Decision - Agreement
Outcome: Regulatory settlement agreement
Outcome date: 10 December 2020
Published date: 11 December 2020
Firm or organisation at time of matters giving rise to outcome
Name: M C Grumbridge
Address(es): 1a Airedale Avenue, London, W4 2NW
Firm ID: 75570
This outcome was reached by SRA decision.
1. Agreed outcome and Undertakings
1.1 Mr Malcolm Christopher Grumbridge, recognised sole practitioner of the firm M C Grumbridge, a recognised body authorised and regulated by the Solicitors Regulation Authority (SRA), which closed on 30 September 2018, agrees to the following outcome to the investigation of his conduct:
- he will pay a financial penalty in the sum £2,000, pursuant to Rule 3.1(b) of the SRA Regulatory and Disciplinary Procedure Rules
- he will apply to remove his name from the Roll of Solicitors within 14 days of the date of this Agreement, with an undertaking that he will not apply to be re-admitted
- to the publication of this agreement, pursuant to Rule 9.2 of the SRA Regulatory and Disciplinary Procedure Rules
- he will pay the costs of the investigation of £1,350, pursuant to Rule 10.1 and Schedule 1 of the SRA Regulatory and Disciplinary Procedure Rules.
2. Summary of Facts
2.1 The SRA carried out an inspection of the firm’s books of account and compliance.
2.2 The inspection identified areas of concern in relation to compliance with Money Laundering, Terrorist Financing (Information on the Payer) Regulations 2017 (MLRs 2017), the Money Laundering Regulations 2007 (MLRs 2007), the SRA Accounts Rules 2011, the Solicitors’ Accounts Rules 1998, the SRA Principles 2011 (the Principles) and the SRA Code of Conduct 2011 (the Code).
2.3 The books of account had not been accurately maintained, in breach of Rules 1(a), 1(e), 1(f) and 32(1), 32(2), 32(4) and 32(5) of the Solicitors’ Accounts Rules 1998 and Rules 1.2, 29.1(b), 29.2(b), 29.4 and 29.9 of the SRA Accounts Rules 2011.
2.4 Inter-client loans had been made without proper written authority from both clients or without evidence of consent from both clients, in breach of Rules 27.1, 27.2 and 27.3 of the SRA Accounts Rules 2011 and Rule 30(1) and 30(2) of the Solicitors Accounts Rules 1998.
2.5 Cash withdrawals had been made from the firm’s client bank account in favour of Mr Grumbridge, in breach of Rule 21.4 of the SRA Accounts Rules 2011 and Rule 23(3) of the Solicitors Accounts Rules 1998.
2.6 Payments were received into client bank account, without any documentary evidence on file to identify that there was any underlying legal transaction that needed the use of the client bank account, in breach of Rule 14.5 of the SRA Accounts Rules 2011 and Rule 15 of the Solicitors Accounts Rules 1998.
2.7 A cash gift from a client was transferred to Mr Grumbridge’s own personal bank account, via the firm’s US Dollar client account and then the firm’s Sterling client account, in breach of Rule 20.1 of the SRA Accounts Rules 2011 and without having advised the client to obtain independent legal advice in breach of Principles 2, 3, 4, 6 and 10 and failing to achieve Outcomes 1.1, 3.1. 3.2 and 3.3 of the SRA Code of Conduct 2011.
2.8 There was no documented practice-wide risk assessment in place, as required by Regulation 18 of the MLRs 2017.
2.9 No policies, controls and procedures had been established to mitigate and manage effectively the risks of money laundering, as required by Regulation 19 of the MLRs 2017. No appropriate and risk-sensitive policies and procedures had been established in order to prevent money laundering and terrorist financing, as required by Regulation 20 of the MLRs 2007.
2.10 There was a failure from 26 June 2017 onwards to conduct any or any adequate due diligence and/or enhanced due diligence on all clients, all parties to the transactions and/or on any unrelated third parties making payments into the client account. From 15 December 2007 to 26 June 2017 there was a failure to apply customer due diligence measures, enhanced customer due diligence and enhanced ongoing monitoring on all clients, all parties to the transactions and/or on any unrelated third parties making payments into the client account, on five transactions. These actions are required by Regulations 27, 28 and 33 of the MLRs 2017 and Regulations 7 and 14 of MLRs 2007.
2.11 There was a failure from 26 June 2017 onwards to keep records of any or all documents and information obtained to satisfy the customer due diligence requirement under Regulations 27 and 28, for a five-year period, as required by Regulation 40 of the MLRs 2017. There was a failure from 15 December 2007 to 26 June 2017 to keep records of evidence of customer identity checks and records of ongoing monitoring of business relationships for a five-year period, as required by Regulation 19 of the MLRs 2007.
