Legal Services

Question 1

what are the different types of legal work which are defined as ‘reserved legal activities’ s 12 Legal Services Act 2007

Answer 1

1. the exercise of a right of audience
2. the conduct of litigation
   - Media Protection Services Ltd v Crawford (one of the directors laid down info in front of the mags which led to the issuing of summons)
   - JK v MK and E- Negotiation Ltd
   (husband and wife used online divorce facilitator, h&w submitted the docs themselves to the court - online divorce facilitator not at fault)
3. reserved instrument activities (preparing and lodging an instrument (formal legal document) dealing with the transfer or charge of land relating to real or personal
   estate or an instrument relating to court proceedings)
   wills and POA excluded
4. probate activities
5. notarial activities (certifying and authenticating certain docs)
6. the administration of oaths

Question 2

under s 13 Legal Services Act 2007 reserved legal activities can only be carried out by those who are _________ + __________

how does a person become the above?

what happens if they carry out legal services when they are not the above?

Answer 2

authorised and exempt

authorisation comes from regulator

section 19 deals with exempt

offence is punishable by up to two years’ imprisonment + rights of audience / conduct of litigation = may also be found in contempt of court > Re Balli

Question 3

under s 19 LSA = certain persons are exempt from the general rule that you cannot provide reserved legal activities unless you are authorised

who is exempt

Answer 3

rights of audience a person will be exempt if a court grants that person a right of audience in a particular case e.g. McKenzie friend (litigants in person)

probate activities = exemption allows an employee to act under the supervision of an authorised person

Question 4

who is responsible for the regulation of all lawyers in the UK?

what are their aims?

Answer 4

Legal Services Board

s1 LSA

• public interest;
• rule of law;
• improving access to justice;
• protecting and promoting the interests of consumers;
• promoting competition in the provision of services in the legal sector;
• encouraging an independent, strong, diverse, and effective legal profession;
• increasing public understanding of citizens’ legal rights and duties;
• promoting and maintaining adherence to the professional principles;
• promoting the prevention and detection of economic crime.

Question 5

who are the eight different regulators that sit below the LSB and what is their relationship with the LSB.

Answer 5

1. SRA
2. Bar Standards Board
3. CILEx Regulation
4. Council for Licensed Conveyancers
5. Intellectual Property Regulation Board (patent attorneys + trade mark attorneys)
6. Costs Lawyers Standards Board
7. Master of the Faculties (Notaries)
8. Institute of Chartered Accountants in England and Wales (carrying out probate activites)

• individual regs = same objectives as LSB
• LSB can make recommendations for
  improvement, impose penalties for deficiencies or ultimately withdraw approval
• LSB must consent to any regulatory changes made by the individual regulators

Question 6

some providers carry out work which falls outside the LSA, but they are nonetheless subject to legal regulation, what are they?

Answer 6

1. Claims management companies – regulated by the FCA
2. Immigration advisers – regulated by the Office of the Immigration Services Commissioner
3. Insolvency practitioners – regulated by the Insolvency Practitioners Association.

Question 7

give examples of unregulated legal services

Answer 7

will writing, family law advice and employment law advice

Question 8

As an approved regulator the SRA is able to authorise firms as well as individuals. Only certain types of businesses are eligible for authorisation, what are they?

Answer 8

1. recognised sole practice
2. recognised body

• at least 75% of the body’s managers are legally qualified
• proportion of shares and voting rights held by legally qualified persons is at least 75%
• managers who are not legally qualified are approved by the SRA
• at least one manager must be a solicitor (or registered European lawyer)
• may take the form of partnerships, LLPs, companies

3. licensed bodies
   - at least one manager authorised by the SRA or another approved regulator
   - has to be a licensable body

Question 9

what are the COLP and COFA called in a licensed body?

Answer 9

Head of Finance and Administration (HOFA)
+
Head of Legal Practice (HOLP)

Question 10

to be a licensed body:

a) at least on manager authorised by the SRA or another approved regulator

and

b) has to be a licensable body

what is a licensable body?

Answer 10

A body (‘B’) will be a ‘licensable body’ if a non- authorised person (ie someone not authorised by the SRA or another approved regulator):

(a) is a manager of B; or
(b) is an interest holder of B (eg a person who holds shares in it or is entitled to exercise any voting rights).

Alternatively (or in addition to the above), a body (‘B’) will be a licensable body if:

(a) another body (‘A’) is a manager of B, or is an interest holder of B; and

(b) non- authorised persons are entitled to exercise, or control the exercise of, at least 10% of the voting rights in A.

Question 11

how does the SRA authorise individuals to undertake regulated legal activities

Answer 11

admitted as a solicitor, name is on the roll and has practicing certificate

Question 12

what are the SRA Assessment of Character and Suitability Rules?

give examples

Answer 12

conduct the SRA will consider when looking at admission of a sol

criminal conduct - most serious / serious

other behaviours:
* dishonest, violent, threatening or harassing or discriminatory behaviour towards others;
* plagiarism or cheating
* evidence that the applicant has deliberately sought to avoid responsibility for their debts, dishonestly managed their finances, been declared bankrupt or cannot
satisfactorily manage their finances;
* the applicant has been made the subject of serious disciplinary or regulatory findings or sanctions.

must disclose all to the SRA (even if they took place overseas)

Question 13

in which courts can a sol not exercise their rights of audience?

how would they obtain them?

Answer 13

Crown Court, High Court, Court of Appeal and Supreme Court

the Higher Courts Qualification (either civil or criminal advocacy versions)

Question 14

the SRA may refuse to issue a practicing certificate full stop or impose conditions on one. can you appeal this?

Answer 14

yes - application for a review by the SRA or
appealed to the High Court

Question 15

which solicitors work outside authorised firms?

Answer 15

1. freelance solicitors - ordinarily would need to be authorised as a regulated sole practitioner, but not necessary if:

(a) their practice consists entirely of carrying on activities which are not ‘reserved legal activities’
(for example, family, employment or personal injury work and general legal advice);

(b) any reserved legal activities are provided through an authorised body; or

(c) certain requirements are met. e.g. must have practised as a solicitor for a minimum of three years since admission, be self- employed and practise in their own name,
take out indemnity insurance in respect of all the services they provide, does not employ anyone in connection with those services and only holds limited categories of client money.

