Legal Services Revision

Question 1

Under the general prohibition of the Financial Services and Markets Act, a solicitor may not carry on regulated activity in the UK unless they are authorised or exempt from authorisation. A regulated activity is defined as an activity specified in the Regulated Activities Order relating to an investment specified in the Order, which is carried out in the course of business, and to which no exclusions apply. The specified activities might be remembered with the mnemonic device ‘ADAMS F.M DIPS’.
Activities = Advising, Dealing as an agent, Arranging, Managing, and Safeguarding.

Advising: giving advice to an investor or potential investor on the merits of buying, selling, subscribing for, or underwriting a particular investment

Dealing as an agent (e.g. contracting on behalf of someone): buying, selling, subscribing for, or underwriting investments as agent for a client

Arranging: making arrangements for another person to buy, sell, or subscribe for a particular investment e.g. selling shares via a stockbrocker

Managing: managing assets belonging to another person in circumstances which involve the exercise of discretion

Safeguarding: administering or safeguarding (looking after) assets belonging to another person. This usually relates to probate and trust work e.g acting as a trustee and looking after assets, such as shares and debentures, which belong to the client

F: funeral plans

M: mortgage contracts

D: debentures

I: insurance contracts

P: pension schemes

S: shares in a company

Question 2

The Money Laundering Reporting Officer receives and investigates reports about suspicious activities

Question 3

The Money laundering Reporting Officer acts as a central point of contact between the firm and the National Crime Agency. The MLRO will liaise with the National Crime Agency or law enforcement on the issue of whether to proceed with a transaction or what information may be disclosed to clients or third parties

Question 4

The firm is responsible for providing training regarding money laundering issues (rather than the individual solicitors).

Question 5

The preparation of any instrument relating to real or personal estate, including the contract for sale of land, is a reserved legal activity (specifically, reserved instrument activities) which can be carried out only by someone authorised by a Legal Services Board regulator

Question 6

The Equality Act covers discrimination in relation to the protected characteristics of marriage/civil partnership, age, sex, disability, gender re-assignment, pregnancy and maternity, race, religion or belief, and sexual orientation

Question 7

Direct discrimination on the grounds of age can be justified if the firm can show it used proportionate means to achieve a legitimate aim. Generally, there is no justification for direct discrimination, but the exceptions to this are age and disability discrimination. Note that for age discrimination, the legitimate aim must have some wider public policy implications rather than just being focused on the business’s needs.

Question 8

Arrangement covers a wide range of involvement in money laundering offences, usually at the layering and integration stages. It covers arrangements which the defendant knew or suspected facilitated (by whatever means) the acquisition, retention, use, or control of criminal property by or on behalf of another person

Question 9

What are the stages of the money laundering process?

Answer 9

1. Placement
2. Layering
3. Integrarion

Question 10

What are the indirect POCA offences?

Answer 10

1. Failure to report
2. Tipping off

(ADD OTHERS)

Question 11

Indirect discrimination is when a policy or provision is apparently neutral but on closer examination puts individuals with a protected characteristic at a disadvantage compared with individuals who do not have that characteristic

Question 12

Indirect discrimination can be justified if the policy is a proportionate means of achieving a legitimate aim

Question 13

What is the maximum success fee recoverable from a client under a conditional fee agreement?

Answer 13

100% of the normal fees charged

Question 14

If a client agrees to a conditional fee agreement and is unsuccessful they will not pay any fee but will be liable to pay the other side’s costs and disbursements and their own disbursements

Question 15

The indirect offence of tipping off can arise where there is a disclosure to a third person that a suspicious activity report has been made to the police, HM Revenue and Customs, the National Crime Agency, or the firm’s MLRO if that disclosure might prejudice any investigation that might be carried out

Question 16

The mere disclosure of a suspicious activity report to a third party is not sufficient to commit the offence of tipping off. The disclosure must also have the potential to prejudice the investigation

Question 17

Under the general prohibition, a person may not carry on regulated activity in the UK unless they are authorised or exempt from authorisation. If there is a regulated activity, the Financial Services and Markets Act 2000 exempts incidental activity of members of certain Designated Professional Bodies, including members of the SRA. Under this exemption, if a solicitor provides a financial service incidentally to the provision of legal advice and does not receive compensation for this from anyone else without accounting to the client for it, the services will be exempted

Question 18

Integration is the final stage of the money laundering process, which typically involves purchases of legitimate assets and/or businesses with a goal to integrate the proceeds into the economy