2.12 There was a failure from 26 June 2017 onwards to conduct any or any adequate source of funds checks for payments received into the client bank account from clients and/or third parties and a failure to conduct ongoing monitoring of the transactions to assess the money laundering risk they posed. There was a failure from 15 December 2007 to 26 June 2017 to conduct ongoing monitoring of a business relationship by scrutiny of transactions undertaken throughout the course of the relationship, including where necessary, the source of funds, to ensure the transactions were consistent with knowledge of the customer, their business and risk profile, as required by Regulations 27 and 28(11) of the MLRs 2017 and Regulation 8 of the Money Laundering Regulations 2007.
2.13 There was a failure from 26 June 2017 onwards to verify the identity of clients and/or any beneficial owners before the establishment of a business relationship or carrying out of the transactions, and a failure to terminate the transactions in a situation where customer due diligence measures could not be conducted as required by legislation. There was a failure from 15 December 2007 to 26 June 2017 to verify the identity of the customer and any beneficial owner before the establishment of a business relationship and a failure to terminate the business relationship or proceeding with the transaction in circumstances where customer due diligence measures, as required by legislation, could not be applied. These are requirements of Regulations 30 and 31 of the MLRs 2017 and Regulations 9 and 11 of the MLRs 2007.
2.14 There were several files which contained no documentary evidence that Mr Grumbridge had considered whether there was any risk or potential of conflict of interest between his clients and his own interests. In one transaction, Mr Grumbridge acted for two brothers simultaneously, with one file and one client ledger, and in another, he represented a company of which he was a co-director. By acting in such a manner, Mr Grumbridge breached Principles 3, 4, 6 and 8 of the SRA Principles 2011 and failed to achieve Outcomes 3.1-3.5 inclusive of the SRA Code of Conduct 2011.
2.15 Returns were submitted to HMRC which contained incorrect information. The returns stated that a company, of which Mr Grumbridge was the director, was a dormant company whereas client ledgers indicated that the company was active during that specific period. By acting in this manner, Mr Grumbridge breached Principles 2, 3 and 6 of the SRA Principles 2011 and Rule 1 of the Solicitors Code of Conduct 2007.
3.1 Mr Grumbridge admits, and the SRA accepts, that by failing to comply with money laundering legislation, including but not limited to, failing to adequately perform customer due diligence and failing to implement internal policies, controls and procedures appropriately as required, he:
failed to behave in a way that maintains the trust the public places in him and in the provision of legal services, in breach of Principle 6 of the SRA Principles 2011
(the Principles in force at the time of the misconduct),
- failed to comply with his legal and regulatory obligations, in breach of Principle 7 of the SRA Principles 2011,
- failed to carry out his role in the business effectively and in accordance with proper governance and sound financial and risk management principles, in breach of Principle 8 of the SRA Principles 2011, and
- breached relevant anti-money laundering legislation and therefore failed to achieve Outcome 7.5 of the SRA Code of Conduct 2011.
3.2 Mr Grumbridge also admits, and the SRA accepts, that by failing to comply with the SRA Accounts Rules 2011, the Solicitors Accounts Rules 1998, and with the SRA Principles 2011 and SRA Code of Conduct 2011, he also:
- failed to act with integrity, in breach of Principle 2 of the SRA Principles 2011
- failed to not allow his independence to be compromised, in breach of Principle 3 of the SRA Principles 2011
- failed to act in the best interests of each client, in breach of Principles 4 of the SRA Principles 2011
- failed to provide a proper standard of service to his clients, in breach of Principle 5 of the SRA Principles 2011
- failed to protect client money and assets, in breach of Principle 10 of the SRA Principles 2011
- failed to achieve Outcome 3.1, which states that you have effective systems and controls in place to enable you to identify and assess potential conflicts of interest;
- failed to achieve Outcome 3.2, which states that your systems and controls for identifying own interest conflicts are appropriate to the size and complexity of your firm and the nature of the work undertaken, and enable you to assess all the relevant circumstances, including whether your ability as an individual or that of anyone within your firm, to act in the best interest of your clients is impaired by any financial interest etc;
- failed to achieve Outcome 3.3, which states that your systems and controls for identifying client conflicts are appropriate to the size and complexity of the firm and the nature of the work undertaken, and enable you to assess all relevant circumstances
- failed to achieve Outcome 3.4, which states that you do not act if there is an own interest conflict or significant risk of an own interest conflict;
- failed to achieve Outcome 7.2, which states you have effective systems and controls in place to achieve and comply with all the Principles, rules and outcomes and other requirements of the Handbook where applicable
- failed to achieve Outcome 7.3, which states that you identify, monitor and manage risks to compliance with all the Principles, rules and outcomes and other requirements of the Handbook, where applicable.
4. Why the agreed outcome is appropriate
Financial Penalty of £2,000
4.1 The SRA considers, and Mr Grumbridge accepts, that agreeing to be removed from the Roll of solicitors, and undertaking not to reapply, along with a financial penalty of £2,000 is appropriate following reference to the SRA Enforcement Strategy because:
- there was a breach of statutory obligations of the MLRs 2007 and of the MLRs 2017 and as an experienced conveyancer Mr Grumbridge should have completed all of the necessary checks required and should have established and followed the firm’s internal policies, controls and procedures, as well as putting in place a firm-wide risk assessment.