2. in-house solicitors - able to give legal advice to the company but not to the general public
3. non-commercial organisations - includes not- for- profit bodies, charities, community interest groups and independent trade unions - sols working within this organisations are allowed, on behalf of the
   organisation, to provide reserved legal activities to the public

• covered in the wider insurance arrangements they will have in place
• SRA requires the sol to have professional indemnity insurance that is ‘adequate and appropriate’ for the work they are carrying out

4. other organisations - but cannot undertake reserved legal activities

Question 16

what is professional indemnity insurance?

Answer 16

caters for the possibility that the insured may be guilty of a breach of professional duty which gives rise to financial loss or damage to a third party

the insurer will indemnify the insured in respect of the loss or damage

Question 17

indemnity insurance policies usually need to be renewed each year. their cover is normally in respect of claims made during
the year, rather than events occurring during the year

true / false?

what is the impact?

Answer 17

True

A firm therefore needs to be forward
thinking. It will need to have insurance in place in future years to cover claims based on negligent acts occurring today.

Question 18

the SRA requires firms to have qualifying indemnity insurance at all times. what happens if a firm cannot effect new qualifying insurance at the end of the previous policy?

Answer 18

the minimum terms and conditions will extend the cover for a maximum of 90 days

the firm must inform the SRA that it has entered this extended policy
period

the firm can use this time to try to find insurance cover

After 30 days, if no cover can be found, the firm must notify the SRA and cannot take on new work.

If, at the end of 90 days, insurance cover still cannot be secured the firm must cease practising.

Question 19

the SRA requirement to take out ‘adequate and appropriate’ indemnity cover applies to who….

Answer 19

SRA authorised firms
freelance sols providing reserved legal services
sols in non-commercial organisations providing reserved legal services to the public

Question 20

what duties do sols have regarding their indemnity insurance and clients

Answer 20

must be open with their client

Question 21

the SRA’ indemnity insurance rules provide a minimum requirements for the insurance cover, what are they and if they are not adequate and appropriate, what might a firm do?

Answer 21

For recognised and licensed bodies the sum
insured for any one claim (exclusive of defence costs) must be at least £3 million and at least £2 million in all other cases.

get ‘top up’ cover

Question 22

who is not bound by the SRA’s minimum indemnity insurance requirements?

Answer 22

freelance sols - they must inform their clients of this

Question 23

what are the protected characteristics under the equality act?

Answer 23

1. race (colour, nationality + ethnic/national origins)
2. religion and belief - not a viewpoint (belief must be genuinely held relate to a substantial part of human life, attain
   a certain level of cogency and be worthy of respect)
3. sex
4. sexual orientation (covers attraction as well as behaviour)
5. age
6. disability - someone has a disability if:
   * they have a physical or mental impairment; and
   * the impairment has a substantial and long- term adverse effect on their ability to carry out normal day to day activities
   - note HIV is deemed to be a disability
7. gender reassignment
8. marriage/CPs
9. pregnancy/maternity

Question 24

the EA 2010 outlaws certain kinds of unequal treatment, and categorises them as prohibited conduct, what are they?

Answer 24

Direct Discrimination
* A person (A) discriminates against another (B) if, because of a protected characteristic, A treats B less favourably than A treats or would treat others
* three elements - actual/hypothetical comparator, less favourably, because of protected characteristic
* obvious / overt discrimination
* note - where the protected characteristic is age there is no discrimination if the treatment was a proportionate way of achieving a legitimate aim (s 13(2) Equality Act 2010)

Indirect Discrimination
* where conditions are imposed which apply to everyone, but which have the effect of prejudicing members of a particular group
* possibility of justifying the action on the basis that it is a proportionate means of achieving a legitimate aim.
* ID doesn’t apply to pregnancy/maternity – only DD

Disability discrimination
* In addition to claim under DD or ID
* It is discrimination to treat a disabled person less favourably not only because of the individual’s disability itself but also because of something arising from, or in consequence of, that disability
* No need for comparator
* Can be justified if proportionate means of achieving a legitimate aim
* perpetrator must have known, or reasonably be expected to have known, that the disabled person had a disability

Victimisation
* A person (A) victimises another person (B) if A subjects B to a detriment because B does a protected act, or A believes that B has done, or may do, a protected act.

A protected act is any of the following:
 bringing proceedings under the Act;
 giving evidence or information in
proceedings brought under the Act;
 doing anything which is related to the
provisions of the Act;
 making an allegation that another
person has done something in breach
of the Act.

The victim does not need to have a protected characteristic in order to receive protection from victimisation under the Act.

Harassment
* individual is subjected to a specific form of unwanted conduct which has the effect of violating the individual’s dignity, or creating an intimidating, hostile, degrading, humiliating or offensive environment for the individual
* the unwanted conduct must
* relate to a protected characteristic (except pregnancy/ maternity and marriage/ civil partnership);
* be of a sexual nature; or
* be of a sexual nature or related to gender reassignment or sex and result in less favourable treatment because of the individual’s rejection of or submission to the conduct.

Question 25

is less favourable treatment judged objectively or subjectively?

Answer 25

objectively but motive may be relevant when looking at remedies

Question 26

in what circumstances does the EA impose a duty to make reasonable adjustments?

what are the reasonable adjustments?

Answer 26

for disabled people

1. provision, criterion and practice
2. physical features
3. provision of auxiliary aid

where one of these is present (or not present for the provision of an aux aid) and it puts the disabled person at a substantial disadvantage in comparison to people who are not disadvantaged, reasonable steps must be taken to avoid the disadvantage

failure to comply with the above = discrimination

substantial disadvantage - ‘more than minor or trivial’

Question 26

when a person is directly discriminated against because of their protected characteristic, does the protected characteristic have to be the only / sole reason for the discrimination?

