With headlines about the scrapping and then reinstatement of the 45% marginal tax rate and the reversal of the proposed Corporation Tax rate, solicitors’ firms could be forgiven for not spotting the potentially career-ending fining powers being offered to the Solicitors Regulation Authority.
When it comes to sanctions for breach of the Money Laundering Regulations, Tax Evasion, Fraud, and breach of international sanctions (e.g., in relation to Russia) the SRA already has significant fining powers. However, the Solicitors Regulation Authority is now being offered unlimited fining powers. The new provisions have been inserted in the Economic Crime and Corporate Transparency Bill.
Although, no doubt there will be guidance approved by the Legal Services Board and perhaps OPBAS.
However, a very large fine imposed on a sole practitioner or SME solicitors’ firm could spell financial ruin for that firm.
The plan apparently is to amend the Solicitors Act 1974 to remove the section which sets a limit on the amount of the penalty if the misconduct relates to ‘economic crime’. The SRA’s powers to fine traditional law firms and solicitors and others working in them was already increased from £2,000 to £25,000 from 20 July 2022.
Firms therefore should ensure that they raise their game now and have robust policies controls and procedures in place to mitigate the risk of their fee earners and other staff involving the firm in client fraud, money laundering, sanctions busting etc.
The profession is without doubt now expected to be the police force to prevent/detect these economic crimes.
Client due diligence is more important than ever and, in our view, using Electronic ID &V systems (such as Thirdfort https://www.thirdfort.com/, Smartsearch https://www.smartsearchuk.com/solutions/anti-money-laundering etc) is now essential. Gone are the days when you should rely on the client dropping in with their passport or proof of address.
Also, the SRA has launched a consultation on their fining powers which runs until 14th November 2022. Firms should respond to this consultation as the changes may have a profound effect on the future of your practice.
If you need help with implementing robust systems and procedures, then please get in touch for a no-obligation conversation. Cpm21 is here to help you face these new challenges.
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