- the conduct was reckless and showed a disregard for statutory and regulatory obligations and had the potential to cause harm by facilitating dubious transactions that could have led to money laundering and because Mr Grumbridge had direct responsibility for the conduct, which could have been avoided had he established policies, controls and processes at his firm.
- the agreed outcome is a proportionate outcome in the public interest because it creates a credible deterrent to others and the issuing of such a sanction signifies the risk to the public, and the legal sector, that arises when solicitors do not comply with anti-money laundering legislation and their professional regulatory rules.
- there has been no evidence of harm to consumers or third parties and there is a no risk of repetition, given that Mr Grumbridge is no longer practising as a solicitor.
- Mr Grumbridge has assisted the SRA throughout the investigation, admitted the breaches and has shown remorse for his actions.
- he recognises that despite his health issues and the stressful environment of running his own practice, he failed in his basic duties regarding Money Laundering Regulations and general regulatory compliance, which caused further breaches in a number of transactions as identified during the SRA’s inspection.
4.2 Rule 4.1 of the SRA Regulatory and Disciplinary Procedure Rules states that a financial penalty may be appropriate to maintain professional standards and uphold public confidence in the solicitors’ profession and in legal services provided by authorised persons. There is nothing within this Agreement which conflicts with what is stated in Rule 4.1 and on that basis a financial penalty is appropriate.
4.3 In deciding the level of the financial penalty, surplus to agreeing to be removed from the Roll of solicitors, and undertaking not to reapply, reference is made to The SRA’s Approach to Setting an Appropriate Financial Penalty (issued 13 August 2013 and updated on 25 November 2019). Following the three-step fining process, the SRA has determined the following:
- The nature of the misconduct was high because the conduct was reckless. There was a failure on the part of Mr Grumbridge to comply with statutory obligations as imposed by statutory Money Laundering Regulations and a failure to comply with the Accounts Rules, the Principles and the Code. Furthermore, the misconduct was not isolated as collated evidence (namely a review of client files) established that such conduct occurred on a number of files. The guidance gives this type of misconduct a score of three.
The SRA considers that the impact of the misconduct was high because in addition to the errors made on the client files highlighted during the SRA inspection, there was a failure to have in place a practice wide risk assessment
and policies, controls and procedures as obliged by statutory legislation. This, in turn, contributed to failings made on individual client matters, which caused further breaches of the relevant statutory legislation. The Guidance gives this level of impact a score of six.
The associated ‘Conduct band’ is “D”, owing to the total score of 9 (3+6) from sub¬-paragraphs above, giving a penalty bracket of £25,000 to £50,000.
4.4 However, in deciding the level of fine within this bracket, the SRA has considered the mitigation which Mr Grumbridge has put forward. The SRA considers that on the basis of the mitigation offered, and the undertaking provided by Mr Grumbridge to remove his name from the Roll of solicitors and not seek to reapply, a basic penalty of £2,000 is appropriate.
This also reflects and takes into consideration the admissions made by Mr Grumbridge at an early stage, his ill health and his co-operation with the SRA’s investigation.
In addition, in view of him removing his name from the Roll, Mr Grumbridge will no longer practice as a solicitor.
Finally, a fine of £2,000 is within range of the SRA’s fining powers, pursuant to s44D(2)(b) of the Solicitors Act 1974 (as amended), and as such the sanction can be imposed now without reference to the Solicitors Disciplinary Tribunal, which would cause further unnecessary delay in bringing this matter to a conclusion now and the potential for increased costs to be incurred by the SRA and Mr Grumbridge.
5.1 Rule 9.2 of the SRA Regulatory and Disciplinary Procedure Rules states that any decision under Rule 3.1 or 3.2, including a Financial Penalty, shall be published unless the particular circumstances outweigh the public interest in publication.
5.2 The SRA considers it appropriate that this agreement is published, as there are no circumstances that outweigh the public interest in publication and in the interests of transparency in the regulatory and disciplinary process to do so.
6. Acting in a way which is inconsistent with this Agreement
6.1 Mr Grumbridge agrees that he will not act in any way which is inconsistent with this agreement, such as by denying responsibility for the conduct referred to above. That may result in a further disciplinary sanction. Acting in a way which is inconsistent with this agreement may also constitute a separate breach of Principles 1, 2 and 5 of the SRA Principles contained within the SRA Standards and Regulations 2019 (such SRA Principles having been in force since 25 November 2019).
6.3 Mr Grumbridge agrees to pay the costs of the SRA's investigation in the sum of £1,350. Such costs are due within 28 days of a statement of costs due being issued by the SRA.
The date of this Agreement is 10 December 2020