Answer 26

no but it must be an influence

Question 27

Under s 29 it is unlawful for a service provider to do what

Answer 27

• to discriminate or victimise:
  ∘ by not providing the service
  ∘ as to the terms on which the service is provided
  ∘ by terminating the provision of the service, or
  ∘ by subjecting the user of the service to any detriment.
• Or to harass the person to whom the service is provided.

applies to all legal service providers (even if unregulated)

applies to all the protected characteristics except marriage/ civil partnership and
age, where the individual is under 18 years of age

Question 28

how may a firm be held liable for the actions of it’s employees regarding the EA

Answer 28

Under s 109 Equality Act 2010 acts done by an employee are treated as if done by the
employer regardless of whether the firm new

vicarious liability- only arises in respects of an act of discrimination which was committed by an employee in the course of their employment

possible defence in that a firm will be able
to avoid vicarious liability if it can show that they took such steps as were ‘reasonable’ to
prevent the particular act of discrimination or acts of that description

However, those steps must have been taken BEFORE the discriminatory act occurred

Question 29

a service provider will be considered to have discriminated against a disabled person if they fail to make __________

however there is no duty to fundamentally change the _________________________

the ______ of the above cannot be _________ onto those using the service

who can bring a claim for the above?

what factors will be considered when looking at whether the above is reasonable?

Answer 29

reasonable adjustments

no duty to fundamentally change the nature of the service

the cost of the reasonable adjustments cannot be passed onto those using the service

only the disabled individual affected by the failure to make adjustments can bring a claim

the cost of the adjustments, the nature of the service being provided and the size of the firm

Question 30

anti discriminatory provisions of the EA are also applicable in the workplace, what must an employer not do?

Answer 30

• discriminate against or victimise a prospective employee:
  ∘ in the arrangements made for deciding to whom to offer employment
  ∘ as to the terms on which employment is offered, or
  ∘ by not offering employment.
• harass a person who has applied to it for employment
• discriminate against or victimise an employee:
  ∘ as to the terms of employment
  ∘ in the way it affords access to opportunities for promotion, transfer or training, or for receiving any other benefit, facility or service
  ∘ by dismissing the employee, or
  ∘ by subjecting the employee to any detriment.
• harass an employee

detriment = disadvantaged in the circumstances in which they had to work (no need to prove physical or financial consequences)

Question 31

in what circumstance would it be lawful for an employer to discriminate?

Answer 31

The exception applies where an employer is able to demonstrate that, because of the nature of the job, only people with a particular protected characteristic are able to do it

the exception only applies where =
proportionate means of achieving a legitimate aim

Question 32

employers have a duty to make adjustments for disabled employees or prospective employees - how does this duty differ to the duty imposed on service providers?

what case

Answer 32

service providers (e.g law firms) - duty is anticipatory

employers = only required to make adjustments if they know or ought reasonably to know that the individual is disabled and likely to be disadvantaged

The Government Legal Service v Brookes UKEAT 0302/ 16

Question 33

what must be attempted before an employee takes a claim to the ET?

Answer 33

conciliation process through the Advisory,
Conciliation and Arbitration Service before proceeding to the ET

Question 34

barristers are protected from discrimination by a sol when they are receiving instructions. what must the sol not do when they are instructing the barrister?

Answer 34

A person must not, in relation to instructing a barrister:
(a) discriminate against a barrister by subjecting the barrister to a detriment;
(b) harass the barrister;
(c) victimise the barrister.

Question 35

in what circumstances might the EA allow for positive action to be taken in an attempt to address any disadvantages suffered by those with a protected characteristic?

Answer 35

2 requirements

The first requirement is that the firm must reasonably think that:

• persons who share a protected characteristic suffer a disadvantage connected to the characteristic; or
• persons who share a protected characteristic have needs that are different from the needs of those who do not share it; or
• participation in an activity by persons who share a protected characteristic is
  disproportionately low.

the firm must have a reasonable basis for its belief e.g. survey showing low participation by a group

The second requirement is that the action taken by the firm is a proportionate means of achieving one of the following aims:

• enabling or encouraging persons who share the protected characteristic to overcome or minimise that disadvantage; or
• meeting those needs; or
• enabling or encouraging persons who share the protected characteristic to participate in that activity.

example of positive action = providing specific training to some of its employees

similar provision in the act relating to recruitment and promotion - where an employer reasonably thinks that people with a certain protected characteristic are disadvantaged or poorly represented

only permitted where the person with the relevant characteristic is ‘as qualified as’ the others

Qualification in this context is not restricted to having passed particular examinations, but instead relates to the overall suitability of the individual for the job or promotion. In practice, it is said that an employer can make use of s159 in a ‘tie- breaker’ situation

this does NOT permit positive discrimination

Question 36

how does the EA overlap with sol’s professional conduct obligations?

Answer 36

Discriminatory acts, by their very nature, diminish trust and confidence in the
profession and therefore breach SRA Principle 2. A solicitor who fails to comply with the Act is therefore likely to be subject to separate disciplinary action.

discriminatory acts may not fall under the EA if they are not against a protected characteristic but the sol is still likely to face disciplinary action

Question 37

where do the provisions of the EA apply?
where do they not apply?

Answer 37

The Equality Act 2010 only makes discrimination unlawful in certain
contexts (eg in the provision of legal services and in the workplace).

If something is done outside of work - professional conduct action

Question 38

The regulation of financial services is mainly in the hands of two bodies established under
the Financial Services Act 2012.

what are they?

Answer 38

the FCA

the Prudential Regulation Authority

Question 39

the FCA set three main objectives in the FMSA 2000.

what are they?

Answer 39

1. the consumer protection objective = securing an appropriate degree of protection for consumers
2. the integrity objective = protecting and enhancing the integrity of the UK financial system
3. the competition objective = promoting effective competition in the interests of consumers in the market, including for regulated financial services

The FCA’s powers extend to being able to require firms to withdraw or amend misleading financial promotions with immediate effect and to block the launch of, or stop, a service or product.

Question 40

The Financial Services and Markets Act 2000 (PRA- regulated Activities) Order 2013 sets out
which regulated activities in the RAO 2001 are PRA- regulated activities, and any firm with
permission to carry out such activities will be designated a PRA- authorised firm.

what activities are PRA-regulated activities?

Answer 40

include accepting deposits, effecting a contract of insurance and dealing with investments as principal

Question 41

what is the general prohibition?

Answer 41

• FMSA 2000 = ‘No person may carry on a regulated activity in the UK unless authorised or exempt.’
• authorised persons are granted permission by the relevant regulator (the FCA)
• carrying out a regulated activity without the appropriate permission = criminal offence up to 2 years’ imprisonment or unlimited fine + may make any agreement unenforceable

Question 42

what is the financial promotions restriction?

