Risk Outlook spring 2018 update

Spring update 2018

In July 2017, we published our fifth annual Risk Outlook. Throughout the year we gather and analyse information about each risk and look for emerging trends. This update reflects what we are seeing in the market and will help law firms manage risk in their business.

We have updated our priority risks and provide an at-a-glance version of the updates below.


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We know there is a great deal of unmet legal need, with nine out of ten people never using solicitor or barrister to address a legal problem. Our regulatory reform programmes, Looking to the future and Better information, more choice, will help encourage a more competitive and accessible legal market and make it easier to find affordable legal services.

We continue to undertake analysis and research to help shape these reforms. For example, we have published research that found that information about price is an important factor for people choosing a legal provider. And we are conducting more research on how best to give information about regulatory protections, including how the public would interact with an SRA clickable logo on firms’ websites. We have also published an impact evaluation on key reforms so far, which found that the introduction of alternative business structures, multi-disciplinary practices and reforms to the separate business rule had increased choice and not led to harm or loss for users of legal services.

Firms that work in new and innovative ways are helping improve access to legal services. We are revising our waivers policy to make it easier for firms to innovate and deliver services in a way that works for them and for people who need legal help. The new criteria for granting a waiver will be based on whether the application would be consistent with our regulatory objectives, rather than because of exceptional circumstances. We aim to implement the new policy in late spring.

We want to create a more competitive market and give more flexibility to firms, so we are consulting on allowing insurance, and its costs, to match the risks of each business. You can have your say until 15 June 2018.

We also want firms to tell us where they think there are barriers to innovating their business. For example, small and medium sized firms can find it difficult to explore what resources or technology is available to help them innovate. We are planning on holding regional SRA innovation events in Newcastle, Cambridge and Bristol this summer.

We are working with other regulators to improve the Legal Choices website to help more people to understand their options and get the information they need about lawyers and legal situations. And we have set up an Advisory Panel of charities and consumer groups to inform the current improvements to Legal Choices.

We have published independent research about the effectiveness of solicitors’ first tier complaints processes and people’s experiences of conveyancing services. Both pieces of research support findings in the Competition and Markets Authority (CMA) report into the legal services market, about the lack of transparency around price, service, complaints and quality. We are working on increasing the availability of data to people looking for or using legal services, as we want to help people make informed choices about the legal services they need.

The Government plans to include holiday sickness claims in the ‘fixed recoverable costs’ scheme. Our warning notice on these claims gives more information for solicitors. We have also updated our warning notice about risks in personal injury work.

The Finance Act 2017 has new corporate offences for advisers, where the HMRC defeats a tax avoidance scheme they have advised on. HMRC has produced guidance on the new penalties for enablers of defeated tax avoidance. In March 2018, a firm was rebuked and fined for promoting stamp duty land tax avoidance schemes.

Some solicitors continue to be involved in questionable investment schemes. Examples of schemes we have seen recently include speculative developments involving green belt land and proposals to invest in litigation funding against large lenders. These are often advertised as a safe investment even though some are offering unrealistically high returns. We remind all solicitors and firms to read our warning notice and topic paper on questionable investment schemes.

Where solicitors become involved in questionable investment schemes, we will take disciplinary action including referrals to the Solicitors Disciplinary Tribunal (SDT). In February 2018, a solicitor was struck off for involvement in an investment scheme that was found to be fraudulent.

The Financial Conduct Authority (FCA) has updated their guidance on how to recognise and avoid questionable schemes. People can check the FCA Register to see if a business or individual is authorised and their Warning List, which shows businesses to avoid. Their ScamSmart website helps people to check investment and pension schemes that they have been offered.

The General Data Protection Regulation (GDPR) comes into force on 25 May this year. Breaching these regulations could lead to fines by the Information Commissioner of four percent of annual turnover or €20m (£18m).

The Information Commissioner’s Office gives accessible guidance on the GDPR, and an advice line to help small businesses prepare for the changes. They presented advice at the 2017 Compliance Officer Conference.

The National Cyber Security Centre and Action Fraud give a range of guidance on protecting information security from fraud and cyber threats. Their one-page summaries can be useful for staff training sessions and reminders.

Where firms do not take reasonable steps to protect information, we will take action. In December 2017, the SDT fined a solicitor £20,000 for practice management failures that included failures to dispose of client files in a secure manner.

Keeping client money safe is a risk with many external threats. For example, we get regular reports of bogus firms copying the identity of real firms, often with the intent to steal client money. We received 640 reports of this in the 12 months to January 2018. Our warning notice about bogus firms gives more information.

Cybercrime is an increasing risk to client money. Reports of cybercrime have increased from 103 in 2016 to 157 in 2017, with a reducing proportion of those reports involving email modification fraud. We know that firms are taking steps to control this fraud and we regularly give information to help firms stay cybersafe.

Dishonesty involving client money will usually lead to a solicitor being struck off the Roll. In January 2018, a solicitor was struck off after they took nearly £100,000 from the client account and claimed £328,000 of excess costs.

Our recent in-depth review of 50 firms found that most law firms are doing what is needed to prevent and tackle money laundering, but some need to do more. The review sets out what all firms need to consider to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Firms can refer to our guidance on the key changes in these regulations. There is also new guidance and good practice information on complying with the anti-money laundering and counter-terrorist obligations. Following this guidance will make it easier for firms to account to oversight bodies for their actions.

We have also published a warning notice describing the signs that firms should be aware of, and where they may need to take action to avoid committing a criminal offence or breaching professional obligations.

We have published our anti-money laundering risk assessment, which we will refresh regularly. Firms should refer to this, and any updates, when creating and maintaining their own written risk assessment. We may ask to see a firm's risk assessment as part of routine monitoring visits, or in response to information received.

We receive around 12 reports per year of sexual harassment in law firms. A Legal Week survey in 2017 suggested that two thirds of female lawyers had been harassed at work, so there may be some under-reporting.

We are aware that some law firms seek to settle these cases with non-disclosure agreements (NDAs). Solicitors must not use NDAs to deter an individual from reporting misconduct or crime, from making a protected disclosure, or from cooperating with a criminal investigation or prosecution. They must not improperly threaten litigation against an individual to deter a legitimate disclosure. Our paper, Walking the line: the balancing of duties in litigation, sets out examples of the challenges that solicitors face when balancing their duties to their clients, the courts, third parties and to the public interest.

We have published a warning notice which give more detail about these issues. It is likely that harassment at work, and certainly sexual harassment, will be a breach of the high standards expected of solicitors. Serious breaches of these standards must be reported to us promptly.

For example, the SDT recently suspended a solicitor from practice for two years after being convicted of sexual assault. But any form of harassment or unwanted conduct may constitute such a breach.

We have updated our firm diversity tool and published a summary of the key findings. And we published information about the diversity of in-house solicitors. There have been some improvements in the proportion of women and minority ethnic solicitors, and the social mobility of solicitors. There is still work to do to increase diversity in the sector, particularly at partner level in large firms.

We also published a report focusing on the business benefits of increased diversity and inclusion in law firms. The report gives examples of what firms can do to improve diversity, such as being more transparent about their diversity and having an inclusive workplace where everyone can be themselves. Benefits include increased productivity, staff retention and being able to better meet the needs of diverse clients.