risk Outlook
content on our small firms webpage.
The legal landscape 2016
Our priority risks
Lack of access to legal services
Professional legal help is of real value; people who get independent advice about their legal problems are more satisfied with the outcome than those who do not.1
However, many people still do not get the legal help they need.
Why this risk matters
Our core purpose is to protect the public
and support the rule of law and the proper
administration of justice. To achieve this we
must set high professional standards and
encourage a legal market that is strong, diverse
and accessible to those who need help.
Only a third of people with a legal problem seek
professional advice. And only one in 10 will take
advice from a solicitor or barrister.2 The picture
is very much the same for small businesses,
the majority of which have little contact with
solicitors or law firms. 83 percent of small
businesses see legal services as unaffordable,
with over half of those that have a problem
trying to resolve it on their own. And when
small businesses need legal advice, they are
more likely to go to accountants than lawyers.3
Although we are seeing solicitors working with
accountants in multi-disciplinary practices, there
is still legal need not currently being met by
There is no one barrier to accessing legal
services. But barriers can include:
- cost and the perception of cost
- lack of local provision
- lack of information to help people compare
- not identifying a problem as 'legal'
- feeling a problem is too complicated and will
never be resolved
- lack of trust in professional advice
- not knowing if the benefit of taking action is
worth the time/cost.
There is evidence that cost is one of the main
- 63 percent of people do not believe that
professional legal advice is affordable for
- 75 percent state that cost influences their
- when people handle legal issues without help
from a solicitor, it is often because they assume
it would be too expensive or offers poor value for
We know that regulation costs time and money.
These costs are ultimately passed to the public,
so we need to make sure that our rules and
regulations are proportionate and targeted. We
also recognise that an innovative and competitive
legal market can give the public more choice,
increasing access to high quality legal services at a
price they can afford. We have a clear commitment
to reducing costs, both through ensuring we offer
value for money and through cutting bureaucracy
and unnecessary regulation. Our reform
programme is delivering significant changes, with
over 40 red tape cuts in the last 18 months. We
have more to do and are working closely with the
profession as we take the programme forward.
The present legal services market
faces challenges. People need
significantly better access to
affordable legal services. Small
businesses need cost-effective
ways of solving legal problems.
Providers of legal services can better
meet these challenges if regulation
facilitates rather than inhibits
innovation and growth."
Crispin Passmore, SRA Executive
Less than a quarter of the public believe that the
justice system is 'fair and transparent', and 81
percent find it intimidating.7 When taken alongside
perceptions that many people feel legal advice is
not affordable, it is clear the market could be more
For example, we know that in 2015 only 25 percent
of people shopped around for help, and although
this is an improvement on 2011 (19 percent), this
is still relatively low. One way this might improve
is through comparison websites for legal services,
which are still developing.8 Our law firm search
provides accessible data for the growing number
of such websites.
We also see that many law firms are beginning to
respond to unmet need. The proportion of people
who used legal services and were satisfied with the
choice of provider available to them has increased
from 65 percent in 2011 to 70 percent in 2015.9
Over a quarter of solicitors have introduced an
innovation to their business in the last three years,
and this figure is 40 percent in alternative business
I want us to help address the
problem of access to justice – the
widespread unmet need of the
public and small businesses. People
want affordable and relevant
Enid Rowlands, Chair, SRA Board
We believe that solicitors are well placed to help
people access justice. We encourage an innovative
and competitive market where solicitors can offer
services in new ways to meet these needs.
We are reforming our regulation to ensure
solicitors have the flexibility to meet legal need.
So far, we have changed our approach to separate businesses, allowing solicitors to own any kind of
legal business. We have also made our processes
for approving firms simpler and quicker. This
includes approval of multi-disciplinary practices,
which are firms who deliver both regulated legal
activities and other legal and professional services.
We wanted to diversify and increase
our range of services and meeting
new demand for legal support in
fields such as travel compensation
was a way to do this. The idea actually
came from one of our fee earners and
we provided the support they needed
to get the idea off the ground."
Empowering the public to make good choices
is also a key part of breaking down some of the
barriers to access. We manage the joint regulator
website Legal Choices, which offers information and guidance for people who think they might
need a lawyer, and our law firm search allows
consumers to check whether a law firm is
regulated by us.12
On the horizon
We will continue reforming our regulation. Our
consultation Looking to the future opened in June
and will close in September 2016. Proposals
- opening up opportunities for all solicitors to
freely deliver services to the public outside of a
- short, separate codes of conduct for firms and
- reformed accounts rules, which will remove
unnecessary prescription and allow more
The solicitors and law firms we regulate have a
pivotal role to play in making sure that unmet legal
need does not become a permanent feature of the
legal services market.
