Law firm compliance news

Following the announcement of Paul Phillip’s retirement from the SRA earlier this year, his successor has been named as Sarah Rapson, who has joined from the FRC, where she was the Executive Director of Supervision. Sean Hanking, who may of you will be familiar with, has also moved on from the SRA, with recruitment ongoing for his replacement.

Finally, as announced in late October, responsibility for AML supervision for solicitors will move from the SRA to the FCA, consistent with changes to AML provisions for other regulated sectors, including accountancy. The timeline and plans for this are unclear at this stage, but we will release articles when more information becomes available.

With the majority of law firms having either March or April year ends, the AR1 season for reporting accountants typically draws to an end around this time, and we have set out our two key observations from this year’s round of reviews.

• Residual client balances
  These remain a very high priority area of focus for the SRA, and we have continued to see progress at firms who seek to identify, control and resolve such balances. It is important to ensure that the progress made over recent years does not stall, and firms continue to take reasonable steps to ensure to return client monies promptly once there is no longer a reason to hold them. We are aware of a number of investigations having been opened as a result of the SRA’s January 2025 spot checks, and we would expect the SRA’s interest in this area to continue. At the recent SRA COLP/COFA conference, the question of having a policy to simply donate balances below a certain amount to charity was raised, and the overwhelming response was that proportionate steps should be taken in all circumstances.
• Banking facilities
  This area continues to present challenges to firms, remaining highly subjective, with outcomes being contingent upon specific details to matters. We noted a number of instances through the course of our reviews where judgements had been made by firms, and the best outcomes were in those firms where those judgements had been recorded by the firm’s COFA at the time. We understand that there are a number of new banking facility case studies due to be released imminently, which will hopefully give firms more clarity and confidence to conclude on situations as they arise. As a reminder, the SRA’s Professional Ethics Helpline remains available to field queries from the profession, and they will provide a written response if requested. While they do not offer safe harbour guidance, in the event of future challenge of a judgement applied by a firm, evidence of robust consideration and challenge will help to support the actions taken.