Question 19

Placement is the first stage in the money laundering process at which money is injected into the financial system, usually by opening a bank account into which the proceeds of a crime are deposited

Question 20

The SRA regulates non-lawyers if they are managers or employees of regulated law firms

Question 21

Tipping off occurs when a person discloses to a third person that a suspicious activity report has been made to authorities, or discloses an investigation to a third person

Question 22

Under POCA, it is an offence if a person acquires, uses, or has possession of criminal property. However, a defence is available if the property was acquired, used, or possessed for adequate consideration. The defence applies when professional advisers, such as solicitors, receive money for or on account of costs. It is most likely to arise in situations in which a solicitor provides legal services as part of a legitimate arm’s length transaction but unbeknownst to them is paid from a bank account which contains the proceeds of crime.

Question 23

While a solicitor is obligated to report suspicions of money laundering, it is a defence to failure to report that the information falls within a privilege that has not been excluded by the anti-money laundering laws or that has come to the solicitor in privileged circumstance.

Example: if a solicitor was acting for a client on a bona fide divorce litigation and learned about assets the client bought with cash in connection with giving legal advice to the client on this matter. Thus, due to the privileged circumstance defence, maintaining client confidentiality supersedes the obligation to report suspicions of money laundering

Question 24

A solicitor may conduct activities in relation to specified investments when the activity may reasonably be regarded as a necessary part of performing legal services which do not otherwise consist of carrying on a regulated activity

Question 25

The Council of Licensed Conveyancers regulates law firms specialising in property / probate matters

Question 26

A freelance solicitor does not need to hold indemnity insurance unless they are carrying out a reserved legal activity

Question 27

Under the rules of the SRA what is the minimum level of indemnity insurance required for claims against civil liability arising from private legal practice?

Answer 27

£3 million

Question 28

What factors should a law firm take into account when assessing the level of professional indemnity insurance needed to comply with the requirements of the SRA?

Answer 28

1. The historic claims experience of the firm
2. The value of matters the firm takes on each year

Question 29

A damages-based agreement DOES NOT need to specify the solicitor’s estimate of damages expected to be recovered if the claim is successful

Question 30

In a personal injury case what is the maximum amount of legal costs payable under a damages-based agreement?

Answer 30

25%

Question 31

In a non-personal injury case what is the maximum amount of legal costs payable under a damages-based agreement?

Answer 31

50%

Question 32

Only solicitors costs are payable by the insurers under a before the event insurance policy

Question 33

What is typically payable by the insurer under an ‘after the event’ insurance policy?

Answer 33

1. The cost of disbursements such as experts’ reports and court fees
2. Other sides costs if the policy claimant is unsuccessful

Question 34

What prevents a law firm from taking instructions from a client who is funded by civil legal aid?

Answer 34

1. The law firm does not believe that the claim has good prospects of success
2. The law firm is not contracted with the Legal Aid Agency

Question 35

What is taken into account when deciding if someone satisfies the means test for criminal legal aid?

Answer 35

1. Household income
2. Outgoings
3. Savings
4. Other capital that is available to the applicant

Question 36

What is taken into account when deciding if someone satisfies the merits test for criminal legal aid?

Answer 36

1. Whether the client is likely to lose their livelihood
2. Whether the client would be unable to present their own case

Question 37

An individual does NOT need to have a protected characteristic to be protected against direct discrimination under the Equality Act 2010

Question 38

Solicitors must make reasonable adjustments if a disabled employee is at a substantial disadvantage compared to a non-disabled employee

Question 39

Concealing, converting, or transferring criminal property or removing from the UK all may be the basis of the offence of concealing under the Proceeds of Crime Act 2002

Question 40

What can be considered ‘criminal property’ under the concealing offence of the Proceeds of Crime Act 2002 if derived from criminal activity?

Answer 40

1. Money
2. Real property
3. Personal property
4. Intangible property

Question 41

Examples of defences to a direct offence of money laundering

Answer 41

1. An authorised disclosure was made before the concealing transaction occurred
2. An authorised disclosure was made after the concealing transaction occurred with good reason as to the delay
3. Legal privilege when the solicitor erroneously suspects the transaction is money laundering

Question 42

Examples of events which trigger the requirement to investigate a client’s identity?

Answer 42

When the solicitor first establishes a business relationship with a client

When any client proposes to enter a transaction amounting to the equivalent of 15,000+ euros

Any time a solicitor suspects money laundering or terrorist financing

Any time the solicitor has reason to doubt the veracity of documents or data previously submitted by a client

Question 43

For how long must a firm keep client due diligence records?