We believe there is a substantial demand for legal services in many areas. By taking this step, we are better equipped and can be more flexible in meeting some clients needs; at the same time, we can research and develop, potentially, new ways through the ABS of delivering legal services which could be adopted more widely."
University law clinic, ABS model
SRA Innovate is open to existing firms and new entrants, alternative business structures
(ABS) and traditional law firms. It provides information on the kind of innovation we are
seeing in legal services, including how IT can help law firms in novate.
We are also encouraging people to discuss the impact of our regulation on their business
directly with us. Firms and solicitors can join our innovate virtual reference group, or let us
know about any ideas they have where they think regulation might be a barrier. If aspects
of our regulation are preventing innovation, there are things we can do to help, such as
applying our waivers policy.
Standards of service and considering vulnerability
Law firms provide help to people at some of the most difficult times in their lives.
However, sometimes people get a poor service from the solicitor or law firm that they
are relying on to help them.
Why this risk matters
When a person receives a poor standard of service,
this can affect their ability to receive the help they
need. For example:
- delay in progressing a case could lead to missing
key deadlines that can impact on someone's
quality of life
- failure to update a client could make someone
unsure about what is happening and whether
they still have a case
- failure to clarify costs and billing could leave
someone with an unexpected expense and in real
If a person is vulnerable, poor service can have
even more of a profound impact. There is no one
definition of vulnerability. But examples include:
- people in a stressful situation where things like
delay or poor communications could significantly
add to their distress, for example, family law
clients whose cases involve access to children
- people who may be at risk of harm if mistakes
or delay cause problems with their case, for
example, asylum clients
- people who require a third party to instruct
a lawyer on their behalf, for example, acting
as a power of attorney for a person who lacks
- people who may be less able to understand the
law and their rights and fail to understand that
something has gone wrong, for example, clients
with learning or sensory disabilities, or who do
not have English as a first language.
Trends in service complaints can help firms to
understand areas of work where clients may be at
higher risk of poor service.
Complaints made directly to law firms are called
first-tier complaints, as the firm is the first port of
call to resolve a problem.
Since 2011, law firms have been providing us with
information about their complaints. The most
common types of first-tier complaints are delay,
failure to advise and excessive costs. The figures
for 2015 show that although numbers of first-tier
complaints have gone up by six percent since we
started collecting the data in 2011, the percentage
referred to the Legal Ombudsman has reduced
from 18 percent to 15 percent, suggesting firms are
resolving more complaints in-house.13
The Legal Ombudsman
If someone is unhappy with how a law firm has
responded to their complaint, they can complain
to the Legal Ombudsman. Trends from the last five
years reported by the Legal Ombudsman show
- overall numbers of complaints are reducing
year on year, which again suggests that more
complaints are being resolved in-house14
- the areas of law with the highest number of
complaints are residential property, family law,
personal injury, and wills and probate15
- the most common types of complaints are failure
to follow instructions, failure to advise, excessive
costs, lack of costs information, and delay.16
These trends mirror what is happening at the first
tier, and so firms can look at these areas of law and
types of poor service to better understand where
people are likely to experience problems. The Legal
Ombudsman has more detailed information about
complaint trends on its website.17
I am really pleased to see a
focus on customer service and
complaints handling in this year's
Risk Outlook. Nobody enjoys
receiving a complaint but we
know that doing complaints
handling well can show
consumers that you value their
Kathryn Stone OBE, Chief Ombudsman
Focus on family law
Family law is a particular area of interest for us
at the moment, due to the vulnerability of many
family law clients, and the relatively high number
of complaints to the Legal Ombudsman about this
area of law. We have commissioned research into
vulnerability and family law, which is due to be
published towards the end of 2016. The research
will look at expectations and experiences of family
law clients that may be vulnerable, focusing on
access, quality and cost.
The research will involve a consumer survey,
contact with consumer groups and charities, and
speaking to family law practitioners. Findings from
the research will inform our regulatory approach
to ensure the public are protected in this complex
and often emotive area of law.
The Legal Services Consumer Panel has also
highlighted family law as a priority area of law for
regulatory action to increase access to advice and
Good complaints handling can go a long way
to making sure a client has a good standard of
service. This not only benefits the individual firm
but also affects the reputation of the profession.
If people feel their complaints are listened to, it
can boost their confidence in solicitors and legal
Law firms have to inform their clients of complaints
procedures.19 However, as well as fulfilling compliance requirements, effective complaints procedures can benefit firms and clients. The Legal Ombudsman has outlined the potential benefits, including:
- increases in operating profits for firms of 2 to 3 percent
- increased overall demand for legal services
- cost efficiencies
- improved quality and value of services for
The Legal Ombudsman has advice about good
complaints handling on their website, and can
advise firms in more detail if required. 21
Our paper, 'Providing services to people who are vulnerable', looks at ways firms can consider vulnerability when providing services.22 It includes
real-life examples of what some firms have
achieved in this area.
