Professional Conduct formative

Question 1

A client instructs you on the purchase of a new property. You receive a cheque for £500 from the client on account of costs. Two days later you carry out a search for the client at the Land Registry and pay a fee of £120. You have not issued a bill to your client for your fees or for any disbursements.

Which one of the following correctly sets out the entries to record payment of the Land Registry fee?

Select one alternative:

Debit client ledger client account. Credit cash sheet client account.

Debit client ledger client account. Credit client ledger business account.

Credit client ledger client account. Debit cash sheet client account.

Debit client ledger business account. Credit cash sheet business account.

Credit client ledger business account. Debit cash sheet business account.

Answer 1

• Debit client ledger client account. Credit cash sheet client account.

Correct. The client has paid £500 to the firm on account of costs. This is money received by the firm relating to regulated services (under SRA Accounts Rule 2.1(a)) and is therefore client money. It must be paid into the client bank account promptly and the entries when the £500 was received were a credit in the client side of the client ledger and a debit in the cash sheet for the client account. The solicitor will use this client money to pay the land registry fee, so the entries will be to debit client ledger client account and credit cash sheet client account.

Question 2

You receive instructions from a client to set up a trust for her grandchildren. The client informs you she will deposit £250,000 into your firm’s account for the trust. A day later your accounts department informs you that the client has deposited £350,000 into the firm’s account. The client sends you an email asking you to transfer the over-payment of £100,000 to her brother at a bank account registered in Bermuda.

What is the most appropriate action you should take?

Select one alternative:

Report that matter immediately to the Money Laundering Reporting Officer at your firm. Continue working on the matter so that you do not alert the client to your suspicions.

Return the full amount of £350,000 to your client and undertake no further work on the matter as you suspect that they may be attempting to launder money.

Report the matter immediately to the Money Laundering Reporting Officer at your firm. Instruct the accounts department to transfer the overpayment of £100,000 to the client’s brother so as not to alert them to your suspicions.

Report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. Undertake no further work on the matter until you hear back from the MLRO, and ensure that you do not alert the client to your suspicions.

Report the matter immediately to the Money Laundering Reporting Officer at your firm. You do not need to be concerned about alerting the client to your suspicions because you are not operating in the regulated sector.

Answer 2

Report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. Undertake no further work on the matter until you hear back from the MLRO, and ensure that you do not alert the client to your suspicions.

Correct. There are a number of factors here that indicate a risk of money laundering including, the significant over payment of £100,000, the request to transfer the excess to a relative and to an account in on off-shore bank account. The best course of action to take is to report your suspicions to your firm’s Money Laundering Reporting Officer (‘MLRO’) and not to alert the client, otherwise you could commit the offence of tipping off. If you do not report your suspicions you may be guilty of offences under sections 327, 328, 329 and 300 Proceeds of Crime Act 2002 (‘PoCA’). Tipping off is a non-direct involvement offence under PoCA and applies to people working in the regulated sector. Creating, operating or managing trusts falls within the definition of ‘regulated sector’, so you would be guilty of tipping off if you alerted your client to your suspicions. Once you have reported your suspicions to your MLRO you should avoid undertaking further work on the matter unless your MLRO is authorised to do so by the National Crime Agency or the notice period has expired.

Question 3

 A firm of solicitors holds £13,000 in their client account and £25,000 in their business account. A large proportion of the client money in the client account belongs to the firm’s client Mr X, who the firm hold £10,000 for. Of the remaining £3,000, £2,500 was sent to the firm generally on account of costs by A Ltd, a client who is purchasing a property and £500 was sent to the firm generally on account of costs by Ms Z, a client who the firm are defending in an employment law case.

The firm needs to pay £800 in court fees for Ms Z.

Which one of the following best sets out the steps the firm will take to pay the court fees?

Select one alternative:

The firm will pay the court fees from the client account but Ms Z’s prior written authorisation is required first.

The firm will pay the court fees from the client account.

The firm will pay the court fees from the business account.

The firm will pay the court fees from the client account but must then transfer £300 from the business account to the client account.

The firm will pay the court fees from the client account but the withdrawal must be appropriately authorised and supervised.

Answer 3

The firm will pay the court fees from the business account.

Correct. Ms Z does not have sufficient money in the client account to make the payment. She has £500 and the court fees payment is £800. If the client account was used to make the payment another client’s money would be being used. This would breach Rule 5.3 of the SRA Accounts Rules which states that you only withdraw client money from a client account if sufficient funds are held on behalf of that client to make the payment. To avoid breaching the SRA Accounts Rules, the firm must make the payment from their business account.

