Help with common compliance queries
Updated 9 April 2020 (first published 25 March 2020)
We have summarised some of the most common queries we have received from solicitors about our rules and the potential impact of coronavirus.
We understand that the current situation creates many practical difficulties for firms trying to act in their client's best interests. We are committed to being pragmatic and proportionate in our compliance approach. Our focus is on serious misconduct and differentiating between those who have tried to do the right thing, and those who haven't.
We have updated these Q and As to reflect recent developments and added some new questions. We will continue to work with the Law Society and other key stakeholders to keep them updated. We have also separately prepared answers to queries on our education and training requirements and an update on cybercrime risks.
If you have a specific query that has not been covered, please get in touch by email with our Professional Ethics team.
Accounts rulesOpen all
We expect solicitors and law firms to do everything they reasonably can to comply with our Accounts Rules and to keep clients' money safe and separate from the firm's own money. We require certain firms to obtain an independent accountant's report to confirm that these overarching objectives are met.
However, these are exceptional circumstances and we would take a pragmatic and proportionate approach to any delay in preparation of an accountant's report. If there are good reasons for a reporting accountant needing longer to prepare a report because of the impact of the coronavirus - which takes a firm outside of the six months window - we would not take any subsequent disciplinary action.
If a firm has delayed getting their accountant's report because of the coronavirus, we would not view that as a serious breach that needs to be reported to us by the COFA.
You should, however, clearly document the reasons for any delays and the approach you and your reporting accountants have taken.
To start with, reporting accountants should read our guidance on Planning for and completing an accountant's report. The guidance sets out the work might need to be undertaken by the accountant and the sorts of factors might lead the accountant to decide that the report should be qualified.
We have considered if the guidance needs to be updated to reflect the current position many firms will now find themselves in. We do not think it does, as it already makes it clear that:
- the reporting accountant need only undertake checks which they feel are proportionate and targeted to the size of firm and nature of the work the firm undertakes. This means that the accountant should reassess the amount and type of work they need to do. In relation to where the work is conducted from, we have no objection to original files being delivered to the reporting accountant for review or documents being scanned and stored digitally provided data protection legislation (eg as to the document’s encryption, storage and retention) is compiled with.
- we do not strictly define when reports must be qualified. We rely on the accountant's professional judgement to assess the firm's compliance with the Accounts Rules and whether money belonging to clients or third parties is at risk. But to confirm, we would not expect a reporting accountant to qualify their report solely because they were delayed in finalising the report because of the impacts of the coronavirus and if there is no other reason for qualification.
Clearly, however, we would expect the reporting accountant to comply with their statutory duties and report to us immediately if they have any concerns about the theft of client money or dishonesty.
Carrying out reconciliation statements at least every five weeks is a key part of making sure you are protecting clients' money. They allow the firm's managers to make sure that client money is safe. And if there are any differences shown by the reconciliation, managers are under an obligation to promptly investigate and resolve any issues. Firms should therefore have contingency plans in place to make sure reconciliations are completed if, for instance, a key member of their accounts staff is unwell.
If your contingency plans fail because of the impact of coronavirus, then we would recommend that you take all necessary steps to assure yourself that client money is being dealt with by your firm properly. You should document your approach and all your decisions.
Our Accounts Rules set out that you should promptly pay client money into your firm's client account. Prompt means prompt in all the circumstances. If you are delayed in paying in any cheques because of the impact of the coronavirus on your firm or your bank, we would expect you to keep your client updated as to the position and document any decisions you make. We will take all of the circumstances into consideration if we were to receive any complaint and would be very unlikely to conclude that there has been a breach of our rules in this situation.
You may also want to look at other banking options so you can continue to effectively deal with your client’s money, such as requesting electronic payments where these are possible.
All firms must have measures in place to keep client’s information confidential - it is required both by our rules and the law.
Most firms will already have in place arrangements to protect client information for remote workers. This could include providing limited information to those workers who do not usually work from home and may not have access to secure IT or other adequate equipment. For instance, you may consider redacting information shared with home workers in that situation.
We recommend that you should document details of the arrangements you have put in place to keep client’s information confidential.
If there is a breach of confidentiality and a complaint is made, all the relevant circumstances would be taken into consideration in line with our enforcement strategy.
Our rules require you to give your client information about how their matter will be dealt with (including the best possible information about cost,) in a way they can understand. See rules 8.6-8.11 of our Code of Conduct for Solicitors.