Answer 42

• an unauthorised person cannot engage in a financial promotion
• it is a criminal offence to make an unauthorised financial promotion
• if a firm wishes to engage in regulated activities, it must be:
  1. authorised by the FCA or
  2. fall within the special provision for professional firms
• the special provision just means you are exempt from needing FCA approval if you are regulated and supervised by a professional body designated by the Treasury (a designated professional body or ‘DPB’)
• The SRA is a DPB

Question 43

Under s 22 FSMA 2000 a regulated activity is defined as an activity of a specified kind that is carried on by way of business and relates to a specified investment or property of any kind.

this definition contains a number of tests.

what are they?

Answer 43

(a) Are you in business? (in the course of employment)
(b) Is there a specified investment, or does the specified activity relate to information about a person’s financial standing or administering a benchmark?
(c) Is there a specified activity?
(d) Is there an exclusion?

Question 44

turning to look at the second test for whether an activity is regulated ‘is there a specified investment, or does the specified activity relate to information about a person’s financial standing or administering a benchmark’

what falls under specified investment?

Answer 44

specified investments include:

• shares (but not shares in the share capital of an open- ended investment company or building society incorporated in the UK);
• debentures;
• gilts;
• unit trusts and OEICs;
• contract of insurance;
• regulated mortgages;
• home reversion/ home purchase plans;
• deposits.

Investments that will not be relevant include:
* interests in land;
* most National Savings products.

Question 45

turning to look at the third test for whether an activity is regulated ‘is there a specified activity?’

what falls under specified activity?

Answer 45

1. dealing as agent
   - when a sol is acting on the client’s behalf and commits the sol to a transaction
   - e.g. selling shares on behalf of a client pursuant to a financial order made on divorce
   - usually where there is a third party that completes the transaction and the sol just facilitates this
2. arranging
3. managing
   - most common in firms that undertake probate and trust work, where the solicitor is acting as trustee or personal representative
4. safeguarding
5. advising
   - sol giving advice to a person in their capacity as an investor on the merits of buying, selling, subscribing for, or underwriting an investment
   - advice must be about a specific investment
6. lending money on/ administering a regulated mortgage contract

Question 46

There are various exclusions set out in RAO 2001. The effect of an exclusion is that an act which would otherwise be a regulated activity is no longer regarded as such. If an exclusion applies to a particular activity a solicitor is carrying out, the solicitor does not need to be authorised for that particular transaction.

what are the exclusions?

Answer 46

(a) introducing
- only relevant to arranging
- for the exclusion to apply the solicitor must simply introduce the client to an authorised person and then have no further role in this aspect of the client’s matter. - if the solicitor retains any ongoing role, such as acting as a means of communication between the client and the authorised person, then the exclusion cannot be relied upon.
- exclusion cannot apply if the transaction relates to an insurance contract

(b) using an Authorised Third Party
- applies to dealing as an agent and arranging
- The exclusion applies where the transaction is to be entered into based on the advice of an ATP, ie a person authorised by the FCA.
- Here the solicitor retains an ongoing role in the
transaction, but it is clear that the financial advice is being provided by the ATP.
- A solicitor cannot rely on this exclusion if the solicitor receives from any person other than the client any pecuniary reward (eg commission) or other advantage arising out of the client entering into the transaction, for which the solicitor does not account to the client.
- cannot apply if the transaction relates to an insurance contract

(c) acting for an execution- only client
- relevant to activities of dealing as an agent and arranging
- This exclusion applies where the client, in their capacity as an investor, is not seeking and has not sought advice from the solicitor as to the merits of the client’s entering into the transaction (or, if the client has sought such advice, the solicitor has declined to give it but has recommended that the client seek such advice from an authorised person).
- same restrictions apply as those to ATP (i.e commission and insurance contracts)

(d) acting as trustee or personal representative
- NOTE acting AS trustee not FOR
- applies to arranging, managing, safeguarding and advising fellow trustees and/ or beneficiaries. It also applies to lending money on, or administering, a regulated mortgage contract
- exclusion doesn’t apply if the sol is renumerated or to insurance contracts or pursuing insurance distribution
- For managing and safeguarding, the exclusion is also not available if the solicitor holds themselves out as providing a service comprising managing or safeguarding.

(e) the ‘professional/ necessary’ exclusion
- applies to advising, arranging, safeguarding and dealing as agent
- applies to situations where it is not possible for the other services to be provided unless the regulated activity is also provided
- e.g. when acting on the acquisition of a company, giving advice on the merits of buying it and arranging for the acquisition of its shares
or, in probate work, arranging for the sale of all of the assets to pay Inheritance Tax
- the exclusion does not apply if the activity is remunerated separately from the other services or pursuing insurance distribution

(f) Activities carried on in connection with the sale of a body corporate - the ‘takeover’ exclusion
- arranging, advising and dealing as agent
- the exclusion will apply if:
a) the shares consist of or include 50% or more of the voting shares in the body corporate; and
- note it is possible to add the number of shares being acquired by a person to those already held by them in order to determine whether the 50% limit has been achieved.
(b) the acquisition or disposal is between parties each of whom is a body corporate, a partnership, a single individual or a group of connected individuals.
- single group of people, each of whom is or will be a director or manager of the company being sold, or a close relative of any such director or manager, or
person acting as trustee for any of the above persons

Even if the above criteria are not met, eg the number of shares acquired is less than 50%, but the object of the transaction may nevertheless reasonably be regarded as being the acquisition of day- to- day control of the affairs of the body corporate, the exclusion still applies.

Question 47

The s327 exemption makes a special provision for firms that do not carry out mainstream financial
services but which undertake regulated activities in the course of other work, eg conveyancing,
personal injury and trust work.

The effect is that firms authorised by the SRA can carry out certain regulated activities (exempt regulated activities) without being regulated by the FCA if
the firm can meet the conditions in s 327 FSMA 2000.

what are the main conditions in s327 FSMA

Answer 47

Under s 327, the general prohibition in s 19 FSMA 2000 will not apply to a regulated activity carried on by a firm of solicitors if the following conditions are met:

• the activity must arise out of, or be complementary to, the provision of a particular professional service to a particular client;
• the manner of provision by the firm of any service in the course of carrying out the activities is incidental to the provision by the firm of professional services;
• the firm must account to the client for any reward or other advantage which the firm receives from a third party;
• the Scope Rules do not prohibit the firm using the exemption.