As well as our research into family law, we are also
interested in the possibility of further research into
other aspects of vulnerability.
Appropriate complaints handling, good service
standards, and considering vulnerability can all
help make sure people get the legal help they
The public and small businesses want affordable and easy to access legal services.
Firms are looking for the most efficient ways of delivering these services. However,
there can sometimes be a tension between convenience and security.
Why this risk matters
Information security breaches can harm clients'
interests, result in financial loss and cause
The Information Commissioners Office believes
that solicitors are at risk of data loss due to their
reliance on paper files containing highly sensitive
information.23 Security of paper-based systems
is always limited: paper can be lost, requires
archiving and cannot be encrypted. Many of these
risks can be managed through effective use of IT,
but this also comes with challenges.
Cyber security is an increasingly widespread issue.
Law firms are targeted by criminals because they
hold sensitive information and large amounts
of money. They can also add credibility to a
potential attempt to defraud. They can be a target
for cybercrime and other scams, such as 'Friday
afternoon fraud' (discussed below) or being tricked
into dealing with a bogus law firm.
We want law firms to be aware of the risks
of information security breaches and take
proportionate measures to protect their clients.
We know that cybercrime continues to be a
significant concern for law firms.24 A quarter of
firms have reported being targeted by cyber
criminals, with nearly one in ten of these attacks
resulting in money being stolen.25
In the wider economy, around two thirds of large
businesses detected a cyber security attack or
breach in 2015-16.26 But the true figure is likely to
be higher because not all attacks will have been
detected or reported.27 Crime overall is falling, but
cybercrime is rising.28
Most cybercrime involves an element of trickery.
The most common form is the use of fake
'phishing' emails or 'vishing' phone calls to access
information such as passwords.
Information security is about people and
processes just as much as it is about the secure
use of technology. Well-informed staff are just as
important as keeping antivirus systems up to date
when it comes to being cyber secure.
Cybercrimes and scams include:
Harmful software including viruses,
programs allowing access to data, and
'ransomware' programs that encrypt
files and demand a ransom in return
for a decryption key
Where a criminal gains confidential
information through building a
personal relationship with a solicitor
or law firm employee
Friday afternoon fraud
Using details gained from hacking or
social engineering to impersonate a
bank or client
Here a criminal impersonates a senior
figure at a law firm through hacking
their email address or purchasing a
very similar email address, in order
to impose authority and order money
Bogus law firms
Some bogus law firms directly target people under
the guise of being a genuine law firm or solicitor.
Other bogus law firms target genuine law firms
with a view to deceiving them into sending money
They are an increasing threat: reports to us about
bogus law firms have doubled since 2012 to more than 700 per year.
Almost half of all reports of bogus law firms
involve criminals copying the identity of an existing
law firm.29 The remainder usually involve bulk
emails from individuals claiming to be solicitors.
The professional principles in the Legal Services
Act (2007) include a duty to maintain client
confidentiality. We also require solicitors and law firms to keep the affairs of clients confidential
unless disclosure is required or permitted by law
or the client consents.30
There are proportionate and affordable steps that
can help protect information and money.
- The government's 'cyber essentials' scheme
can help make law firms become more cyber
- Training staff can help mitigate the risk of social
engineering, phishing and vishing.
- Informing us, the bank, the police and insurer if
a client account is compromised by an attack can
help the authorities take appropriate action.
Our report on IT and innovation includes
more detail on what law firms can do to keep
information secure. It is the latest in a series of
reports and alerts on cybercrime that we provide
to the profession, which have included content
tailored for small firms, a guide to common scams,
up to date scam alerts, and case studies.32
Protection from bogus law firms and cybercrime
also involves solicitors policing their own identity
and confirming the identity of others. Again, there
are straightforward actions that firms and solicitors
Actions you can take
- Checking online to spot bogus law firms
impersonating you or your law firm.
- Verifying the details of unfamiliar firms
using sources such as:
- SRA Scam Alerts about bogus firms
- our new Law Firm Search or
its equivalent for other regulated
- contacting the relevant regulator
directly to verify a law firm's identity
- Being aware of common warning signs
of bogus firms, such as the sole use of
mobile phone. numbers or free webmail
- Staying aware of common patterns of
fraud, for example by using our guidance
on our website.
- Letting us know of any contact with a bogus
law firm or cybercrime.
Independence and integrity
It is essential that solicitors meet the high professional standards we set. People who need legal help
expect solicitors to act with independence and integrity at all times.
Why this risk matters
The independence and integrity of legal advice is
central to the rule of law. For example, improper
conduct in litigation can lead to unfair outcomes
for litigants and prevent the proper administration
of justice. This is damaging to the interests of
consumers and the public.