It is a matter for firms to decide the most effective way of communicating this information to their clients. Usually firms provide this information in a client care letter but, if there was good reason why this was not practical and it was in your client’s best interest to move rapidly, then there is nothing in our rules to prevent you from doing this verbally. We suggest you evidence this in an attendance note or other record so that you can explain your decision making if you, or we, subsequently receive a complaint.
There is a requirement to deliver, in writing, details of your complaints procedure and the right to make a complaint to the legal ombudsman, at the outset of a retainer. However we would not take action if there is a good reason resulting from the current coronavirus crisis for not providing this in writing – so long as the key information has been explained to the client, and this has been documented, together with your decision-making.
If it is not possible to meet your client or anyone acting on their behalf, for example because of the government’s guidance on social distancing, you can consider using electronic means to take instructions from your client – for example by video link, phone or email. You should ensure that whatever means you use enable you to meet our key requirements, namely that you must be able to identify your client and reassure yourselves that they are not subject to undue influence, and have capacity to give instructions.
The Law Society has published some helpful advice in their Q and As on this issue, for example, suggesting that when the current crisis has passed, the solicitor should arrange to see the client again to confirm the instructions, arrange a capacity assessment if needed, and resign the will.
Many firms attend to clients and witness the will in the client’s presence. Where this is not possible you must consider other options. For instance:
- Does the client have neighbours that could execute at a distance?
- Can your firm send documents to the client with instructions on how to correctly execute the Will?
Some firms have suggested amending the attestation clause to cater for current circumstances - before doing so you should check legal requirements with regard to attestation clauses.
We expect solicitors to comply with the law and the legal requirements and advise clients appropriately. We do not set any specific requirements or prescribe the way in which the legal requirements must be met. However you should make sure, in line with our Principles, that you are acting in the best interests of your client. The risk to the client and their beneficiaries of an invalid will are obvious and significant.
We appreciate that current circumstances may require you to make some difficult and novel judgments. For instance, if you are supervising the execution of a will by someone in a care home you will be unable to attend physically to supervise so will need to issue clear instructions on how the will can be properly executed by the testator and for example care workers as witnesses. It may be possible to supervise the process electronically.eg through video or other virtual means. If you are making such judgment calls, we expect you to keep appropriate records of your decisions and how you made sure you were complying with our Principles. These could be by making full and prompt files notes, by recording in a video the advice given and the circumstances surrounding the testator’s signature and so on.
The Law Society is currently in contact with the MOJ about execution of wills and has issued some best practice Q and As.
The requirements for signing or witnessing legal documents are generally set out in legislation, case law or by the recipient such as the Land Registry or Companies House. These requirements can only be amended by the Government, the courts or the bodies setting those requirements.
Where the law allows flexibility and does not require physical attendance, then so long as the solicitor has ensured their actions meet the legal requirements and has addressed any risks for their client, then we do not consider our rules would be engaged here.
If you are making such judgment calls, we expect you to keep appropriate records of your decisions and how you have addressed the legal requirements and any risks for your client.
Our Code of Conduct for firms (para 4.2) says that you must make sure the service you provide to clients is competent and delivered in a timely manner taking account of your client’s attributes, needs and circumstances. We recognise that given the current situation, solicitors and firms are working with stretched resources under difficult circumstances If firms cannot comply with our Code, they should not take on the retainer. We would recommend you document all such decisions taken.
Loss of key role holderOpen all
Many firms will have contingency plans in place for the illness of their compliance officer for legal practice (COLP) and compliance officer for finance and administration (COFA). Some firms will have deputies in place that may support the practice.
Rule 8.1 of our Authorisation of Firms Rules sets out that law firms must have an individual who is designated as a COLP and a COFA.We would not need to be informed if a compliance officer is off unwell for a week or two. However, if a firm ceases to have a COLP or COFA who can do the role - for instance, as they leave or are off on long term sickness - then the firm can apply to us for temporary emergency approval of a compliance officer under 15.2 of the Rules. You should contact our authorisation team.
MLROs and MLCOs are required under regulation 21(2) and (3) of the Money Laundering, Regulations 2017.
