Lawyers Covered - December 2022
Welcome to the latest edition of our Lawyers Liability & Regulatory Update, in which we look back over the last month at key developments affecting lawyers and the professional risks they face.
What could be more festive than our December edition of Lawyers Covered – so here it is, a gift from the Lawyers Liability and Regulatory Group at RPC, to all of you, our lovely readers! If you have any feedback or ideas for things you would like us to cover in the newsletter or in our seminars, please let us know. Merry Christmas!
SRA wields its enhanced fining power imposing a £15,000 penalty
The Solicitors Regulation Authority (SRA) has exercised its increased fining powers for the first time (October 2022), by imposing a £15,000 fine on Gordon Kemp, a solicitor, who failed to properly manage his clients’ financial affairs.
Calls for the SRA to improve 'inadequate' guidance
It remains a critical issue for lawyers to know what to do when they face ethical pressures. With the topic of lawyer involvement in wrongdoing returning to the fore, lawyers rightfully turn to their regulator for guidance. Complicated ethical scenarios can have a significant impact on those involved and clear guidance is necessary as a result.
Whilst the SRA provides its own guidance to navigate such situations, it appears this area is not accurately or properly understood. An open letter written by Professor Richard Moorhead, LawTech UK director Jenifer Swallow and former Herbert Smith Freehills partner Graeme Johnston, has called for "improved communication on the subject of confidentiality and privilege" in the context of client wrongdoing.
This follows a review of the SRA's guidance on disclosure of confidential information that was found to be wrong as a matter of law, confused, and lacking in clarity. It also found that areas such as "ongoing [client] wrongdoing" and "whistle-blower protections" were not addressed at all, yet were likely relevant in commercial work and not just the finite and limited examples provided by the SRA.
The letter suggests that "better, more commercially focused guidance" would help and support lawyers and their clients, promote fair and proper standards, and uphold the rule of law. The SRA has said it will respond in due course.
Due Diligence: firms must look at the "Why" not just the "Who", SRA says
This month, the SRA published new guidance which aims to help firms and solicitors understand and comply with their obligations under the UK Sanctions Regime. The guidance largely centres on the financial sanctions regime and can be accessed here.
Paul Philip, SRA Chief Executive, said "The sanctions regime applies to all firms that provide legal services, not just those that are captured by anti-money laundering regulations."
Firms will need to go further than standard anti-money laundering checks in order to ensure compliance. When verifying a client's identify, proper due diligence will involve not only looking at "who" the client is, but consideration must also be given as to "why" they want to instruct a lawyer in the first place.
The SRA have set out a number of red flags that firms need to look out for. Those warning signs include: unusual transactions, client resistance to due diligence, indications of sham litigation (i.e. manufactured disputes where the transfer of assets is facilitated by settlement), the use of newly-opened bank accounts, and a client changing their name by deed poll.
The SRA say they will have regard to the new guidance when exercising their regulatory functions. It is therefore essential that firms familiarise themselves with this new guidance as it provides important practical advice on how best to avoid breaches of the UK's sanctions regime. A key takeaway will be the importance of implementing "effective client due diligence measures".
SRA issues new supervision guidance
Last month, the SRA published new guidance on supervision. The guidance is targeted at regulated individuals and law firms' managers/senior staff. The aim is to help them comply with existing statutory and regulatory requirements on supervision. The guidance provides commentary on the SRA's expectations as well as good practice suggestions for firms and individuals to implement.
RPC will be posting a two-part series explaining the new guidance and how to 'defend' yourself against the SRA when they investigate your supervision.
SRA SLAPPs warning notice on solicitors' involvement
The SRA also published a Warning Notice last month on solicitors' involvement in SLAPPs (Strategic Lawsuits Against Public Participation), as well as information for those who might be the target of SLAPPs. The Warning Notice provides guidance for firms on red flags to identify SLAPPs, as well as comment on behaviours which are likely to result in regulatory action against firms. Lawyers will need to consider the Warning Notice when taking on clients, and taking key strategic decisions, specifically in contentious matters.
Read our full article here.
Hong Kong – Review of whether King's Counsel not qualified in Hong Kong allowed to appear in "national security" cases
In the November 2022 edition we reported on Re Owen KC – a decision of the courts that approved a London based King's Counsel's application for admission to appear on behalf of a defendant at a criminal trial in Hong Kong. The trial includes (among other things) a charge of alleged "collusion" contrary to the National Security Law (NSL) and the application is the first with respect to a "national security" trial.
On 28 November 2022, the Appeal Committee of the Court of Final Appeal (CFA) rejected an application by the Secretary for Justice (SJ) for permission to appeal. The CFA judges did so because the arguments raised by the SJ were new points that had not been substantively dealt with in the courts below. In particular, the SJ had raised a new issue of a "blanket ban" on admission of overseas advocates in "national security" cases.
Soon after the CFA judges' decision, the Chief Executive of Hong Kong SAR announced an intention to seek an "interpretation" of the NSL from the relevant legislative body in Mainland China. The power of interpretation rests with that legislative body, pursuant to Article 65 of the NSL.
At the time of writing, the situation is very fluid and there appear to be one of several possible outcomes, including:
- that the NSL be interpreted (or guidance be given) to provide that overseas advocates who are not qualified in Hong Kong be prohibited from appearing in "national security" cases;
- that section 27(4) of the Legal Practitioners Ordinance be amended to restrict the High Court's discretion to admit overseas advocates (who are not qualified in Hong Kong) with respect to "national security" cases; or
- that admission of overseas advocates (who are not qualified in Hong Kong) for "national security" cases be left to the courts to determine, while the decision to grant work visas rests with the Immigration Department.
Disclaimer: The information in this publication is for guidance purposes only and does not constitute legal advice. We attempt to ensure that the content is current as at the date of publication, but we do not guarantee that it remains up to date. You should seek legal or other professional advice before acting or relying on any of the content.