If solicitors act without independence or integrity,
it can damage public confidence in legal services
and the rule of law. As we noted in our paper on
balancing duties in litigation, the status of English
and Welsh law as a forum of choice, and many
decisions to invest in the UK, depends on that
confidence.34 This is particularly important during
any changes regarding the UK's membership of the
We want to see a legal services market that
functions effectively in the public interest, one
of the regulatory objectives set out in the Legal
Services Act 2007.
This year we are researching concerns raised with
us about personal injury work. We outlined these
concerns in a warning notice, and the results of our
research will inform our work in this area.
Extract from SRA Warning notice: Risk factors in personal injury claims – March 2016
We are concerned that firms are failing in their duties to act in accordance with the Principles and
Outcomes of the Code by:
- allowing third parties to cold call potential clients
- entering into referral agreements that are in breach of the Legal Aid Sentencing and Punishment of
Offenders Act 2012
- taking and acting on instructions from third parties without ensuring that the instructions originate from the client
- paying damages or sending cheques to third parties without accounting properly to the client
- bringing personal injury claims without their clients' authority
- in some extreme cases, bringing claims without the knowledge of the named client claimant.
Firms who conduct cases which demonstrate one or more of these features may face regulatory
action for breach of our Principles or Code. Further, this may give us reason to suspect dishonesty by
their principals or staff.
Read the full warning notice
Many corporate law firms have said that the
balance of power between them and their
corporate clients has shifted, with the clients
seeking to impose terms on the firm. 35
In some cases, this includes contractual terms
restricting the firm's freedom to act. These
can include 'no sue' clauses, where the client
intends to give the firm little work but is able to
restrict the ability of opposing litigants to find
representation.36 This sort of control by clients or
by third-party funders can harm the independence
of the firm. It can also affect the public interest by
reducing the choice of representatives.
Solicitors sometimes need to make difficult
choices. Their professional obligations may require
them on occasion to decline a client's request or
even go against their wishes.
We published a report in 2015 to support
solicitors in balancing their duties to the court,
their clients and others. It gave some examples of
inappropriate behaviours in litigation.
Extract from Walking the line: balancing duties in litigation, SRA, 2015
Many instances involve the solicitor unduly prioritising the client's interest over their other duties:
- predatory litigation against third parties, where the solicitor, in the interest of the client, uses the
threat of litigation to obtain settlement, often from several opponents, on cases that have no real
merit, but where the cost of settlement is less than the financial, emotional or reputational cost of
fighting the claim
- abuse of the litigation process, where a solicitor uses the courts or general litigation process for
purposes that are not directly connected to resolving a specific dispute, for example by incurring
unmanageable costs for a commercial rival of a client
- taking unfair advantage of a third party. For example, by exploiting another party's procedural
errors or lack of legal knowledge in certain circumstances
- misleading the court, where the solicitor knowingly or recklessly gives false information to the court
or permits it to be given
- excessive litigation, where the solicitor fails to consider their other duties when following a client's
wish to pursue aggressive and, in particular, speculative litigation.
We have also seen instances where the solicitor fails to act in their client's interest:
- predatory litigation, where clients are induced to proceed with litigation where there is little or no
legal merit, or where litigation is not actually required
- taking on weak or unwinnable cases, where a solicitor accepts instructions without making the
potential costs and risks clear to the client. The most harmful examples are often predatory
litigation schemes, which can become widespread and affect very large numbers of individuals.
Read the full report
In 2015 we also published research looking at
lawyer-client relationships in large firms, which
found that some solicitors see the Compliance
Officer for Legal Practice (COLP) as the 'holder' of
professional values for law firms, rather than this
being the responsibility of everyone in the firm.37
However, every solicitor has a responsibility to act
with integrity and independence, in line with the
SRA Principles 2011.38
We are also continuing our work on professional
standards. Please see our Question of Trust campaign for more information.
Protecting client money
The risk of failing to protect client money remains a priority for us due to the severe
impact it can have on clients and the proper administration of justice. Failure to protect
client money can also constitute a lack of integrity.
Why this risk matters
The number of law firms who misuse client money
is low. However, the impact can be so high that it is
important that all law firms, regardless of size and
make up, take steps to protect their clients' money.
This includes making sure adequate systems and
controls are in place.
Aside from the obvious risks of client harm and
reputational damage, firms who do not protect
client money can indirectly create a cost to other
law firms. This is through contributions to the
Compensation Fund, which provides a safety net
for clients who have lost out financially in certain
cases, and through higher professional indemnity
Reports to us about the misuse of client money
remain broadly stable at around 100 per month.
The numbers have slightly reduced as the economy
has recovered from recession, but there is no
indication of a strong upward or downward trend.
We look into all such reports. In the small number
of cases where we identify inappropriate conduct,
we take action.39
Cases that have resulted in a striking off in the last year include:
- a solicitor who misused money from vulnerable
clients for whom they were acting as power of
- a solicitor who misused client money over a
number of years to keep their overdraft low
- a solicitor who stole thousands of pounds from
clients to fund a gambling addiction.