Question 4

Your firm is acting for a client in connection with a litigation matter. Proceedings will be issued next week and court fees of £250 will be due to be paid at the time of issue. No bill has been sent to the client. You have just received a cheque for £250 from the client, made payable to your firm, for the court fees (the ‘money’).

Which one of the following best sets out the position in relation to this money?
Select one alternative:

As the court fees have not yet been paid, you may not pay the money into the firm’s client account.

Provided the court fees are paid within 7 days, the money can be paid now into the firm’s business account.

Although the court fees have not yet been paid, as they have been incurred, the money is non-client money.

The cheque must be held on file pending payment of the court fees.

As the court fees have not yet been paid and a bill has not been delivered to the client for them, the money is client money.

Answer 4

• As the court fees have not yet been paid and a bill has not been delivered to the client for them, the money is client money.

Correct. Under Rule 2.1(d), money received by a firm in respect of your fees, and also any unpaid disbursements is client money if it is held or received prior to delivery of a bill for the same. The client sent you the cheque for the court fees (i.e an unpaid disbursement) prior to delivery of the bill, so it is client money. Under Rule 2.3 this money must be paid promptly into the client account.

Question 5

5
You are a solicitor in the corporate department of a law firm. You recently acted for your client on the sale of his business for £50,000. The client would like to invest the sale proceeds in shares in a company being set up by his son. He would like you to advise him on the purchase of 60% of the shares in the company.

Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a ‘regulated activity’ as defined in the Financial Services and Markets Act 2000 and related secondary legislation.

Which ONE of the following statements is CORRECT?
Select one alternative:

You can advise the client because the client is purchasing more that 25% of the shares in the company.

You would be able to give the client the advice without being authorised by the FCA, because buying shares is not a specified activity.

You can advise the client on the purchase because the client is purchasing 50% or more of the shares in the company.

You can advise the client on the purchase because giving this advice could reasonably be regarded as necessary to the other non-regulated work you are doing for him.

You would not be able to advise the client because the advice is not incidental and it would not arise out of or be complementary to the provision of professional services to the client.

Answer 5

• You can advise the client on the purchase because the client is purchasing 50% or more of the shares in the company.

This question tested your understanding of the exclusion under article 70 RAO (sale of a body corporate). The key point here is that you do not need to be regulated by the FCA to advise on a share sale or acquisition where your client is buying or selling 50% or more of the shares or ‘day to day control’ of the entity. This is a useful exclusion for solicitors in practice. It is covered in the BLP induction session and students read about it in the element ‘introduction to financial services regulation’ under the topic ‘Equity Finance’ in the Business Law and Practice knowledge stream in Adapt, as their prep for the BLP induction session.

Question 6

A claimant brings a breach of contract claim seeking £150,000. The claimant has a damages based agreement (‘DBA’) with her solicitor which provides for the solicitor to be paid 50% of the damages in the event the claim succeeds. The claimant is awarded £120,000 at trial, which counts as ‘success’ under the terms of the DBA. The solicitor’s fees recoverable from the other side, calculated on the basis of a reasonable hourly rate, are £20,000.

What sum may the solicitor charge the client for his professional fees, net of VAT?

Select one alternative:

£50,000

£30,000

£60,000

£80,000

£75,000

Answer 6

• £60,000

Correct. The solicitor is entitled to 50% of the damages. 50% of £120,000 is £60,000. Unlike a conditional fee agreement, with a DBA, if the case is successful, the solicitor will be paid a proportion of the damages awarded to the client by way of a remedy, rather than getting their charges plus a success fee, so £80,000 is wrong. £75,000 is 50% of the amount claimed by the claimant, not the amount of damages awarded by the court, and is therefore wrong. £30,000 is wrong because it is 25% of the damages awarded by the court – the maximum amount a lawyer can recover is capped at 25% in personal injury cases, 35% in employment tribunal cases and 50% in all other cases so the solicitor can recover 50% of the damages. £50,000 is 25% of the damages (rather than 50%) plus the solicitor’s charges (which the solicitor does not recover in a damages based agreement), so is wrong.

Question 7

Your client wishes to bring a personal injury claim against a restaurant following an accident. The claim is valued at £40,000. What is the best advice to give the client about whether to issue a claim in the County Court or the High Court?
Select one alternative:

The claim should be issued in a specialist division of the County Court.

The claim must be issued in the County Court.

The claim should be issued in the Queen’s Bench Division of the High Court.

The claim must be issued in the Chancery Division of the High Court.

The claim can be issued in the High Court or the County Court.

