tm blog

Last month saw the SRA publish their Risk Outlook for Spring 2015 which showed that little - in terms of the risks faced by firms - has changed much since their Autumn Update. The key areas of concern for the SRA remain bogus law firms, money laundering and the misuse of money or assets.

Some the figures associated with these issues are staggering.

In 2014 the SRA received over 700 reports of bogus firms which is the highest ever recorded. In 2013 the SRA received 548 reports about bogus law firms, up from 312 in 2012, so it is easy to see why bogus law firms are now seen as a real risk by the SRA to all sizes of law firms and should the rise in firms reported continue at the same rate in 2015 the figures will be near 1000.

Sadly this is reflected nationally across the whole economy with KPMG reporting a significant increase in fraud cases. There is little evidence to suggest that this trend will decline.

The SRA aim to visit 500 firms to audit their Anti-Money Laundering (AML) processes. Image copyright Images Money.

The SRA are now well into their assessment of a number of firms who are subject to the auditing of their current AML processes. They are aiming to visit 500 firms and their activity has been driven by an increase in reports concerning AML compliance - a handful of cases the likes of which they have not been seen before - as well as pressure from law enforcement agencies.

At a recent conference in March Steve Wilmott, Director of Intelligence and Investigation at the SRA, said that they will be looking at systems and procedures, record keeping, training and the activity of the MRLO at the firm. If they were to visit how confident would you be of passing their inspection?

Another area to feature in the Spring report is the misuse of money or assets.  The report revealed that things have changed little since Autumn with poor financial controls continuing to ‘provide opportunities for financial misconduct to occur.’

Within the update, the regulator states that they have seen recent cases where ‘poor systems and controls have been a factor in the misuse of money or assets’, citing that the root of the problem lies in inadequacies in training and supervision, as well as failure to control access to accounts.

So what can firms do to reduce these key risks? Well there is certainly quite a lot of information and service available which I will touch on.

1. 1. Use ‘Find a Solicitor’ on the Law Society website.
2. 2. Check the SRA website for updates on scam alerts.
3. 3. Make independent verification checks using Lawyer Checker which is only £10 and widely available.
4. 4. Online AML verification is readily available, inexpensive, comprehensive and instantaneous and covers UK and International clients from about £4 per name.
5. 5. Reliance on bank statements, passports and utility bills should be consigned to the past.
6. 6. Use secure search websites that are username and password protected and can provide an audit trail for every case.

Property remains by far and away the work type that attracts the most claims against solicitors. Over the last few years, property claims represent around 40% of all claims, although this peaked at 60% in 2010.

Due to the high level of claims, it is no surprise then that underwriters rate both residential and commercial conveyancing as the highest-rated work that a law firm undertakes.

Accreditation such Lexcel and CQS will be viewed positively, but the single biggest factor is that risk management cannot just a tick-box exercise; it has to be engrained within the culture of the firm.

Strong case management processes and procedures, case supervision and checklists are all important and, with PII renewal on the horizon, it may be timely to let underwriters know how you manage various risks in the conveyancing process.

There are many ways to help reduce the level of risk associated with conveyancing transactions, here's five of them:

In a recent survey to discover what checks, if any, conveyancers do before sending money to the seller's solicitors, it was revealed that 80% of conveyancers are still not performing bank account checks before handing over client and lender monies.

The survey was conducted at a recent conveyancing CPD seminar designed to help property solicitors mitigate risk and comply with regulatory requirements and was hosted by TM Group featuring guest speaker Jenny Owen from Lawyer Checker.

Mortgage fraud is one of the most significant and costly areas of risk for conveyancers and can put your PII renewals under serious threat. In 2013, the National Fraud Authority estimated the annual financial loss attributed to mortgage fraud at £1bn and lenders and clients will almost certainly have the inclination and right to initiate litigation to claim any lost money back.

A new whitepaper report on Mortgage Fraud has revealed that the majority of lenders surveyed consider 'solicitor negligence' to be the biggest fraud risk to their business.

The survey of more than 28 mortgage lenders shows that more than a third of the lenders fear 'solicitor negligence' but this can manifest in various forms and have serious consequences for the solicitor as well as the lender.

In a recent survey, mortgage lenders identified 'solicitor negligence' as the greatest risk to their businesses.

Mortgage fraud is a threat that is growing each year; in its 2013 Annual Fraud Indicator report, the National Fraud Authority estimated the annual loss attributed to mortgage fraud to be £1bn. Meanwhile, the SRA received 549 reports of bogus law firms in 2013, a 57 percent increase on the number from 2012.