Answer 43

For 5 years after the end of the relationship with the client

Question 44

Examples of specified activities regulated under Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 that could relate to solicitors

Answer 44

1. Giving an investor advice on the merits of a particular investment
2. Arranging for the purchase or sale by another of a particular investment
3. Managing assets of another when discretionary authority exists
4. Buying or selling investments for another as agent
5. Safeguarding assets belonging to another and administering them

Question 45

The Designated Professional Bodies exemption is only available if the activity is incidental to the legal advice the solicitor is giving and to the work of the firm as a whole

Question 46

A solicitor DOES have to be a member of the SRA in order to rely on the Designated Professional Bodies exemption

Question 47

Examples of activities which are excluded from the Regulated Activities Order

Answer 47

1. Safeguarding a client’s investments when acting as a trustee or personal representative
2. Advising a client, acting as their agent, or arranging for the purchase or sale of control of a company
3. Introducing a client to a person authorised by the Financial Conduct Authority to give financial advice
4. Whilst acting as the personal representative of an estate, advising the PR on the merits of holding or selling specific company shares in order to pay the estate’s beneficiaries

Question 48

The SRA Codes of Conduct provide that all fee sharing agreements with a third party must be in writing. Additionally, the client must be informed of any fee sharing arrangement that is relevant to their matter.

Question 49

Under the takeover exclusion, a solicitor can deal as an agent, arrange, or advise with respect to a client who is buying or selling 50%+ of the voting shares of a company.

Question 50

The indirect offence of tipping off can arise where there is a disclosure to a third person that a suspicious activity report has been made to the police, HM Revenue and Customs, the National Crime Agency, or the firm’s MLRO if that disclosure might prejudice any investigation that might be carried out. However, a legal professional will not commit a tipping off offence if (1) the disclosure is made to another legal professional in a *5European Economic Area** state; and (2) the disclosure relates to a client or former client of both parties, or a transaction involving them both; and (3) the disclosure is made for the purpose of preventing a money laundering offence; and (4) both parties have equivalent professional duties of confidentiality and protection around personal data

For example, if a solicitor discloses a suspicious activity report to another solicitor then they may rely on the defence of disclosure between institutions

Question 51

What are the exceptions for direct discrimination?

Answer 51

Age and disability

Question 52

Conditional fee agreements cannot exceed 100% of normal fees charged i.e. double solicitors normal fees

Question 53

Damages based agreement upper limits

Answer 53

No more than 50% of sum recoverable

No more than 25% in a personal injury case

Question 54

Specified investments

Answer 54

• Insurance contracts
• Shares in a company
• Debentures
• Mortgage contracts
• Pension schemes
• Funeral plans

Question 55

A solicitor can advise, arrange, manage and safeguard investments when acting as trustee, nominee or personal representative

Question 56

The mere disclosure of a suspicious activity report to a third party is not sufficient to commit the offence of tipping off. The disclosure must also have the potential to prejudice the investigation

Question 57

The offence of prejudicing an investigation is committed when a person knows or suspects that a money laundering, confiscation, or civil recovery investigation is being carried out and makes a disclosure to any person that is likely to prejudice the investigation or falsifies, conceals, or destroys documents relevant to the investigation. There does not need to be any intent to prejudice the investigation.

Question 58

The specified investments most relevant to a solicitor = Funeral plans, Mortgage contracts, Debentures, Insurance contracts, Pension schemes, and Shares in a company. Land is not a specified investment.

Question 59

The Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017. The Regulations outline customer due diligence rules that require professionals to know their clients and to monitor the use of their services by clients. This should include identifying the client and verifying their identity, such as name and address, on the basis of documents, data, or information obtained from a reliable and independent source. It also includes keeping records of the verification for 5 years after the representation is completed.

Question 60

Marital status is a protected characteristic under the Equality Act

Question 61

Under the acting through authorised persons exclusion, a solicitor can arrange or act as agent with respect to specified investments if the client receives advice from a person authorised by the Financial Conduct Authority and the solicitor merely assists the client in acting on this advice.

Question 62

National savings products (such as Premium Bonds) are NOT specified investments

Question 63

Civil Legal Aid is available only in a limited number of specific situations, such as for housing disputes, debt issues, and some family matters. To secure Legal Aid funding, a client must satisfy both a financial eligibility means test and a merits test (that is, the claim must have good prospects for success). Note that even if eligible, the tenant might still have to make a partial contribution toward costs.

