Professional indemnity insurance
While most firms continue to find cover, we expect a number of smaller firms will close. Solicitors and their brokers are generally alert to the risk of successor practice liability under the SRA Minimum Terms and Conditions, and in many cases those acquiring practices or teams will have avoided the consequences by making an election.
However these are not the only risks, as Frank Maher has successfully represented several firms in cases where, after acquisition, they discovered a shortage in the prior firm’s client account, and the SRA sought to make the acquiring firm fund the shortfall. The SRA’s guidance on Money missing from client account (June 2024) does not address this particular issue.
Legal Ombudsman awards against a successor firm are another problem area, with potentially catastrophic consequences in some cases due to different successor provisions.
Frank Maher has advised several hundred law firms on insurance coverage and successor practice issues.
Anti-money laundering (AML) and sanctions
Firms will have submitted their response to the SRA request for data which was due on 23 September 2024. The responses will feed into future visits and any inaccuracies may cause difficulty.
SRA visits may lead to a variety of outcomes. For some, they are not a problem, but others may be referred for regulatory investigation. If a firm receives notice that breaches of the requirements have been found and action is proposed, a key lesson is that very prompt action and implementation of a compliance remediation plan may in some cases result in closure without action. Sue Mawdsley has advised firms on this with success in a number of cases. Demonstrating you have been keeping your approach under review to see how it works in practice is also key. We also undertake AML audits for a wide cross-section of firms, including US and UK-based international practices.
The decision in World Uyghur Congress v National Crime Agency [2024] EWCA Civ 715 has largely removed the protection provided by the adequate consideration defence in section 329 of the Proceeds of Crime Act 2002 because even where adequate consideration has been provided, where funds are criminal property, they remain criminal property where the recipient either knows or suspects that they are the proceeds of crime. The recipient will require a Defence Against Money Laundering (DAML) consent for the onward transfer of the proceeds. In some circumstances law firms may need a DAML to receive payment of their fees. While guidance is promised by the Legal Services Affinity Group, it is difficult to see how these issues can be resolved without legislation. Meanwhile, the Bar Council has produced a Practice Note.
On sanctions, an appeal to the Supreme Court in Mints v PJSC National Bank Trust [2023] EWCA 1332, holding that a bank almost solely owned by the Central Bank of Russia was ‘controlled’ by President Putin, is to be heard on 25 March 2025.
Data protection
The judgment in Harrison v Cameron [2024] EWHC 1377 (KB) analyses the application of the third-party data exception to the requirement to provide information in response to a data subject access request (DSAR) in paragraph 16 of Schedule 2 of the Data Protection Act 2018. It re-emphasises that a data controller has ‘a wide margin of discretion to decide what is reasonable in this context, and courts should not lightly interfere with the controller’s assessment’. However, data controllers should provide specific identities of recipients under Article 15(1)(c) of UK GDPR rather than categories of recipients unless it would be impossible or manifestly excessive to do so.
Artificial Intelligence (AI)
The American Bar Association Standing Committee on Ethics and Professional Responsibility has released Formal Opinion 512 covering the growing use of generative artificial intelligence (GAI) in the practice of law. Many of the principles may be relevant to those in other jurisdictions.
If anyone needs persuading that they need to verify the outputs from AI, the writer’s following recent dialogue with ChatGPT may assist –
How many Rs are there in Strawberry?
There are 3 Rs in the word “Strawberry.”
How many Rs are there in Raspberry?
There are 2 Rs in the word “Raspberry.”
SRA Accounts Rules – banking facility
We continue to see the SRA raising allegations that firms have breached the prohibition on providing banking facilities in breach of rule 3.3 of the SRA Accounts Rules and are advising some on their defence to the allegations. This may arise following AML audits, accountants’ reports of self-reports.
We are seeing the SRA seeking to extend the boundaries of the provision, yet the words ‘banking facility’ are not defined in the rules or the many decisions. There is an Alice in Wonderland risk that ‘When I use a word…it means just what I choose it to mean — neither more nor less’; this should be resisted. One particular case in point relates to payment of the firm’s own costs and, having analysed 33 Solicitors Disciplinary Tribunal decisions (with AI) we have found no similar examples.
For further information on professional regulation and professional indemnity insurance contact Frank.Maher@keystonelaw.co.uk or Sue.Mawdsley@ keystonelaw.co.uk.