Question 48

what is meant by “the manner of provision by the firm of any service in the course of carrying out the activities is incidental to the provision by the firm of professional services”

Answer 48

• there are two incidental tests
  1. specific test
• under the SRA Scope Rules a firm cannot carry out a regulated activity in isolation for a client
• the relevant regulated activity must ‘arise out of’ or be ‘complementary to’ some other service being provided by it
• this other service must not be a regulated activity > it must be professional i.e giving legal advice
• the professional service should be the primary service, with the regulated activity being ‘incidental’ or ‘subordinate’ to the professional service
• Note also that both the professional service and the regulated activity must be supplied to the same person.

2. general test
   - the activities carried out by the firm which would otherwise be regulated cannot be a major part of the firm’s activities
   - e.g. a firm will be ineligible if its income from investment business is half or more of its total income
   - Further factors are:
   (a) the scale of regulated activity in proportion to other professional services provided;
   (b) whether and to what extent the exempt regulated activities are held out as separate
   services; and
   (c) the impression given of how the firm provides those activities, for example through advertising its services.

Question 49

what are the SRA Scope Rules

Answer 49

• The Scope Rules set out the scope of the activities that firms can carry out under the S327 professional exemption

Question 50

the s 327 professional exemption cannot be used by who?

Answer 50

firms which are authorised by the FCA

Question 51

The COB Rules regulate the way in which a firm may undertake financial services under the
professional exemption.

The COB Rules apply only when the firm is carrying out an exempt regulated activity; they do not apply if the firm is not carrying out a regulated activity at al

give examples of some of the key rules under the SRA Financial Services (Conduct of Business) Rules

Answer 51

1. Status disclosure
   - e.g. the firm must confirm to the client that it is not authorised by the FCA, and explain that complaints and redress mechanisms are provided through the SRA and the Legal Ombudsman
   - any info about these rules must be given in a manner
   that is clear, fair and not misleading
2. Best execution
   - the firm must carry out transactions for clients as soon as possible unless it reasonably believes that it is in the client’s best interest not to
3. Transactions
   - The firm must keep records of:
   (a) instructions from clients to carry out transactions; and
   (b) instructions to third parties to carry them out
4. Commissions
   - The firm must keep records of commissions received in respect of regulated activities and how those commissions were dealt with.
5. Execution- only clients
6. Insurance distribution activities
   - stringent conditions
   - all info must be given in a non misleading way and info about renumeration must must be provided to
   the client before the conclusion of the initial contract

Question 52

what are the rules regarding sols providing consumer-credit activities?

Answer 52

• either need to be authorised by the FCA or fall under the s327 exception
• A solicitor could be carrying out a credit- related activity by virtue of the way in which the
  solicitor accepts the payment of their fees, including allowing a client time to pay
• such an arrangement will be regarded as exempt if all of the following conditions apply:
  (a) the number of repayments does not exceed 12;
  (b) the payment term does not exceed 12 months; and
  (c) the credit is provided without interest or other charges.

Question 53

what are the rules regarding a solicitor undertaking insurance distribution?

Answer 53

• ‘Contracts of insurance’ are defined widely, and include life policies, car insurance, buildings and contents insurance, defective title insurance, after- the- event legal insurance and annuities.
• Whatever the type of contract of insurance involved, if a solicitor assists a client in obtaining one, even if all
  the solicitor does is to introduce the client to an insurance broker, the solicitor will be carrying
  out a specified activity and so will be likely to fall under the general prohibition
• Similarly, if a solicitor is involved in an insurance claim against an insurance company, this will also be caught.
• Given that the main exclusions will almost certainly not apply to insurance distribution, the firm will have to rely on the s 327 exemption or seek authorisation from the FCA
• they are a specified investment whether or not they relate to land

Question 54

what is the financial promotions restriction?

Answer 54

Section 21 FSMA 2000 provides that a person must not, in the course of business, communicate an invitation or inducement to engage in an investment activity unless the promotion has been made or approved by an authorised person or it is exempt.

an authorised person = FCA

Question 55

a series of tests can be applied in order to determine whether a communication by an unauthorised person falls foul of the financial promotion restriction.

what are they?

Answer 55

• Is a communication being made?
• Is the communication an invitation or inducement?
• cant just be info, needs to be persuasive
• have to have the purpose or intent of leading the recipient to engage in investment activity and be promotional in nature
• this is an objective test
• Is there an investment activity?
• Is the communication made in the course of business?
• Does the communication fall within one of the exemptions?

1. one off promotions
   One- off, unsolicited real time communications are exempt under art 28A, provided the solicitor
   believes on reasonable grounds:
   (a) that the client understands the risks associated with engaging in the investment activity to which the financial promotion relates; and
   (b) that, at the time of the communication, the client would expect to be contacted by the solicitor in relation to that investment activity.
2. introducers
   A solicitor may make any real time communication in order to introduce a client to an authorised person who carries on the controlled activity to which the communication relates, provided:
   (a) the solicitor is not connected to (eg a close relative of) the ATP;
   (b) the solicitor does not receive other than from the client any pecuniary reward or other
   advantage arising out of making the introduction; and
   (c) the client is not seeking and has not sought advice from the solicitor as to the merits of engaging in investment activity (or, if the client has sought such advice, the solicitor has declined to give it, but has recommended that the client seeks such advice from an authorised person).

Question 56

it is generally accepted that money laundering has three stages. what are they?

Answer 56

1. Placement: money from criminal activity is introduced into the financial system.
2. Layering: the money is distanced from the criminal activity by passing it through a number of parties or transactions.
3. Integration: the money is integrated back into the financial system and the criminal is now in possession of ‘laundered’ money.

Question 57

who do the Money Laundering, Terrorist Financing and
Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/ 692) (‘the Regulations’) apply to?

Answer 57

The Regulations apply to persons acting in the course of businesses carried out in the UK. This
includes ‘independent legal professionals’ (reg 8), defined in reg 12 as:

a firm or sole practitioner who by way of business provides legal or notarial
services to other persons, when participating in financial or real property
transactions ….