Answer 7

• The claim must be issued in the County Court.

Correct. Personal injury claims cannot be commenced in the High Court unless their value is £50,000 or more. As this is personal injury claim worth £40,000, it must be commenced in the County Court.

Question 8

8
Your client has decided to purchase bonds in a public listed company on the advice of her FCA authorised financial advisor. She has instructed you to make the necessary arrangements for her to purchase the bonds. You will not receive any commission for arranging the purchase.

Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a ‘regulated activity’ as defined in the Financial Services and Markets Act 2000 and related secondary legislation.

Which ONE of the following statements best states the CORRECT position?
Select one alternative:

You can arrange for the client to purchase the bonds because bonds are not a specified investment.

You cannot arrange for the client to purchase the bonds because you will not be able to comply with the restrictions under the SRA Financial Services (Scope) Rules 2019.

You can arrange for the client to purchase the bonds provided you comply with the SRA Financial Services (Conduct of Business) Rules 2019.

You cannot arrange for the client to purchase the bonds because neither you nor your firm is authorised to do so by the FCA.

You can arrange for the client to purchase the bonds because the client is entering the transaction on the advice of an authorised person.

Answer 8

• You can arrange for the client to purchase the bonds because the client is entering the transaction on the advice of an authorised person.

Correct. The specified investment here is bonds, article 77 RAO. The specified activity is arranging deals in investments (article 25 RAO). However the exclusion of arranging deals through an authorised person (article 29) applies here because the client is entering the transaction on the advice of her financial advisor who is authorised by the FCA. (Step 3 of the decision tree). The client is therefore protected from bad financial advice. Note that the solicitor will not be receiving commission, so does not need to worry about accounting for any commission to the client. The solicitor does not need to be authorised by the FCA. We also do not need to consider step 4 of the decision tree – whether the activity fulfils Rule 2 of the SRA Financial Services (Scope) Rules 2019 (‘SRA Scope Rules’), or whether the solicitor meets the other requirements of the SRA Scope Rules or the SRA Financial Services (Conduct of Business) Rules.

Question 9

A colleague qualified into the private client department of your law firm five years ago and wishes to leave the firm and set up a business on his own as a self-employed solicitor drafting wills and administering the estates of deceased clients.

Which ONE of the following options is CORRECT?

Select one alternative:

The solicitor will need to be authorised by the SRA and comply with the SRA Code of Conduct for Solicitors because probate activities are reserved legal activities under the Legal Services Act. However, he will not need to comply with the SRA Accounts Rules because he will not be working in a law firm.

The solicitor will not need to be authorised by the SRA or comply with the SRA’s rules including the Code of Conduct for Solicitors and the SRA Accounts Rules because probate activities are not reserved legal activities under the Legal Services Act.

The solicitor will not be permitted to provide these services to clients as a business on his own, because probate activities can only be provided to clients by law firms.

The solicitor will need to be authorised by the SRA and comply with the SRA’s rules including the Code of Conduct for Solicitors and the SRA Accounts Rules because probate activities are reserved legal activities under the Legal Services Act.

The solicitor will not need to be authorised by the SRA because probate activities are not reserved legal activities under the Legal Services Act. However, he might choose to be authorised by the SRA to give clients assurance that they have the protections arising from him being authorised by the SRA.

Answer 9

The solicitor will need to be authorised by the SRA and comply with the SRA’s rules including the Code of Conduct for Solicitors and the SRA Accounts Rules because probate activities are reserved legal activities under the Legal Services Act.

Correct. Probate activities are one of the reserved legal activities under the Legal Services Act 2007 and can only be provided by someone authorised by an approved regulator. The approved regulator for solicitors is the SRA. The SRA Code of Conduct for Solicitors applies to all individuals authorised by the SRA to provide legal services. The SRA Accounts Rules apply to law firms and individuals authorised by the SRA to receive or deal with money belonging to clients. As the solicitor will be receiving and distributing client money when administering estates, he will need to comply with the SRA Accounts Rules.

Question 10

A man has been arrested for assault occasioning actual bodily harm contrary to s.47 Offences Against the Person Act 1861. He is a solicitor, earning £100,000 per year. He had lost his temper with a difficult client and punched him, chipping one of his teeth. He has no previous convictions.

Will the man be entitled to publicly funded legal representation in connection with the defence of his case?

Select one alternative:

The man will be eligible for publicly funded legal representation by the duty solicitor at the police station. He will also be able to get a representation order in the magistrates’ court, provided that he passes the interests of justice test, because there is no means test in the magistrates’ court.