Many Compensation Fund payments relate to
misuse of client money. For example, we paid
out £17.8m from the Compensation Fund in
2015, of which around a quarter was paid due to
dishonesty issues such as theft of client money or
Steps to protect client money from misuse include:
- appropriate vetting, supervision and training of staff
- good accounts management and audit
- appropriate controls on the client account,
including who can access it, when, and how.
Last year we published a warning notice, which
outlined the steps to take if money is missing from
Read the full warning notice
Extract from SRA Warning notice: Money missing from client account – June 2015
If you identify that money is missing
If you identify that money is missing, you have a duty to take steps to ensure it is replaced, in full,
If you are 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 is irrelevant that fault may
not lie with you personally.
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.
Operating the client account when it is deficient may make you liable for breach of trust and
failure to act in the best interests of your clients. If you cannot replace the missing money and
your insurers do not do so very promptly, you may be unable lawfully to operate the account.
You will have to consider the position as a matter of trust law including whether you need to
apply to court for directions as trustee.
On the horizon
We are consulting on changes to our Accounts
Rules, including making them shorter and clearer.
The biggest change we have proposed is around
how we define client money. We are also looking
at third party managed accounts, which may mean
some firms can choose an alternative to having
a client account if that suits them. However, all
regulated firms and individuals will be under a core
obligation to keep money and assets safe.
The Handbook is very detailed in
many places, for example on the handling of client money, where it makes businesses fit into a single
regime designed forty years ago before the advent of electronic banking and other innovations."
Looking to the Future: Flexibility and public protection – a phased review of our regulatory approach, SRA, 2015
There is always a risk that those who wish to launder money will target the legal sector because of the perceived legitimacy it offers. Although instance s are few, the impact can be severe as solicitors can act as a gateway to property an d financial markets and
other regulated professionals.
Why this risk matters
The UK's National Risk Assessment (NRA) described
the risk to the legal sector as significant and
highlighted that there are knowledge gaps about
the sector's role in money laundering.41
As we have anti-money laundering (AML)
supervisory responsibilities, we are required to
monitor AML compliance as part of our wider risk
The NRA noted that the number of Suspicious
Activity Reports (SARs) from the legal sector has
fallen every year since 2007. While we recognise
the challenges that solicitors face when considering
legal professional privilege, SARs are low compared
to the overall size of the sector and the nature of
its activities. The National Crime Agency (NCA) has
also reported that many SARs from the legal sector
are of poor quality.42
Our thematic review of AML compliance found
that firms generally have effective processes,
procedures and controls in place but there were
instances of poor practice. All firms need to make
sure they update policies and practices regularly.43
Solicitors and firms have obligations under the:
- Money Laundering Regulations 2007 (MLR)
- Proceeds of Crime Act 2002 (POCA)
- Terrorism Act 2000
- SRA Handbook 2011.
Firms should assess the risks that relate to
individual clients, the type of legal services offered,
the method of service delivery and jurisdiction.
By using this risk-based approach, firms can tailor
their AML policies and appropriate controls, and
decide how best to deliver them.
Our thematic review included examples of how
firms have implemented AML procedures cost effectively.
- Accessing online resources, such as the SRA
website, to find out about the warning signs of
money laundering, firm and individual duties and
information about submitting SARs.44
- Reviewing AML policies regularly to ensure they
are up to date, relevant and fit for purpose,
including being appropriate to a wide audience.
- Having a process to test the effectiveness of
systems and controls, such as client due diligence
- Recording and monitoring staff training in AML,
including finance staff.
- Where possible, appointing a Money Laundering
Reporting Officer (MLRO) that is not a fee
earner involved in transactional client work, and
appointing a Deputy MLRO for support.
- Not providing client account details on websites
or in client care letters – only after CDD is
We recognise that some aspects of AML
compliance can be more challenging for smaller
firms. For example, succession planning and
providing relevant training to staff are both
mandatory under the MLR. We therefore
encourage firms to use the SRA's Small Firms web
pages to access support from us.45
On the horizon
The government's current Action Plan for AML and
counter-terrorist finance (CFT) includes:
- making sure the supervisory regime is consistent
and that it brings the few companies who assist
money laundering to task
- increasing international information sharing and
- addressing the gaps in knowledge.46
The government has also confirmed its aim to
set up a public register of companies, including
sharing information internationally about
Internationally, the EU has agreed the fourth
AML Directive, which is likely to impose greater
demands on the legal profession. And the Financial
Action Task Force (FATF) will begin its Mutual
Evaluation Review of the UK in 2017. This is likely
to focus on assessing whether the AML and CFT
systems are working.
