Lessons unlearnt

There are some issues which raise their heads time and again in the Solicitors Disciplinary Tribunal (SDT) – no matter that solicitors should have learnt their lessons long ago.

These issues aren’t new or particularly complex but they are alarmingly persistent. Since all firms should be reviewing their procedures in preparation for the SRA’s new regulatory arrangements coming into force on 25 November 2019, considering common themes emerging from SDT decisions may be a useful exercise.

The examples in this article are not in any particular order and don’t cover any particular thematic review – specific issues such as stamp duty land tax (SDLT) avoidance schemes or questionable immigration practices which generate a glut of cases – but are the general high risk areas which all firms need to appreciate if they are going to understand and fulfil their risk management responsibilities.

It’s the cover up that gets you…

One of the most common career-ending traps that people fall into is dishonestly seeking to cover up a mistake. Whether that is lying to a client because you have failed to progress a file, backdating letters/documents to support alleged service of a document or not being honest with your regulator, you can expect to be struck off for it.

These cases are often extremely sad because the original mistake could have been rectified quite easily – or through professional indemnity insurance – if only the solicitor had owned up rather than lied.

For firms, the only solution to problems of this kind is to encourage an open culture where reporting of mistakes is standard and expected rather than feared. It should go without saying that fee-earners ought to know that backdating documents is likely to be viewed as dishonest.

Money, money, money

Much of the SDT’s work relates to failures properly to handle client money. This can manifest in many ways but one of the issues which is considered automatically serious is Rule 14.5 SRA Accounts Rules 2011 – using a client account as a banking facility.

This is interpreted as meaning all payments into and out of a client account should be connected with an underlying transaction on which you are properly instructed or be part of your regulated activities.

This rule is frequently overlooked or misunderstood by solicitors and has been a factor in a large number of cases.

Although the origins of the rule are linked to concerns regarding money laundering, there is no need for there to be any suspicion of money laundering for a breach to be made out.

It is important that fee-earners are aware of Rule 14.5 (which will be redrawn and renumbered as Rule 3.3 of the new accounts rules from 25 November).

Fee-earners who are frequently asked to make payments for the convenience of clients – those dealing with trusts, estates and large sums of money such as proceeds of sale or damages payments – need to be aware that any payments made or received should be justifiable by reference to the regulated work you are conducting.

Thus, for example, if a client asks that money received from a property sale be sent to their child’s school to pay school fees direct, the answer should be “no”; unless you are also instructed in connection with a matter which has a sufficient connection to the payment of school fees – such as a dispute with the school.

In name only…

An issue of particular concern to first time partners – particularly salaried partners – is understanding what their responsibilities are.

Many junior fee-earners find themselves in difficulty when they are offered partnership before they have a proper understanding of what that means.

From the SRA’s point of view, a junior salaried partner is equally responsible for ensuring proper management of client account and compliance with the accounts rules as the equity partners.

This holds true even where the junior partner is not on the mandate and has no responsibility as a matter of firm structure for client account. This issue may not be of too much concern for large firms with substantial accounting teams and processes in place.

In those firms the abundance of oversight through compliance and accounts functions will normally mean that, in practice, junior partners can have confidence in the systems and there are a lot of people with more influence who are much more likely to be in the firing line if something goes seriously wrong.

In smaller firms though – generally those with a handful of partners – junior fee earners can be setting themselves up for serious falls if they do not understand and take ownership of their regulatory responsibilities as a manager of an SRA-regulated firm.

Firms should be clear on what it means to be a partner before an offer of partnership is made. Under the new SRA Code of Conduct, firms will have an express obligation to ensure their employees understand their legal, ethical and regulatory responsibilities.

Having information sheets for all levels of fee earner, including junior partners, may well prove a sensible idea.

Of course, individuals will have a similar obligation to understand their own responsibilities; so you should perhaps dust off those researching skills before accepting a new role.

Delay repay…

Residual balances deserve a mention as a frequent ‘also ran’ allegation in the SDT. The failure to promptly return funds to a client when there is no longer a good reason to hold it is generally (but not always) associated with other failures to deal properly with client money.

Quite often, this sort of allegation can be dealt with by engagement with the SRA, but serious cases which affect many clients or last for significant periods are likely to attract sanction by way of an internal SRA fine or a trip to the SDT.

All firms should have procedures in place to review residual balances regularly. All funds in client accounts should be properly held in connection with a current matter.

When fee-earners leave or are unable to work due to illness, full reviews of all client balances held on their files should be undertaken and reconciled.

Dubious investments

Solicitors’ involvement with dubious investment schemes is a frequent feature in SDT cases. The SRA is aware that fraudsters wish to involve solicitors to lend a veneer of respectability to dubious transactions.

Huge amounts of money can be lost in dubious investment schemes which can take many forms and involve investments of many kinds.

‘Red flags’ for dubious investment schemes have moved away from specific phrases used in nonsensical investment bonds, to a more general approach essentially requiring solicitors to understand and test the commerciality of any given investment scheme.

For firms, it is important to educate staff on the warning signs of dubious investments, such as limited involvement where solicitors essentially rubber stamp pre-drafted documentation, instructions outside of your area of expertise, the promise of unrealistic returns and use of overly complex or incomprehensible structures and terminology.

All these issues raise their heads time and again in SDT cases and it seems more work still needs to be done to raise awareness of them as risk areas.

Susanna Heley is a partner at RadcliffesLeBrasseur rlb-law.com

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