The man will be eligible for publicly funded legal representation by the duty solicitor at the police station. This will be limited to telephone advice only, as he will fail the means test. He will not be able to get a respresenation order in the magistrates’ court, because even if he passes the interests of justice test, he will fail the means test which applies in the magistrates’ court.

The man will not be eligible for publicly funded legal representation by the duty solicitor at the police station because he will fail the means test. He will not be able to get a respresentation order in the magistrates’ court, because even if he passes the interests of justice test, he will fail the means test which applies in the magistrates’ court.

The man will be eligible for publicly funded legal representation by the duty solicitor at the police station. He will not be able to get a representation order in the magistrates’ court, because even if he passes the interests of justice test, he will fail the means test which applies in the magistrates’ court.

The man will be eligible for publicly funded legal representation by the duty solicitor at the police station. He will also be able to get a representation order for all hearings up to and including sentence, because he will pass the interests of justice test and the means test.

Answer 10

• The man will be eligible for publicly funded legal representation by the duty solicitor at the police station. He will not be able to get a representation order in the magistrates’ court, because even if he passes the interests of justice test, he will fail the means test which applies in the magistrates’ court.

Correct. Everyone is entitled to publicly funded legal representation by the duty solicitor at the police. The legal aid application for a representation order at court requires the defendant to pass the interests of justice test and a means test. In these circumstances the man is likely to pass the interests of justice test but is unlikely to pass the means test for legal aid, because of his income. Whilst the other answers sound plausible, they are each incorrect. It is incorrect to state that the man will not be eligible for publicly funded legal representation by the duty solicitor because he will fail the means test. There is no means test for advice and assistance at the police station, the man is eligible to receive publicly funded legal representation at the police station. It is correct to say that he will not be able to get a representation order as he will fail the means test. It is incorrect to state that the man will get a representation order for all hearings up to and including sentence because he will pass the interests of justice and the means test. Due to the man’s income, he is unlikely to pass the means test. It is incorrect to state that the man will be eligible for publicly funded representation at the police station, limited to telephone advice only. There is no means testing for advice and assistance at the police station so the man will be eligible for legal representation by the duty solicitor at the police station. It is correct to say that he will not get a representation order at the magistrates’ court because he will fail the means test. It is incorrect to state that the man will get a representation order at the magistrates’ court provided that he passes the interests of justice test, because there is no means test in the magistrates’ court. To be granted a representation order in the magistrates’ court, the man must pass the interests of justice and the means test. Please review your materials on legal aid, including public funding at the police station and the interests of justice and means test for representation orders in the magistrates’ court.

Question 11

You are acting for a client in a commercial transaction. As a result of taking detailed instructions and negotiating with the other side’s lawyers, it becomes clear to you that costs in the case will be significantly more than the estimate set out in the client care letter that was sent to the client at the start of the transaction.

Which of the following best describes what you should do?

Select one alternative:

You do not need to inform the client if the client care letter set out an estimate with charge out rates.

You should give a revised cost estimate in a meeting with the client or over the telephone.

You should write to the client giving them a revised cost estimate as soon as practicable.

You should only charge the client in accordance with the estimate given in the client care letter and should write off the additional time spent.

You should issue a new client care letter with a revised estimate.

Answer 11

• You should write to the client giving them a revised cost estimate as soon as practicable.

Correct answer. This accords with CCS 8.7 as the obligation to ensure clients have the best possible information on pricing is a continuing obligation and therefore you should advise the client in writing of your concerns about the initial estimate as soon as practicable.

Question 12

A new client has instructed you to act for her on the purchase of a hotel. She informs you that she is buying the property from her father who is based in the British Virgin Islands. She is paying £800,000 in cash which is 20% below the value of the property which is £1 million.

What is the best course of action you should take?

Select one alternative:

Inform your firm’s Money Laundering Reporting Officer about the transaction. Do not work on the file until they have carried out the relevant checks.

Tell the client that you cannot act for her because you suspect she is money laundering.

Send a suspicious activity report to the National Crime Agency. Do not work on the file until they have carried out the relevant checks.

Inform your firm’s Money Laundering Reporting Officer about the transaction. Continue to work on the file as usual, unless the Money Laundering Reporting Officer tells you to stop.

Inform the police. Continue to work on the file as usual, unless the police tell you to stop.

Answer 12

• Inform your firm’s Money Laundering Reporting Officer about the transaction. Do not work on the file until they have carried out the relevant checks.