Question 58

what must a firm do in relation to risk assessments regarding money laundering?

Answer 58

keep an up- to- date written record of all of the steps it has taken in terms of the risk assessment

Question 59

what internal controls must a firm adopt to be compliant with money laundering regulations?

Answer 59

APPOINT:

1. ‘nominated officer’ (often referred to as the Money Laundering Reporting Officer or MLRO)
   - to receive reports from within the firm concerning any instances of suspected money laundering
   - to liaise, if necessary, with the NCA
2. a Money Laundering Compliance Officer
   (MLCO) if this is appropriate having regard to the size and nature of the firm
   - acts as the SRA’s main point of contact on anti-money laundering issues
   - must be occupied by a senior member of the firm, whereby their position would be equivalent to a director on the board of directors (so junior sol wouldnt be appropriate for this role)

both roles can be fulfilled by the same individual

3. The screening of relevant employees prior to and during the course of their employment to assess their skills, knowledge, conduct and integrity.
4. Establishing an independent audit function to examine, evaluate, make recommendations and monitor the firm’s policies, controls and procedures adopted to comply with the Regulations

A firm must also establish and maintain controls which enable it to ‘respond fully and rapidly’ to enquiries from law enforcement as to whether it maintains, or has maintained during the past five years, a business relationship with any person and the nature of that relationship.

Question 60

firms carrying out relevant business are obliged to carry out client due diligence by verifying their clients identification.

in what circumstances does the need to verify the clients ID arise?

Answer 60

(a) where the client and solicitor agree to form a business relationship;

(b) carrying out an occasional transaction (ie one not carried out as part of a business relationship) that amounts to a ‘transfer of funds’ (essentially any transaction at least partially carried out by electronic means on behalf of a payer through a payment service
provider, for example, a credit transfer) exceeding €1,000;

(c) carrying out an occasional transaction that amounts to €15,000 or more, whether the transaction is executed in a single operation or in several operations which appear to be linked;

(d) where the solicitor suspects money laundering or terrorist financing;

(e) where the solicitor doubts the veracity or adequacy of documents or information supplied to verify the client’s identity.

Question 61

when should a clients’ ID be taken?

Answer 61

The verification is required as soon as possible after first contact and must take place before a business relationship is established or the carrying out of
the transaction.

However, a solicitor may verify the identity of the client during the establishment of a business relationship if:
(a) there is little risk of any money laundering or terrorist financing occurring;
(b) it is necessary not to interrupt the normal conduct of business; and
(c) the identity is verified as soon as practicable after contact is first established.

However, if the solicitor is unable to complete the client due diligence in time, the solicitor cannot:
(a) carry out a transaction with or for the client through a bank account; or
(b) establish a business relationship or carry out a transaction otherwise than through a bank account

and in such circumstances the solicitor must also terminate any existing business relationship
and consider making a disclosure to the NCA

Question 62

how should a sol verify a client’s identification under standard due diligence?

Answer 62

• verify the identity of the client on the basis of ‘documents or information in either case obtained from a reliable source which is independent of the person whose identity is being verified’ and to
  take reasonable measures to understand the ownership and control structure of non-natural
  persons such as trusts and companies

Question 63

when verifying an individuals ID documentation, should the sol have sight of the original docs?

Answer 63

• ideally the sol would have sight of such docs
• but, it is permissible to rely on copies when this can be justified based on an assessment of the risks involved in doing so

Question 64

what ID is required for non-limited-liability partnerships?

Answer 64

• need info on the individuals who make up the partnership

BUT

• where partnerships are wellknown, reputable organisations with long histories in their industries and with substantial public information about them, the Law Society’s guidance advises that it should be sufficient to obtain :
• name
• registered or trading address
• nature of business

(and proof of registration)

Question 65

what identification requirements are there for companies?

Answer 65

• it is necessary to identify the existence of the company
• the standard identifiers are:
  (a) its name;
  (b) its company number or other registration; and
  (c) the registered office address and principal place of business (if different).

unless the co is listed on a regulated market reasonable measures should also be taken to:
- obtain and verify the law to which it is subject
- its constitution or other governing document
- names of the board of directors or other senior persons responsible for its operations

(and proof of registration)

Question 66

where simplified due diligence does not apply, who else must the sol consider the identity of?

look specifically at companies and LLPs

Answer 66

• any beneficial owners (who are not the client)

for companies and LLPS, a beneficial owner is:
(a) any individual who exercises ultimate control over the management of the body corporate;
(b) any individual who ultimately owns or controls (in each case whether directly or indirectly),
including through bearer share holdings or by other means, more than 25% of the shares or voting rights in the body corporate; or
(c) an individual who controls the body corporate.

doesnt apply to a company listed on a regulated market

note - may also need the identity of any beneficial owners of a parent company

Question 67

where simplified due diligence doesnt apply, who else must the sol consider the identity of?

look specifically at partnerships (other than LLPs)

Answer 67

• any beneficial owners who are not the client:

(a) ultimately is entitled to or controls (whether the entitlement or control is direct or indirect) more than a 25% share of the capital or profits of the partnership, or more than 25% of the voting rights in the partnership; or

(b) otherwise exercises control over the management of the partnership (ie the ability to manage the use of funds or transactions outside of the normal management structure and control mechanisms).

Question 68

Simplified due diligence is permitted where a firm determines through an individual risk assessment that the business relationship or transaction presents a low risk of money laundering or terrorist financing, taking into account the risk assessment.

what factors should be taken into account when considering this?

