We are seeing more evidence of increasing levels of interaction between the regulator and law firms. You only need to open the back pages of the Law Society Gazette and read about the number of solicitors that have recently been subjected to a disciplinary hearing to appreciate what is happening. There are numerous reasons for this increased activity, but it is driven by their stated intention to engage with a greater number of firms than they have ever done so before. The visits can be completely random, but in our experience, they usually follow some form of complaint made by a client to the regulator. The scope of the engagement is then determined by what they discover on their preliminary visit. During the preliminary visit they will usually undertake a review of some matter files and will ask to see any related information including all relevant financial information.
Firms may also be asked to provide full details of residual balances. This enables the regulator to quickly assess whether firms are fully compliant with the Accounts Rules. If they discover balances where there has been no movement on the client account for over 12 months and that no attempt has been made to return the monies to the client, they will consider this a breach. This will inevitably lead to a wider investigation into the firm’s financial position. Other areas that they may wish to look in to could include lack of price transparency and the transfer of monies to office to client in respect of costs. This will inevitably lead to enquiries in to the firm’s billing and payment authorisation processes. They will expect this to be documented so that they can test it for compliance.
The engagement process can last for weeks or even months before the regulator produces its written report including potential sanctions against the firm. This can be extremely stressful, and time consuming for the firm’s managers and can then lead to fines or worse. Our advice to firms is to take the initiative and carry out their own review of their systems and controls before such an engagement takes place. Financial Eye are well placed to carry out an independent review and present our findings to firms to ensure they are meeting their regulatory obligations. Too many firms believe that an unqualified reporting accounts report is sufficient. The reality is far different as the report only provides a snap-shot of a limited number of transactions. An SRA engagement will go much further and deeper into the operation of the firm and it is imperative that the firm can demonstrate that all the relevant systems and controls are in place.
If you are concerned that you may have potential regulatory issues, or you have recently been contacted by the SRA, please do not hesitate to get in touch with Financial Eye for a free, confidential, no obligation consultation.