This year has been a big year for risk and compliance in the legal sector. Firms had to get to grips with the latest AML guidance from the LSAG on independent audits and changes to the CPMS. In addition, the LeO clarified that firms would need to adopt robust client complaint procedures if they had not already done so.
In our 2022 year-in-review report, we examine some of the critical risk and compliance news and topics we’ve discussed over the last 12 months.
New module added to the Legal Eye Academy
We kicked 2022 off by releasing a new module for the Legal Eye Academy. An online risk and compliance training system, the Academy offers modular-based learning to cover current and emerging risk and compliance issues. We continually add new modules to reflect the changing regulatory landscape, and in January 2022, we refreshed a key module to incorporate important references to the latest LSAG Guidance.
We hosted an AML webinar
Anti-Money Laundering (AML) processes within the legal sector are under more scrutiny from regulators than ever before. As such, law firms must understand the role that they play. To help law firms better understand their obligations, in February 2022, we hosted an AML webinar that included the following:
- Commentary from the latest SRA Thematic Report on the roles of the MLCO and MLRO
- What we are finding in our Independent AML firm audits
- Client & matter risk assessment
- Regulatory compliance around Data Protection and a mention of S43 Orders.
The Law Society published changes to the Core Practice Management Standard (CPMS)
We raised awareness of the PII challenges facing some law firms
Professional indemnity insurance has become a tricky subject in recent years – mainly due to the annual rise in premiums and the declining number of insurers offering coverage. At Legal Eye, we put great importance on keeping our legal clients up-to-date with developments in the PII market, and in March 2022, we raised awareness of this issue.
We launched an AML Independent Audit with Certification
In March, we were delighted to be able to help our legal clients demonstrate their commitment to compliance with the launch of our AML Independent Audit with Certification. In January 2021, the latest AML guidance from the LSAG stated that “The practice must conduct an independent audit of the adequacy and effectiveness of its AML policies, controls and procedures”. Our audit helps firms to fulfil this requirement and provides certification to demonstrate a commitment to compliance.
Manchester-based, conveyancing-centric law firm LPL was one of the first to benefit from the new service when it used Legal Eye to obtain independent Anti-Money Laundering accreditation.
“LPL’s AML Independent Audit, conducted by Legal Eye, including certification demonstrates our verified commitment to compliance and adhering to the latest guidance. We are delighted to achieve the accreditation with flying colours.”
Fiaz Khalid, Managing Partner.
The Legal Ombudsman’s (LeO’s) 2022/23 business plan and budget was published
In March 2022, the Office for Legal Complaints (OLC) published the LeO’s 2022/23 business plan and budget, which highlighted the body’s two-year journey to enhance performance. With significant performance challenges and a substantial backlog of complaints, the LeO set out plans to improve operational efficiency.
We warned law firms that they would need to adopt robust client complaint processes and procedures
Following on from the LeO report, we warned that lawyers would have to step their game up to minimise delays, neglect, and misconduct. The ultimate goal of the LeO proposals is to improve customer experience through quick and effective case resolution (while being impartial and independent). Therefore, we advised legal practitioners to attempt to resolve any issues with their clients before these are escalated to the ombudsman. We also advised law firms that our complaint handling service could reduce the stress involved in handling client complaints.
We advised law firms to have an independent review of their CQS obligations.
In April 2022, following the amended CPMS published in February, we advised law firms to have an independent review of their CQS obligations. We also offered firms a gap analysis to help management teams identify any holes in their firms’ current systems vis-a-vis the new standards.
As CQPM changes came into effect, we produced guidance to assist law firms
The changes to the Core Practice Management Standard (CPMS) took effect from 1 May 2022. Making a comparison between the previous CPMS and the new updated version was tricky, so to help our clients, we broke down the areas of change and the effect that these had. We also advised firms to:
- Familiarise themselves with the three values of the Conveyancing Quality Scheme (CQS)
- Familiarise themselves with the new CPMS
- Make any necessary changes to their policies, controls and procedures (PCPs), and ensure additional training is provided to staff on the changes.
