But what does compliance look like in the covid-19 era – when lawyers were forced to switch with little notice to remote working, with a reduction – or at least a major shift – in supervision and support?
“Rules and principles are easy to follow when things are going well.” So said Cubism Law's Andrew Pena in his mitigation statement to the SDT before being struck off for dishonesty.
The first point to emphasise is that compliance requirements have not changed. Right at the start of the pandemic the SRA made clear that its expectations of compliance had not changed – regulatory requirements must still be complied with notwithstanding covid-19.
This means firms and individuals lawyers have been required to be extra-vigilant in preparing for the change in landscape and the risks facing the legal sector.
The ongoing implications of covid-19 mean law firms must be more vigilant than ever in how they plan for - and protect against - key risks facing the legal sector. Looking after client money is, unsurprisingly, a stated priority risk for the regulator in 2021-21: “People and businesses trust solicitors to look after their money. Keeping it safe is your responsibility.”
Firms who have changed their working practices because of covid, but have not updated their systems and controls to support those changes, are at heightened risk – not just from cybercrime or the temptation to use client money for purposes not permitted, but they are at risk of regulatory enforcement action.
The SRA said, in its latest risk outlook, that in the first half of 2020, nearly £2.5m of money held by firms had reportedly been stolen by cybercriminals (a three-fold rise on the amount reported in the first half of 2019).
Delaying the payment of disbursements is a breach of the accounts rules that can lead to strike off. Using client funds as a temporary measure to cover business expenses, such as tax bills, also breaches the accounts rules.
The SRA makes clear how seriously it treats the misuse of client money - you only have to look at the stream of SDT decisions to recognise this. Andrea Pena, for example, was recently struck off following after dishonestly misappropriating client funds to the tune of more than £265,000. This firm had been suffering financial difficulties which eventually put him under excruciating pressure. He said in his mitigation statement that he “cracked” and (among other things) transferred £265,000 of client money from a litigation matter and £15,000 from an individual client account to the office account, creating false invoices to justify them.
So for firms who have not been as robust as they perhaps should have been during the past year are prompted to review their processes and procedures and take action accordingly. This includes ensuing everyone in the firm understands their responsibilities around client money; having effective systems for auditing and account management; and avoiding allowing the firm’s client account to be used as a banking facility.
Finally, we recognise there are firms who are in financial difficulties, whether as a result of the pandemic or for other reasons. In those cases, you must inform the SRA if your firm is in serious financial difficulty.
And there is wider help and support available for firm leaders, solicitors and others within struggling firms, such as the charity LawCare, The Solicitors Charity and the Solicitors Assistance Scheme.
For a full guide to the SRA Accounts Rules post-covid, take a look at our new webinar by the experienced legal trainer Trevor Hellawell.