Answer 68

• whether the client is a company listed on a regulated market
• the location of the regulated market
• where a client is established and does business

note > the presence of one or more of these factors does not necessarily indicate that there is a lower risk in a particular situation

the sol must obtain evidence that the transaction and the client are eligible for simplified due diligence

Question 69

Enhanced due diligence is required where there is something about the arrangement or transaction which creates a high risk of money laundering. The Regulations set out a list of circumstances in which enhanced due diligence must be carried out. These include where…

Answer 69

(a) the case has been identified as one where there is a high risk of money laundering or terrorist financing in the firm’s risk assessment or in the information made available by the SRA and the Law Society;
(b) the client or the counter- part to the transaction is in a high- risk third country (as listed on the Financial Action Task Force website);
(c) the client has provided false or stolen identification documentation or information and the solicitor has decided to continue dealing with the client;
(d) the client is a politically exposed person (PEP), or a family member or known close associate of a PEP;
(e) a transaction is complex or unusually large, or there is an unusual pattern of transactions, or the transactions have no apparent economic or legal purpose;
(f) in any other situation where there is a higher risk of money laundering or terrorist financing. In determining this, there is a wide range of factors for a firm to take
into account, for example whether the business relationship is conducted in unusual circumstances (such as where a solicitor has not met the client face to face), or payments will be received from unknown or associated third parties

in the above situations, a solicitor must take measures, as far as reasonably possible, to examine the background and purpose of the transaction and consider whether it is appropriate to obtain more info

Question 70

what is a PEP?

Answer 70

• an individual who is entrusted with prominent public functions, other than as a middle- ranking or more junior official
• family members include a spouse, civil partner, children, their spouses or civil partners and
  parents
• known close associates include those with whom there are close business relationships

Question 71

are domestic and foreign PEPs treated the same?

Answer 71

domestic PEPs (defined as individuals entrusted
with prominent public functions by the UK), whilst still needing to be subject to enhanced due diligence, must be treated as a lower risk than overseas PEPs.

Question 72

Where the solicitor is dealing with the PEP (and this includes where a PEP, family member or close associate is a beneficial owner of a client), additional obligations are placed on the solicitor.

what are they?

Answer 72

a) approval of senior management (for example, the managing partner) to act for the client
b) taking adequate measures to establish the source of wealth and source of funds involved in the business relationship or proposed transactions
c) conducting enhanced ongoing monitoring of the business relationship

Question 73

how long must a firm keep records of their due diligence procedures undertaken for a client?

Answer 73

must be kept for at least five years from when the business relationship ends or the end of the occasional transaction

Question 74

explain a firms role in failing to prevent tax evasion

Answer 74

• Criminal Finances Act = corporate offence of failure to prevent the criminal facilitation of tax evasion
• applies to relevant bodies
• the offence makes a firm liable for failing to prevent tax evasion offences by its employees or other ‘associated persons’
• strict liability = no knowledge or intention is required on the part of the firm or its senior management
• only defence available = the firm had in place
  reasonable prevention procedures or is able to show that it was reasonable not to have had such procedures in place
• the penalty for breach is unlimited fines, and confiscation of assets may be ordered

Question 75

how does the UK financial sanctions regime work?

Answer 75

• applies to all law firms whether or not they are subject to the Regulations
• requirement to inform the Office of Financial Sanctions Implementation if it is known or reasonably suspected that a person is a designated person or has committed offences under financial sanctions and asset freezing regimes
• if a firm wishes to act for such a person, and
  that person is not covered by a general OFSI licence, the firm must first obtain an individual licence to receive reasonable fees for the provision of legal advice
• the sanctions list is public information and so discussing a person’s sanctioned status does not amount to a tipping off offence
• firms can now face liability for fines even where they have no knowledge or reasonable cause to suspect that a transaction to which they are a party is in breach of the sanctions regime

Question 76

The Proceeds of Crime Act 2002 (POCA 2002) creates three offences which involve the direct handling of the proceeds of crime.

what are they?

Answer 76

Under POCA 2002 it is an offence to:
1. enter into, or become concerned in an arrangement, which a person knows or suspects facilitates the retention, use or control of the proceeds of crime (s 328);
2. acquire, use or possess the proceeds of crime (s 329);
3. conceal, disguise, convert or transfer the proceeds of crime, or remove the proceeds of crime from the jurisdiction of England and Wales (s 327).

Question 77

POCA 2002 creates other offences targeted at the action or inaction of someone who becomes aware of possible money laundering.

what are they?

Answer 77

1. failure to disclose information about money laundering to the appropriate authorities (s 330);
2. failure on the part of a firm’s nominated officer to disclose information about money laundering to the appropriate authorities (s 331);
3. ‘tipping off’ an individual that an investigation into money laundering is underway (s 333A);
4. prejudicing an investigation into money laundering (s 342)
   - similar to tipping off but extends to non-regulated individuals

Question 78

Section 328(1) Proceeds of Crime Act 2002 = arranging offence and provides:

A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the
acquisition, retention, use or control of criminal property by or on behalf of another person.

explain this

Answer 78

• encompasses virtually any act which assists in the process of money laundering by another person
• no requirement that the funds actually pass through the hands of the person concerned with the arrangement, ie the solicitor
• ‘know or suspect’ so the mental element = suspicion
• subjective test
• low bar
• R v Da Silva = all that is required for ‘suspicion’ is that there is a possibility, which is more than fanciful
• ‘criminal property’ = the person must know or suspect that the property constitutes or represents a benefit from criminal conduct
• must have been an initial criminal offence committed for the property to become ‘criminal’.

Question 79

can taking steps in litigation e.g. pre-action steps, amount to ‘arranging’ under s.328 of the Proceeds of Crime Act?

Answer 79

• taking steps in litigation (including pre- action steps) and the resolution of issues in a litigious context
  were excluded from the scope of s 328
• dividing assets in accordance with a court
  judgment does not fall within the definition of arranging
• however, careful consideration should be made of whether the client would be committing an offence by receiving stolen property
• being involved in the reinvestment of such assets would fall foul of s 328

note - a solicitor would not be able to take advantage of this exclusion if the litigation was a sham created for the purposes of money laundering

Question 80

what is the authorised disclosure defence?

Answer 80

• the making of an authorised disclosure acts as a defence to the s.327/8/9 offences
• the disclosure must be made by the person who, but for the disclosure, would be committing an offence
• a disclosure is authorised if it is made to:
  i) a constable
  ii) an officer of HMRC
  iii) a nominated officer (e.g. MLRO)

Question 81

It is the nominated officer’s (e.g. MLRO’s) responsibility to report concerns about money laundering to the
National Crime Agency (NCA).

how do they do this?

must they always report their concerns?