As part of their risk systems and controls, many firms will already have in place plans for the long-term unavailability through eg illness of their money laundering reporting officer (MLRO) or a money laundering compliance officer (MLCO). Some firms will have deputies in place that may support the practice if these role holders are off on long term sick leave.If the current MLRO or MLCO leaves or can no longer carry out that role, because of long term sickness, then the firm needs to notify us of the new role holders within 14 days of them changing. You can do this through using form FA10b. A Disclosure and Barring Service (DBS) check may be required.
Client Due Diligence and ID checksOpen all
Our Code of Conduct for Solicitors (rule 8.1) says you must identify who you are acting for, but this is not prescriptive and up to you to determine what is necessary. So you have discretion to put together a risk-profile for your work and come up with appropriate requirements. Face to face contact is not necessarily required - you may consider whether using other means, such as email, telephone and virtual appointments is enough.
However, you need also to be aware that you may also need to make sure you comply with the need for client due diligence (CDD) as set out in the Money Laundering Regulations.
We are working with the legal sector to produce some more detailed guidance on this issue that we hope to publish shortly.
Identifying your client and verifying their identity is a key part of the CDD process. The exact measures you take will vary from case to case and will depend upon your assessment of the risk arising in the circumstances.
There are situations where you should conduct more identity checking than usual - this is called enhanced due diligence (EDD).
Not meeting a client in person is identified in the Money Laundering Regulations as a risk factor, and so this would normally (but not always) warrant enhanced due diligence. CDD is also about assessing the purpose and intended nature of a business relationship. If anything about the client’s instructions strikes you as high risk then, again, you should consider conducting further EDD.
We are working with the legal sector to produce some more detailed guidance on this issue that we hope to publish shortly.
E-verification can be useful. It may be sufficient as a form of EDD, so long as the service provider uses multiple sources of data in the verification process. And e-verification will only confirm that someone exists - not that your client is the said person. In this situation, you will need to assess the risk: is there anything which might suggest the client is not who they say they are? If so, you should conduct further EDD.You may also want to look at the helpful guidance the Financial Action Task Force (FATF) have put out on electronic due diligence.
Section 4.9.1 of the Legal Sector Affinity Group guidance sets out various additional sources of ID verification you could consider requesting to help establish a client’s identity. If, however, you cannot adequately establish and verify a client's identity then you shouldn’t proceed with the transaction.
Clients who are in the middle of a property transaction will be understandably concerned to know how and when the matter will be progressed in light of the current government restrictions. We suggest you read the helpful guidance issued by the Law Society and other key parties, Its primary purpose is to help conveyancers act in the clients' interests and comply with the latest government regulations and Guidance on home moving. It has the support of government departments including HM Land Registry.
Guidance has also been issued about using variation agreements.
Our rules provide that you should perform all undertakings given by you within an agreed timescale or if no timescale has been agreed then within a reasonable amount of time. Before giving any undertaking in these current circumstances, you should always consider if you can properly implement it and you should have regard to all the eventualities that may affect your ability to perform it. You may want to add something new into your undertakings to take account of the risk of delay due to the effects of coronavirus.
If you find yourself in a situation that you are not able to comply with an undertaking that you have given, you should let your client, or the other side know as soon as possible. If a complaint is made to us about your delay in complying with an undertaking, for reasons that are beyond your control due to the impact of coronavirus, we will take all of the circumstances into account and would be very unlikely to take any subsequent disciplinary action.
Appearances in court
You should aim promptly to tell your client about the situation and what it means: they may be happy to represent themselves at court if it is within their capability. If not, you could consider appointing an agent or counsel. Alternatively, you could contact the other side and the court to discuss an adjournment or the hearing to be dealt with by phone, video call or other non-contact means.
The insurance market has been reporting publicly for some time that the PII market is hardening, which may mean premium increases, and that firms should engage with brokers/insurers early to look at renewal terms. Insurers have said that their primary focus is on renewing existing business rather than taking on new business.
You may wish to consider shopping around and using more than one broker to help you. The quality and completeness of firms' PII proposal forms are also important.Some brokers might be experiencing delays in their operations because of COVID19. We understand the Law Society are looking to sign post firms to brokers who may be able to help secure cover and we will share any information we may have on this. The Law Society has also confirmed that it is helping firms, including with advice on government support. If you need help about this contact: email@example.com.
If you cannot obtain a new policy, you will be able to go into the Extended Indemnity Period. This effectively gives you an extra 90 days under your current policy of qualifying insurance to either obtain alternative cover, or to close. There are strict reporting requirements.
We will continue to monitor the situation with insurers, brokers and the Law Society.