Examples from the Tribunal
Failure to carry out AML checks or report possible
money laundering activities can have serious
consequences, as illustrated by these recently
published Solicitors Disciplinary Tribunal (SDT)
The SDT considered a case about a solicitor who failed to complete some CDD checks, which could
have prevented a fraud. They also falsely created a document in an attempt to cover up what had
The solicitor was struck off the roll and ordered to pay costs as the judge ruled that:
“In terms of harm, the impact of her misconduct and her admitted criminal and dishonest behaviour
would have a serious effect upon the reputation of the profession as would her approach to the identity
checks for Mr and Mrs K which had in effect facilitated a mortgage fraud. […] There was deception of
her by another party but her misconduct did not result from it; indeed if she had carried out the identity
checks properly their dishonest purpose might have been thwarted."48
The SDT fined a solicitor for failing to report possible money laundering activities.
The judge said:
“The conviction of a solicitor for any offence linked to money laundering had to be regarded as serious, as it would have an impact on the reputation of the individual and the profession. There had clearly been breaches of two of the core Principles of the profession".49
We care about the diversity of the profession because of the benefits it brings to firms
and the public.50
Why this risk matters
A strong and diverse legal market encourages:
- high standards – allowing the most talented
people to become solicitors and progress in their
- the effective administration of justice – a
diversity of views and approaches supports an
independent and effective justice system
- improved access to services – some people
may be more likely to seek legal advice if they
share some social or cultural characteristics with
Our latest diversity data shows that the legal sector is becoming more diverse, but still does not reflect the diversity of the general working population of England and Wales.51
Student differences affect access to the solicitor
Inequalities in legal education and training lead to
inequalities in the profession. Our research shows
- there are fewer black law students than most
other ethnic groups, and black solicitors are
underrepresented in the profession52
- the number of law students and solicitors
with disabilities does not reflect the wider
However, inequality in access to the profession
is more complicated than just being about one
characteristic, such as ethnicity, gender or social
background. For example, BAME female trainees
are on average paid less than both white female
trainees and BAME male trainees,54 and there are
well-documented problems of access to higher
education for white working class boys.55
There are some social mobility initiatives, such
as RARE, Prime and the Legal Social Mobility
Partnership, which encourage and enable firms
to recruit and manage talent and consequently
improve diversity. Changes to the way large firms
collect and report on their diversity data may
help to assess the outcomes of these, and other,
initiatives and inform others of their usefulness.56
Once qualified, some groups progress differently
to others. Our data shows that BAME solicitors,
women, people with disabilities and those over 55 are less likely to be partners in large firms than in
small firms. The reasons for this are complex. They
could include personal choice, recruitment and
promotion practices, as well as flexible working
options. It is also clear that the reasons are not
unique to the legal market: there are national
campaigns to ensure that the boards of all large
companies are more diverse.57
Encouraging diversity in legal
services is not about ticking
boxes. It is of course the right
thing to do, but it also helps
to make sure the sector is as
competitive as possible."
Paul Philip, Chief Executive
of the SRA
With 20 percent of all practising solicitors
working in the City of London, the City has a great
opportunity to make the profession more diverse.58
Several firms have gained external recognition for
their inclusive working practices, such as those
listed in Stonewall's 'Top 100 Employers' list for
LGBT inclusion and in the Black Solicitors Network
'Diversity League Table' for their ethnic and gender
Inclusive access, progression and working practices
within large firms need to remain on the agenda if
they are to recruit and retain the best talent.
LGBT diversity and inclusion: from policy to practice
A multi-disciplinary practice has looked at ways to advance LGBT inclusion in large companies, many
of which firms could apply to other protected characteristics. These include:
- keep making the business case for diversity – talent will be retained in an inclusive environment
- senior out LGBT role models are important as they demonstrate leadership and the possibility of
- straight people, or 'allies', can also be role models when given opportunities to demonstrate their
support for LGBT colleagues
- create opportunities for reverse mentoring and education, so managers are aware of the issues
faced by their staff
- use social media and other communication tools locally and globally
- build global LGBT networks to boost visibility and strength, including inviting 'allies' to participate.
There are many factors affecting the diversity of
the profession, many of which are not within firms'
We take an active role in supporting the profession
to make sure it is contributing to a diverse and
inclusive legal sector. Our current Equality,
Diversity and Inclusion (EDI) Strategy and EDI
Action Plan detail our commitment to EDI in the
profession and in our own organisation.60 We are
currently planning research looking at diversity
and career progression, and have refreshed our
diversity toolkit with the latest data collected from
And there are some actions that firms can take to
help address risks in this area. For example:
- encourage staff to respond to our biennial
diversity survey, attend our EDI events and join
our EDI virtual reference group
- use our diversity research and comparison tool
to benchmark your performance to other similar
businesses – we have an online tool where you
can explore the diversity of law firms by region,
type of firm, and other factors 61
- set external benchmarks to assess diversity
performance – check out the government's work
- explore other firms', and other sectors', practices for ideas of how diversity and inclusion can be improved, such as recruitment policies, social
mobility initiatives for trainees and potential
recruits, and mentoring support for existing staff
- larger firms could encourage staff support
networks and set up links with national groups,
such as the Black Solicitors Network, the Society
of Asian Lawyers and Stonewall.63
We also make sure we assess the impact on EDI
when considering policy changes, such as the
training reform and Handbook reform proposals.