Answer 81

• make a suspicious activity report (SAR) to NCA (or can do via post using the NCA’s standard forms)
• not under any obligation to make a SAR when concerns are raised by another person in the firm
• it is for the nominated officer to exercise their own judgement in deciding whether the matter should be passed on to the NCA

Question 82

explain how the authorised disclosure defence operates where disclosure is given during the prohibited act…

Answer 82

• a sol may make a disclosure whilst the prohibited act is ongoing, but they must satisfy the following provisions:

(a) the disclosure is made whilst the prohibited act is ongoing; and
(b) when the solicitor began to do the act, the solicitor did not know or suspect that the property constituted or represented a person’s benefit from criminal conduct; and
(c) the disclosure is made as soon as is practicable after the solicitor first knows or suspects that the property constitutes or represents a person’s benefit from criminal conduct, and the disclosure is made on the solicitor’s own initiative.

Question 82

explain how the authorised disclosure defence operates when disclosure is made prior to the money laundering taking place…

Answer 82

• A solicitor does not commit an offence under s 327/8/9 if:
  i) they make authorised disclosure to the firm’s nominated officer as soon as is practically possible prior to the transaction taking place
  ii) AND the consent of the nominated officer or the NCA is obtained
• this is a complete defence
• note you need both of the above - proceeding without having obtained the appropriate consent remains an offence

Once the nominated officer has made SAR to the NCA, the nominated officer is unable to give consent until one of the following conditions is met:
(a) the nominated officer receives the consent of
the NCA
(b) the nominated officer hears nothing for seven
working days (starting with the first working day after the disclosure is made);
(c) where consent is refused by the NCA, the nominated officer may not give consent unless
consent is subsequently granted within 31 days starting on the day refusal is given, or a period of 31 days has expired from the date of refusal.

This 31- day period gives the authorities time to take action to seize assets or take other action with respect to the money laundering. (The 31- day period can be extended in certain circumstances.)

Question 83

would a sol still be able to use the authorised disclosure defence if they disclosed after the prohibited act had taken place?

Answer 83

• they might still be able to use the defence but:
  i) must have a good reason for their failure to disclose prior to completing the act
  ii) the disclosure must be made as soon as is practicable
  iii) the solicitor must make the disclosure on the solicitor’s own initiative.

Question 84

A solicitor may have a defence to breaching s 327/8/9 and s 330 where the solicitor intended to make an authorised disclosure but __________________________________________________

Answer 84

has a reasonable excuse for failing to do so

• ‘reasonable excuse’ has not been defined by the courts but is likely to be narrowly construed
• sols should document their reasons for non-disclosure

Question 85

what is the overseas defence?

Answer 85

There is a defence to s 327/328/329/330 where the individual knew or believed that the ‘criminal conduct’ occurred abroad and the conduct in question was lawful in the country where it took place.

The Secretary of State has the power to override this provision.

Question 86

what penalties may an individual face for breach of s.328/9 POCA?

Answer 86

max sentence of 14 years imprisonment

Question 87

A person commits an offence under s 329 POCA 2002 if they acquire, use or have possession of criminal property.

explain how this operates

Answer 87

• usually used to prosecute those who had no involvement with the original crime, but have enjoyed the benefit (for example, family members who have lived off the proceeds of crime)
• can also be relevant to solicitors
  for example, a solicitor receives money for costs for work carried out for a client charged with a criminal offence and there is a possibility that the money in
  question is criminal property

Question 88

the authorised disclosure defence and overseas defence apply to s 329 POCA, what further defence also applies?

Answer 88

• the adequate consideration defence
• an offence will not be committed if there was adequate consideration for acquiring, using and possessing the criminal property, unless the individual knew or suspected that those goods or services might help to carry out criminal conduct
• CPS guidance for prosecutors says that this defence applies where professional advisers, such as solicitors, receive money for or on account of costs, including disbursements
• however, the fees charged must be reasonable and
  the defence is not available if the value of the work is significantly less than the money received.

Question 89

a person may be guilty for s 330 failure to disclose information about suspected money laundering under what circumstances?

Answer 89

(a) he knows or suspects, or has reasonable grounds to know or suspect, that a person is engaged in money laundering;
- objective test
- whether the solicitor should have known (or at least suspected) that money laundering was occurring

(b) the information comes to him in the course of a business in the regulated sector;

(c) the information may assist in identifying the money launderer or the location of any laundered property; and
- the information must be of some use to the authorities
- solicitor must be able to identify, or believe the information may assist in identifying:
(a) the money launderer; or
(b) the location of the laundered property.
If the solicitor is genuinely unable to provide this information, the solicitor will not breach s 330

(d) he does not make a disclosure as soon as is practicable.
- if make disclosure to MLRO / NCA as soon as is practicable = not in breach

• not necessary for money laundering to have actually occurred for the offence to be committed
• offence may still occur even where there is insufficient evidence to prove that money laundering was planned or has taken place

Question 90

which further defence applies to s330 POCA?

Answer 90

The employee will not commit an offence if they do not know or suspect that a client is engaged in money laundering, but there were reasonable grounds to suspect that the client was engaged in money laundering, and the employee has not received proper training.

Question 91

what is the maximum penalty for the s 330 offence of failure to disclose?

Answer 91

max 5 years in prison

Question 92

s 333A tipping off offence…

There are two aspects of tipping off that must be avoided under s 333A.

what are they?

Answer 92

• no requirement to show that the tipping off was intended to alert the money launderer or intended to prejudice any investigation

1. disclosing a disclosure
   - to disclose to any person that a relevant disclosure (on money laundering) has been made if that disclosure is likely to prejudice any investigation that follows such a report
   - the information on which the disclosure is made must
   have come to the person in the course of a business in the regulated sector
2. disclosing an investigation
   - where a disclosure is made to any person that an investigation into allegations that an offence under POCA 2002 has been committed is being carried out, or is being contemplated, and that disclosure is likely to
   prejudice the money laundering investigation
   - the information on which the disclosure is made must
   have come to the person in the course of a business in the regulated sector

Question 93

what defences are available to s 333A (‘tipping off’)

Answer 93

• if the person who made the disclosure did not know or suspect that the disclosure would prejudice an investigation into money laundering
• if the disclosure is made by an adviser to their client for the purposes of dissuading the client from engaging in the alleged money laundering (although this should be treated with caution)

Question 94

what is the max penalty available for both tipping off offences under s 333A?

Answer 94

unlimited fine
or max of 2 years in prison