Correct. There are factors here that indicate a risk of money laundering: paying a large sum of money in cash, the price being 20% below the value of the property, buying the property from a relative, and the seller being based in a tax haven. In order to avoid liability under s.327 – 329 Proceeds of Crime Act you should make an authorised disclosure to your firm’s Money Laundering Reporting Officer. You should not carry out any work until the relevant checks have been completed.

Question 13

You are a solicitor in the employment law department in a large firm. You receive a telephone call from a new client who is seeking advice in relation to an unfair dismissal claim against her former employer. The client tells you that she is blind. She informs you that she will need you to load some new software onto your computer so that any documents that you send her are compatible with her voice activation software. She will also need some documents to be translated into braille. You do have the capacity to take on more work and it sounds like this client has a good case. However, you are concerned about the client’s additional needs. Making the aadjustments will involve moderate expense. In addition your firm will have to install the software onto their IT systems. Your IT department is not particularly helpful and you know that you will have to spend a large amount of time liaising with them. Translating documents into braille will also involve extra time.

What should you do?

Select one alternative:

Tell the client that you cannot take on her case because your firm’s IT department is unable to install the software.

Tell the client that she has a good case, but you cannot act for her because you have no experience of advising blind clients.

Tell the client that you are too busy to take on her case.

Tell the client that you can act for her but that she will have to bear the costs of installing the voice activated software and obtaining the braille documents.

You should take on the new client despite your concerns.

Answer 13

You should take on the new client despite your concerns.

Correct. Your firm has an obligation to make reasonable adjustments necessary to ensure that a disabled person is not placed at a substantial disadvantage compared to those who are not disabled. On the facts the client has a good case and the only reason you would not be taking her on as a new client is because of her disability and additional needs.

Question 14

You work in the pensions department of a law firm. Your client is thinking of investing in a pension as she has recently started a new job. She tells you that she does not really understand the key differences between a stakeholder pension and a personal pension. She asks you to explain this to her. She also asks for your advice on whether she should invest in the pension provided by her new employer.

Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a regulated activity.

Can you give the advice requested by the client?

Select one alternative:

Yes, because the provision of the advice is outside the scope of the Code of Conduct for Solicitors.

Yes, because advising on whether to invest in the pension provided by the new employer is a necessary part of advising on the difference between different types of pension.

You can advise the client on the merits of investing in the pension provided by the new employer, but you cannot give generic advice on the difference between different types of pensions.

No, because you are not authorised by the Financial Conduct Authority to give advice in respect of either type of pension or whether to invest in the pension provided by the new employer.

You can give generic advice on the difference between different types of pensions, but you cannot give specific advice on the merits of investing in the pension provided by the new employer.

Answer 14

You can give generic advice on the difference between different types of pensions, but you cannot give specific advice on the merits of investing in the pension provided by the new employer.

Correct. Rights under a pension scheme are a specified investment (art 82 RAO). This is logical as a pension is a financial product. The specified activity is advising (on the merits) of an investment (art 53). However note that giving generic advice on the difference between different types of pension is NOT a specified activity. To be caught the advice requires an element of opinion on the part of the solicitor and a recommendation as to the course of action. So you would not need to be authorised by the FCA to advice on the difference between the types of pension. You WOULD need to be authorised by the FCA to advice on whether the client should invest in the pension offered by the new employer – so the solicitor cannot give this advice unless they are authorised by the FCA, which they are not.

Question 15

A firm of solicitors is acting on behalf of a client who is purchasing a new property and is preparing for completion. The mortgage advance of £80,000 has been received from the mortgage company’s solicitor in readiness for completion. The firm of solicitors has not sent a bill of costs to the client yet.

Which one of the following best explains whether the £80,000 is client money?

Select one alternative:

No, it is not client money because it has been received from a third party and not from the client.

No, it is not client money because it has been received by the firm of solicitors and not by the client.

Yes, it is client money.

No, it is not client money because a bill of costs has not yet been sent to the client.

No, it is not client money because it will belong to the mortgage company until completion of the purchase has taken place.

Answer 15

• Yes, it is client money.

Correct. It is client money under Rule 2.1(b). The firm has received the money on behalf of a third party (the mortgage company) in relation to regulated services delivered by the firm (dealing with the purchase of the property).

Question 16

You have just qualified into the litigation department at your firm and have been working there for two weeks. You are asked to represent a client at a hearing in the High Court as a more senior member of the team has been taken ill.

Which one of the following options best states the correct position?

Select one alternative:

All legal professionals have rights of audience in all courts and tribunals, so you can represent the client at the hearing.

You cannot represent the client at the hearing because solicitors do not obtain rights of audience in the High Court until they have been practising for five years.