We released our guidance on the AML Spring Update
As headlines of dirty Russian money swished around the London Property Market and the government fast-tracked long overdue legislation, AML was a key priority area for Law Firms across the UK (as it always is!). In May 2022, we published our AML spring update. In this, firms were able to request a copy of our Best Practice Guide to the key AML Issues.
We issued some handy tips for handling legal complaints effectively
No matter how skilled your people are, or how committed your firm is to providing client excellence, from time to time, complaints will happen. But client complaints don’t have to be a minefield. Effectively responding to grievances can diffuse the situation, protect your firm’s reputation, and minimise the likelihood of future complaints. In May 2022, we published some top tips to help law firms handle client complaints more effectively.
We held our annual conference in Birmingham
In June 2022, the annual Legal Eye conference was back and in-person! Taking place in Birmingham, the theme for 2022 was ‘preparing your firm for a visit from the regulator’.
Suitable for both SRA and CLC-regulated firms, this half-day conference featured keynote speeches from Chris Handford, Director of Regulatory Policy from the SRA, and Amy Hayes and Kevin Morgan from the CLC’s senior inspection team.
Our Senior Compliance Adviser Norman Denton also conducted an AML Masterclass, and attendees heard from our panel of law firms about their experiences of undergoing a visit or audit by their regulator, with top tips on how to prepare and what to expect on the day. There was also a networking lunch after the event.
We revealed a new partnership with Armalytix
Also in June, Legal Eye and Armalytix announced a partnership on Source of Funds questionnaire. The partnership, which is the first of its kind, sees the two legal sector specialists working together to support law firms in ensuring that their risk and compliance processes are as robust as possible.
“Accurately identifying Source of Funds is a challenging area for firms. Not only can getting the information be complex and time-consuming, it’s often difficult to provide accurate and complete evidence in support of a decision to proceed with a transaction. Armalytix’ questionnaire is an exciting development which is designed to reduce risk for firms by providing a streamlined, more efficient, way of sourcing and collating data on source of funds ready for review by the fee earner or case handler in charge.”
Paul Saunders, MD, Legal Eye
“I’m delighted that Legal Eye have decided to lend their support to our Source of Funds questionnaire. Working with them on the project has been insightful and they have added a significant amount of value to our offering – especially around the evidential requirements for various sources of wealth. Both parties have a clear vision to support conveyancers in navigating the various challenges posed by Source of Funds and it seemed a natural partnership to combine the Legal Eye knowledge with our expertise in moving firms away from a manual process toward a slick digital journey.”
Tom Lyes, Head of Legal & Property, Armalytix,
We raised awareness of SoF red flags in our latest webinar
Once again, the growing number of fraud, tax evasion, investment scams, and money laundering cases across the country turned the spotlight on the importance of complying with AML policies.
With many firms still unclear on their SoF requirements, how these work in practice, and the difference between Source of Funds (SOF) and Source of Wealth (SOW), we welcomed Tom Lyes, Head of Legal and source of funds specialist at Armalytix to talk about all things SoF in our latest webinar. Tom was joined by Norman Denton, a Senior Compliance and Regulatory Specialist from Legal Eye, who shared insights gleaned from hundreds of file reviews on the common themes and trends from a SoF perspective. Norman also suggested areas for firms to focus on, highlighted some red flags, and provided an update on what tactics criminals might employ to launder money. The webinar also delved into some useful regulatory guidance and signposted some resources on SoF.
We welcomed a new counter-fraud specialist to the Legal Eye team
Also in July, we welcomed counter-fraud specialist Kirstie Wilson to Legal Eye as a compliance adviser. Kirstie has extensive experience identifying and combating fraud threats and is using all her knowledge and skill to bolster an already strong team. Kirstie draws on her experience to support clients by providing expert guidance, conducting in-depth file reviews, and ensuring firm-wide processes and procedures are compliant. You can find out more about Kirstie here.
Smoove releases its inaugural Home Mover’s Report
The register of overseas entities (ROE) came into force
The government introduced the register of overseas entities (ROE) on 1 August 2022. Designed to make it more difficult for foreign criminals to launder money through UK property, the new rules required anonymous foreign owners of UK property to reveal their identities.
We provided some summer reading
In August, as we all enjoyed a lovely, long weekend, a chance to rest, reset, and get ready for the final quarter, our social media team shared some key insights for our clients who couldn’t wait to get back to work! Following on from our 2022 Legal Eye conference, our social team also provided some helpful tips to help law firms get ready for a visit from the regulator.