'Red light' any unsuccessful policies
A large City law firm colour codes its diversity reporting (red, amber, and green) to denote success with its diversity goals. The 'red light' can highlight policies and initiatives that are either unsuccessful or are still in progress. If a policy relating to improving diversity for a particular characteristic receives a 'green light', it could be replicated for other protected characteristics. Lessons could be learned, and shared with other organisations, about the reasons for success or otherwise.
Social mobility initiatives
The Legal Social Mobility Partnership (LSMP)64 is a collaboration of law firms, their partner clients and commercial organisations who work together to provide school-aged students from less privileged backgrounds access to a Work Insight and Skills Programme with the ultimate aim of broadening access to the legal profession and developing students' career aspirations.
Since its launch in 2014, the LSMP has grown considerably and extended its reach from London to other areas of England. As the number of participating organisations increase, the students gain insight into more sectors.
They have produced an LSMP 'Format Bible', which contains a toolkit with a step-by-step guide to enable others to replicate the programme.
Most of the commercial businesses reported that LSMP helped strengthen their relationships with their partner legal firm or in-house legal team and there had been an increase in senior management support for community initiatives.
On the horizon
The first legal apprenticeship trainees can join the legal Trailblazer scheme in September 2016.65
Apprenticeships allow an alternative route to qualification, which will encourage access to the profession for talented people from all backgrounds.
We will be undertaking a thematic review of career progression in the profession, and are currently considering options for further diversity research.
To ease the burden on firms of data collection, the SRA will now be collecting diversity data every two years. The next survey will be in May 2017.
Keep up to date
We will be providing further updates, including a post-EU referendum update in the autumn.
Our Risk Outlook is supported by an online priority risks tool which is regularly updated.
The legal landscape infographic – sources
Online survey of individuals' handling of legal issues in England and Wales 2015, IPSOS Mori –
commissioned by the Legal Services Board and the Law Society, 2016
Unjust Kingdom: UK Perceptions of the Legal and Justice System, Innovation in Law Report 2015, Hodge,
Jones & Allen, 2015
The legal needs of small businesses, Kingston University, commissioned by the Legal Services Board, 2015
TOPSI: Turnover of Legal Activities, Office for National Statistics, 2016
SRA Data, March 2016
Balancing regulatory risk (slides used in conference: UCL International Access to Justice), Legal Services Board, 2014. Please note that the 25% figure is an estimate
SRA Data, 2016
Looking to the Future, SRA 2016
Innovation in legal services, Enterprise Research Centre – commissioned by the Solicitors Regulation
Authority and the Legal Services Board, 2015
Brave New World, LexisNexis Bellwether Report: 2014, LexisNexis, 2014
1. Online survey of individuals' handling of legal issues in England and Wales 2015, Ipsos Mori Social Research Institute for
The Legal Services Board and the Law Society, 2016
2. Online survey of individuals' handling of legal issues in England and Wales 2015, Ipsos Mori Social Research Institute for
The Legal Services Board and the Law Society, 2016
3. The legal needs of small businesses, Kingston University for the Legal Services Board, 2015
4. Legal Services 2015, YouGov, 2015
5. Legal Services 2015, YouGov, 2015
6. Online survey of individuals' handling of legal issues in England and Wales 2015, Ipsos Mori Social Research Institute for
The Legal Services Board and the Law Society, 2016
7. Unjust Kingdom: UK Perceptions of the Legal and Justice System, Innovation in Law Report 2015, Hodge, Jones & Allen, 2015
8. LSCP Tracker Survey: How consumers choose legal services, Legal Services Consumer Panel, 2015
9. LSCP Tracker Survey: How consumers choose legal services, Legal Services Consumer Panel, 2015
10. Innovation in legal services, Enterprise and Research Centre and Warwick Business School for the SRA and Legal Services Board,
11. Quotes taken from IT and Innovation, SRA, 2016
12. www.legalchoices.org.uk, www.sra.org.uk/consumers/using-solicitor/law-firm-search.page
13. SRA first-tier complaints data
14. Annual report and accounts for the year ending 31 March 2015, Legal Ombudsman, 2016
15. Data and decisions: complaints data, Legal Ombudsman, 2016
16. Data and decisions: complaints data, Legal Ombudsman, 2016