You cannot represent the client at the hearing because solicitors do not have rights of audience in the High Court

You cannot represent the client at the hearing because, as you are two weeks’ qualified, you will not have completed the additional assessment requirements to obtain Higher Rights of Audience.

As a qualified solicitor, you have rights of audience in the High Court so you can represent the client straight away.

Answer 16

• You cannot represent the client at the hearing because, as you are two weeks’ qualified, you will not have completed the additional assessment requirements to obtain Higher Rights of Audience.

Correct. The Higher Courts for the purposes of civil disputes means the High Court, the Court of Appeal and the Supreme Court. Advocacy in these courts would ordinarily by carried out by barristers, and solicitors wishing to carry out advocacy in the High Courts must undertake training and pass assessments to obtain Higher Rights of Audience. Such a newly qualified solicitor is very unlikely to have done this.

Question 17

You have been instructed to wind up and distribute the estate of a deceased client. You pay a disbursement on the file when there is no money for the client in the client account.

What are the correct entries to record payment of the disbursement?

Select one alternative:

Debit client ledger business account. Credit cash sheet business account.

Credit client ledger business account. Debit cash sheet business account.

Debit client ledger client account. Credit cash sheet client account.

Credit client ledger client account. Debit cash sheet client account.

Debit client ledger business account. Credit cash sheet petty cash account.

Answer 17

• Debit client ledger business account. Credit cash sheet business account.

Correct. These are the correct entries to record the payment out of non-client money. Non-client money will be used to make the payment because the client does not have any client money in the client account and Rule 5.3 states that you only withdraw client money from a client account if sufficient funds are held on behalf of that client to make the payment.

Question 18

A case is heard in the Court of Appeal. Which of the following statements most accurately represent the decisions by which the Court of Appeal should consider itself bound?
Select one alternative:

Only decisions of the Supreme Court.

Decisions of the Court of Appeal, the Supreme Court and the House of Lords.

Decisions of the High Court, the Crown Court, the Court of Appeal, the Supreme Court and the House of Lords.

Decisions of the Supreme Court and the House of Lords.

Decisions of the High Court, the Court of Appeal, the Supreme Court and the House of Lords.

Answer 18

Decisions of the Court of Appeal, the Supreme Court and the House of Lords

Correct. A court decision binds all the courts below, so the Court of Appeal is not bound by decisions of the High Court or the Crown Court but is bound by the decisions of the Supreme Court, and the House of Lords. In addition the Court of Appeal binds itself, subject to three exceptions established in Young v Bristol Aeroplane Co. Ltd. [1944] KB 718. Note that the Supreme Court was established by Part 3 of the Constitutional Reform Act 2005 and replaced the House of Lords and assumed its jurisdiction on 1 October 2009. The Court of Appeal will still be bound by decisions of the House of Lords before it was replaced by the Supreme Court.

Question 19

You are in the company commercial department of a law firm and you receive instructions from a new client, A Limited, on its purchase of a business division from a company, B Limited.

Which ONE of the following statements regarding customer due diligence (‘CDD’) is CORRECT?

Select one alternative:

You need to check whether any individual owns more than 25% of the shares in A Limited and if so, carry out standard CDD on such beneficial owners and on A Limited itself.

You should check whether any individuals own more than 50% of the shares in A Limited and, if so, carry out standard CDD on such beneficial owners.

You should carry out ongoing monitoring of A Limited.

You should carry out enhanced CDD on A Limited because there is a higher risk of money laundering here.

You should carry out simplified CDD on A Limited because the risk of money laundering here is low.

Answer 19

You need to check whether any individual owns more than 25% of the shares in A Limited and if so, carry out standard CDD on such beneficial owners and on A Limited itself.

Correct. This is an instruction from a new client and you will need to carry out standard CDD on that client, on both the company itself (Regulation 28(3) MLR) and on the beneficial owner (Regulation 28(4) MLR). The beneficial owner is the individual who owns or controls more than 25% of the shares or voting rights in the company (Regulation 5 MLR). There is nothing to suggest a particularly high risk of money laundering on these facts so enhanced CDD is not required. Equally there is nothing to suggest a low risk of money laundering (eg the client is not listed on the London Stock Exchange) so simplified CDD would not be sufficient. Ongoing monitoring applies in relation to an existing client with whom you have an ongoing relationship. This is a new client, so ongoing monitoring would not be appropriate at this stage.

Question 20

Your client is 25 years old and has been charged with murder. Which one of the following options is correct?

Select one alternative:

Proceedings will be commenced and substantive hearings will take place in the magistrates’ court. Any appeal will be made to the Crown Court.