Question 64

A solicitor may arrange specified investments if the client receives advice from a person authorised by the Financial Conduct Authority, the exclusion is NOT available if the solicitor received payment from the authorised person.

Question 65

A firm would be able to arrange for a client to purchase Premium Bonds because while arranging is a specified activity, Premium Bonds are not specified investments.

Question 66

A conditional fee agreement provides that if a case is successful, the solicitor can charge their fee to the client with a percentage uplift (the success fee) beyond the normal fees charged. If the claim is unsuccessful, the client does not pay fees to their solicitor, although they will be liable to pay the other side’s costs and disbursements and their own disbursements.

Question 67

When the MLRO is away, best practice is for firms to make alternative arrangements, such as appointing an alternative or a deputy MLRO. If the MLRO is away a solicitor should first determine whether the firm has appointed an alternative or deputy MLRO. If the firm has not, only then must the solicitor report directly to the National Crime Agency.

Question 68

A freelance solicitor can carry out reserved legal activities without being authorised as a sole practitioner by the SRA, subject to the following conditions:
1. Holds 3 years post-qualification experience
2. Take out and maintain appropriate insurance
3. Not hold client money
4. Notify the SRA that they are acting as a freelance solicitor.

The freelance solicitor does not need insurance on the SRA’s minimum terms if they meets the conditions above

Question 69

Describe the professional indemnity insurance standard required by the SRA

Answer 69

The required minimum level required by the Solicitors Regulation Authority AND the insurance must be adequate and appropriate

Question 70

Direct discrimination on the grounds of sex cannot be justified. Generally, there is no justification for direct discrimination. The exceptions to this are for the protected characteristics of age and disability.

Question 71

The preparation of any instrument relating to real or personal estate, including the contract for sale of land, is a reserved legal activity (specifically, reserved instrument activities) which can be carried out only by someone authorised by a Legal Services Board regulator.

Question 72

The necessary mental state for the offence of failure to report is that the solicitor should have known or been suspicious that money laundering was taking place. This is an objective test, which means it is possible to commit the offence by failing to report any information which raises reasonable grounds for suspicion. The solicitor does not need actual knowledge or suspicion of money laundering. It is sufficient that they should have known or been suspicious.

Question 73

Solicitors in non-commercial bodies who are providing reserved legal activities must ensure that the body takes out adequate and appropriate professional indemnity insurance e.g. a charity

Question 74

All relevant employees in the firm will need to receive money laundering training. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 state that all relevant employees are required to be made aware of law relating to money laundering and terrorist financing, and regularly given training in how to recognise and deal with transactions which may be related to money laundering or terrorist financing. It is likely that all client-facing staff, or at least the senior support staff, will be considered relevant employees.

Question 75

A firm must keep records of the MLRO’s investigation for 5 years.

Question 76

Issuing proceedings and defending proceedings comprise the conduct of litigation.

Question 77

A solicitor may arrange with respect to a specified investment if the client receives advice from a person authorised by the Financial Conduct Authority and the solicitor merely assists the client in acting on advice.

Question 78

The maximum penalty the solicitor could face for a money laundering offence under POCA is 14 years imprisonment and/or an unlimited fine.

Question 79

A solicitor may be found to have committed an offence under POCA whether or not the solicitor has first been convicted of a criminal offence which generated the criminal property being laundered. Under POCA, the money laundering offences assume that a criminal offence has occurred in order to generate the criminal property which is now being laundered. This is known as a predicate offence. No conviction for that predicate offence is necessary for a solicitor to be prosecuted for a money laundering offence. Therefore, a solicitor may commit a criminal offence under POCA whether or not the solicitor has been convicted of the predicate offence

Question 80

If there is a regulated activity, the Financial Services and Markets Act 2000 exempts incidental activity of members of certain Designated Professional Bodies, including members of the SRA. Under this exemption, if a solicitor provides a financial service incidentally to the provision of legal advice and does not receive compensation for this from anyone else without accounting to the client for it, the services will be exempted.

For example, if a solicitor has been asked to make a claim (the specified activity of arranging) in relation to an insurance policy (a specified investment). No exclusion is available because the arranging relates to an insurance policy. However, because the firm is a member of the SRA, the solicitor can rely on the Designated Professional Bodies exemption. Making the claim on the insurance policy is incidental to the solicitor’s main advice on the merits of the employee’s claim. Therefore, the solicitor does not need to be authorised.