18. Priority areas of law, Legal Services Consumer Panel, 2016
19. Outcome 1.9, SRA Code of Conduct 2011
20. The business case for good complaints handling in legal services, Economic Insight for the Legal Ombudsman, 2013
22. Providing services to people who are vulnerable, SRA, 2016
23. Information Commissioner 'sounds the alarm' on data breaches within the legal profession, Information Commissioner's Office, 2014
24. Cybercrime was the top issue for our small firms virtual reference group. See Virtual reference group for small
firms and sole practitioners, SRA, 2016
25. Professional indemnity insurance research, Law Society, 2016
26. Cyber security breaches survey 2016, HM Government, 2016
27. Improving crime statistics in England and Wales, Office for National Statistics, 2015
28. Improving crime statistics in England and Wales, Office for National Statistics, 2015
29. In the shadows: risks associated with bogus law firms, SRA, 2014
30. Outcome 4.1 SRA Code of Conduct 2011
31. Cyber essentials scheme: overview, Department of Business Innovation and Skills, 2014
32. Regulating small firms, SRA, 2015; Common types of scam, SRA, 2016; Scam alert search, SRA, 2016
33. In the shadows: risks associated with bogus law firms, SRA, 2014
34. Walking the line: balancing duties in litigation, SRA, 2015
35. Independence, representation and risk, Claire Coe and Dr Steven Vaughan for the SRA, 2015
36. Banks' lending practices: treatment of business in distress, A report by Lawrence Tomlinson, Entrepreneur in Residence at the Department of Business Innovation and Skills, 2014
37. Independence, representation and risk, Claire Coe and Dr Steven Vaughan for the SRA, 2015
38. Principle 2 and Principle 3, SRA Principles 2011
39. SRA data
40. SRA data
41.UK national risk assessment of money laundering and terrorist financing, HM Treasury, 2015
42. Suspicious Activity Reports (SARs) Annual Report 2014, National Crime Agency, 2014
43. Anti-money laundering report, SRA, 2015
44. Warning notice: Money laundering and terrorist financing – suspicious activity reports, SRA, 2014; Warning notice: Money
laundering and terrorist financing, SRA, 2014; Submitting A Suspicious Activity Report (SAR) within the Regulated Sector, United
Kingdom Financial Intelligence Unit (UKFIU) Guidance Note, 2015; Cleaning up: Law firms and the risk of money laundering, SRA, 2014
46. Action Plan for anti-money laundering and counter-terrorist finance, HM Treasury, 2016
47. Initiative for automatic exchange of beneficial ownership information, HM Government, 2016
48. SRA vs Henry  11302-2014
49. SRA v Tidd  11178-2013
50. SRA News Release, 17 May 2016
51. How diverse are law firms?, SRA, 2016
52. SRA News Release, 17 May, 2016; Baseline attainment data: legal education, training and post-qualification: Supporting paper,
53. SRA News Release, 17 May, 2016; Baseline attainment data: legal education, training and post-qualification: Supporting paper,
54. Baseline attainment data: legal education, training and post-qualification: Supporting paper, SRA, 2015
55. For example: Background to success: differences in A-level entries by ethnicity, neighbourhood and gender, Sammons, Toth
and Sylva for the Sutton Trust, 2015; Socio-economic, ethnic and gender differences in HE participation, Crawford and Greaves for the Department of Business, Innovation and Skills, 2015
56. Going Public: Diversity Disclosures by Large U.K. Law Firms, Vaughan, S., Fordham Law Review, Volume 83, Issue 5, 2015; The LSB's Diversity Reporting Rule: 5 Years on, Vaughan, S., 2016
57. The Green Park Leadership 10,000: Spring 2015, Green Park, 2015 and Improving the Gender Balance on British Boards: 5 year summary, HM Government, 2015
58. Over 50 percent of the firms with 20-50 partners are based i n London. Additionally, a third of those large London firms only
have one branch in England and Wales and therefore our da ta about 'large London firms' refers largely to those working in London. Over 80 percent of the firms with 10 or more partners that specialise in Corporate and Intellectual Property work are
based in London. Source: SRA data.
59. Stonewall Top 100 Employers, Stonewall, 2016; Diversity League Table, Black Solicitors Network, 2015; Equality, Diversity and Inclusion Strategy 2014/15 to 2016/17, SRA, 2014; Equality Diversity and Inclusion (EDI) Action Plan 2015/16, SRA, 2016
60. Law firm diversity toolkit, SRA, 2016
61. For example Equality and diversity – external benchmarks, HM Government, 2012
62. There is a list of networking groups on the Law Society website.
63. See the Legal Social Mobility Partnership website for more information.
64. See the Legal Social Mobility Partnership website for more information.
65. News Release: Apprenticeship standards will benefit the legal profession, says the SRA, SRA, 2015