Proceedings will be commenced in the magistrates’ court and the case will be sent to the High Court.

Proceedings will be commenced and tried in the magistrates’ court and any appeal will be made to the Court of Appeal, Criminal Division.

The magistrates’ court will not be involved because of the serious nature of the offence. Proceedings will be commenced and all substantive hearings will take place in the Crown Court.

Proceedings will be commenced in the magistrates’ court and the case will be sent to the Crown Court.

Answer 20

• Proceedings will be commenced in the magistrates’ court and the case will be sent to the Crown Court.

Correct. Almost all cases involving adults are commenced in the magistrates’ court, although as murder is an indictable only offence, it will be sent to the Crown Court after the first hearing. The High Court has limited jurisdiction on criminal matters and would not try a murder case. Any appeal would be from the Crown Court to the Court of Appeal, Criminal Division.

Question 21

Question1
Your client is seeking to retire and to sell their 50% shareholding in a family business, which is a private limited company, and seeks your advice in relation to this. The shares are to be sold to the client’s brother, who is already involved in the company and currently holds 15% of the shares. The client asks you to prepare the necessary documentation for the sale of the shares.

Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a regulated activity.

Are you able to provide the advice the client seeks?

Select one alternative:

You can provide this advice but you must ensure that a prospectus is prepared in relation to the shares and that this is approved by the Financial Conduct Authority.

No, since shares are a specified investment and the advice sought constitutes a specified activity, therefore you must not provide this advice unless you are authorised by the Financial Conduct Authority as you will be in breach of the general prohibition under FSMA.

No, since you will be preparing documentation which would amount to a financial promotion, therefore you will be committing a criminal offence unless an authorised person approves the contents.

You can only provide this advice if the client is a high net worth individual, since this constitutes an exception to the prohibition on financial promotions.

Yes, since the transaction here is the sale of a body corporate. No authorisation is therefore required to provide the advice.

Answer 21

Yes, since the transaction here is the sale of a body corporate. No authorisation is therefore required to provide the advice.

This question concerns the general prohibition on providing financial advice under s 19, the restriction on financial promotions under s 21 and the requirement for a prospectus under s 85 FSMA. Since this is a sale of 50% of the shares to a single person, the transaction is a sale of a body corporate, and as such falls within the exclusions to both s 19 and s 21 FSMA. The advice sought may therefore be provided. No prospectus would be required because an exemption would apply to the requirement under s 85 FSMA.

Question 22

2
You have received instructions from a new client who wants to buy a holiday apartment in Wales. The client lives in France and is funding 50% of the purchase in cash from the sale of some shares and 50% by a mortgage from a UK bank. You expect that this will be a one-off transaction for the client.

Which of the following statements best explains the customer due diligence you must carry out before proceeding with the transaction?

Select one alternative:

You should carry out enhanced due diligence because the client is funding half of the purchase in cash.

You should carry out standard due diligence because the client presents a low risk of money laundering as part of the funding is from a UK bank.

You should carry out enhanced customer due diligence because the client is not resident in the UK.

You should carry out standard customer due diligence because there is nothing to suggest the client presents a high risk of money laundering.

You should carry out simplified customer due diligence because the client presents a low risk of money laundering as you have identified the source of the funding.

Answer 22

You should carry out standard customer due diligence because there is nothing to suggest the client presents a high risk of money laundering.

This question concerns the level of CDD that must be carried by a solicitor when they are carrying out an occasional transaction for client based overseas. This is covered in the element ‘Money laundering – CDD’. You should carry out standard customer due diligence. There is nothing on the facts to suggest this client presents a high risk of money laundering. The client is not from a high risk country and the transaction is not complex. You have identified how the client is funding the purchase so there is no need for enhanced CDD. For simplified CDD to apply there would need to be a reason to consider this particularly low risk, for example the client being a local authority, a listed company or other trusted party, which is not the case here.

Question 23

3
A junior solicitor was preparing a first draft of a contract and made an error in a clause. If the contract was signed in its draft form, the clause would be unenforceable following a recent case. The law firm held training on the case which the junior solicitor did not attend. The junior solicitor’s supervisor, who is five years qualified, missed the error when he sent the draft contract to the client. The partner responsible for the work of the junior solicitor and the supervisor identified the error when reading the draft contract two days later and took action to rectify it.

Which one of the following statements best sets out the correct position regarding the Code of Conduct for Solicitors (‘Code’)?

Select one alternative:

The junior solicitor and the supervisor have both breached the Code.