We asked firms if they were ‘risk-ready’ for October PII renewal
As the summer drew to a close, law firms with a renewal date of 1 October for their Professional Indemnity Insurance (PII) were looking to obtain cover at the best available price and on the most favourable terms, if they hadn’t already done so. And, in September 2022, we provided some advice on how firms could reduce their risk profile and benefit from lower PII renewal costs.
HMLR is prevented from registering any disposition made by an overseas entity caught by the Economic Crime (Transparency and Enforcement) Act 2022 without a valid OE ID
On 5 September 2022, HM Land Registry (HMLR) was prevented from registering any disposition made by an overseas entity caught by the Economic Crime (Transparency and Enforcement) Act 2022 without a valid OE ID. If you are still unsure about what solicitors need to do to ensure compliance with ROE, the Law Society has issued detailed guidance.
We attended the SRA Annual Conference
In September 2022, we attended the SRA’s face-to-face AML and Financial Crime Conference in London. At the event, there enforcement was a clear theme, with notable points being:
- Failing to reply to information requests
- Failure to identify risk
- Failure to have policies
- Failure to do CDD
- Lack of info on Source of Funds/Wealth
- Failure to notify where doing work as trust or company service provider.
To avoid repercussions from regulators and any damaging impact from money laundering and fraud, firms must do more to meet their obligations in these areas.
We summarised the Smoove, Home Mover’s Report.
In October 2022, we provided a summary of the Smoove Home Mover’s Report, which had been released earlier in the year. According to Smoove, the market was booming, with home-buying activity rising significantly. However, the sector was also struggling to meet demand, with many firms suffering from capacity constraints. Here are some of the report’s other key findings.
- At no stage in the buying and selling process do people feel utterly secure that their transaction will take place (until contracts are exchanged)
- The sheer time it takes to complete the process is the key reason why people find home moving stressful (40%)
- Other stress factors include uncertainty during the process (34%) and waiting for exchange and completion dates to be finalised (33%)
- 55% of homeowners are unlikely to move again within the next five years
- 19% would choose a different solicitor firm or estate agent when they next move home
- The average time between instruction and completion takes over five months (an increase of 23% from 2019).
The SRA released its AML Report for 2022
The annual anti-money laundering (AML) report from the Solicitors Regulation Authority (SRA) was published in October 2022. According to the SRA, while most solicitors and law firms are taking their AML obligations seriously, a “small minority” are not yet doing enough to fight economic crime.
We looked at what the regulators were saying about SoF in our latest webinar
The state of the UK economy, the effect of the war in Ukraine, and the fact that Great Britain is in ‘second place’ for global money laundering made the responsibility on law firms and adherence to AML regs both imperative and non-negotiable.
At the end of October, the SRA released its AML Report for 2022. The CLC also released a report earlier this year. Legal Eye Senior Compliance and Regulatory Specialist, Norman Denton and Tom Lyes, Head of Legal at Armalytix discussed what the SRA and CLA were saying about SoF in our latest webinar .
December – looking to 2023…
We continue to help firms that are struggling with their risk and compliance obligations
As the year draws to a close, the team at Legal Eye continue to offer a range of services that help our clients to protect against risk. These include a Legal Eye gap analysis where our specialist associates review a wide variety of risk and compliance areas, and provide a written report identifying any corrective actions recommended. With a wealth of practical hands-on experience, this service delivers much-needed peace-of-mind.
We also offer an outsourced complaint-handling service that provides the following benefits to our legal clients:
- Pick and choose the investigations you want us to deal with
- You only pay for the investigations we carry out per month
- Obligation free. You don’t have to send us a set number of investigations monthly/yearly
- Our experienced team includes previous LeO case handlers.
Why not sign up, send us a trial investigation, and see how we can save you valuable time and money?
We wish all our clients, partners, employees and friends a merry Christmas and a happy New Year
We hope you have enjoyed reading about some of the developments and activities we have been involved in over the last 12 months. And, as we say goodbye to what has been a challenging year for many, we wish you all a happy Christmas and a successful and compliant 2023.