The partner has breached the Code, but the junior solicitor and the supervisor have not.

The Compliance Officer for Legal Practice has breached the Code, but the junior solicitor and the supervisor have not.

The supervisor has breached the Code but the junior solicitor has not.

The junior solicitor has breached the Code but the supervisor has not.

Answer 23

The junior solicitor and the supervisor have both breached the Code.

Question 24

You meet with a client who has instructed the firm for over 20 years. He is approaching retirement and has asked you to assist him with financial planning for the future. He is seeking advice on two issues:

Whether he should give his collection of vintage cars to his nephew, and
He would like your opinion regarding whether he should purchase shares in a start-up company run by his niece. She has invented a computer coding game for children. He would like to support her by buying some shares in the business.
Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a regulated activity. Are you able to provide the advice the client seeks?

Select one alternative:

You can provide this advice to the client since he is a high net worth individual and is well known to the firm.

You cannot provide advice to the client on either issue, since to do so would be a breach of the general prohibition under FSMA.

You can only advise the client about gifting the vintage cars. You must not provide advice in relation to the purchase of the shares.

You can provide advice to the client on both issues, provided you are competent to do so.

You can only advise the client in relation to the purchase of the shares. You must not provide advice in relation to the gifting of the vintage cars.

Answer 24

You can only advise the client about gifting the vintage cars. You must not provide advice in relation to the purchase of the shares.

This question concerns the general prohibition on providing financial advice under s 19 FSMA. Shares are a specified investment under Article 76 RAO and therefore you cannot advise on the share purchase unless one of the exemptions applies or you are an authorised person. You can advise about gifting of the vintage cars, since this is a general tax issue and not covered by FSMA.

Question 25

5
Your firm has a referral agreement with another law firm under which, if one firm (the ‘Introducer’) refers a client to the other (the ‘Recipient’), the Recipient will pay the Introducer 5% of the fees paid by the client in the matter (‘Referral Fee’). A partner in the other firm has referred a client to you. The client is seeking to bring a claim for damages for personal injury arising from a car accident.

Which one of the following options is correct?

Select one alternative:

You must turn down the referral and report the other firm to the SRA for referring a client to you in breach of the SRA’s rules and regulations.

You can act for the client, but you must obtain the client’s permission to pay the Referral Fee to the other firm.

You can act for the client and pay the Referral Fee provided you inform the client of your fee sharing arrangement with the other firm.

You must turn down the referral.

You cannot pay the Referral Fee to the other firm. You could act for the client without paying the Referral Fee if this was agreed with the other firm.

Answer 25

You cannot pay the Referral Fee to the other firm. You could act for the client without paying the Referral Fee if this was agreed with the other firm.

Section 56(1) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (‘LASPO’) prohibits solicitors from referring or receiving referrals in respect of a claimant’s claim for damages in respect of personal injury or death to each other in consideration for a referral fee. You would therefore not be able to accept the instructions and pay the Referral Fee. You could however accept the instructions and not pay the referral fee to the other firm, if this was agreed with the other firm. It is not clear from the question that the other firm is insisting on payment of the Referral Fee, so it would not be necessary to report the firm to the SRA. These points were covered in the recording ‘Introduction to the regulation of law firms’.

Question 26

6
Your client recently sold a business for a substantial profit. She is now seeking advice regarding what to do with the monies from the sale.

She is seeking advice on two issues. Firstly, she would like you to assist her with a cash purchase of a holiday cottage in Cornwall. Secondly, she would like some advice in relation to setting up a personal pension scheme.

Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a regulated activity. Are you able to give the client the advice requested?

Select one alternative:

You can only advise the client about purchasing the holiday cottage, provided you are competent to do so.

You can advise the client on both issues, provided you are competent to do so.

You should not provide any advice, but instead refer the client to an authorised person who will be able to provide advice on both issues.

You cannot provide advice to the client on either issue, since to do so would constitute a breach of the general prohibition under FSMA.

You can only advise the client about the pension plan, provided you are competent to do so.

Answer 26

You can only advise the client about purchasing the holiday cottage, provided you are competent to do so.

This question concerns the general prohibition on providing financial advice under s 19 FSMA. The pension scheme is a specified investment under Article 82 ROA, therefore you cannot advise on the pension scheme unless one of the exemptions applies or you are an authorised person. You can advise on the purchase of the holiday cottage since this is not covered by FSMA. You must however be competent to give this advice, otherwise you would be in breach of CCS 3.2.

Question 27

A solicitor specialising in civil law, who has been practising for five years, has been asked to represent a client at a hearing in the County Court because the barrister on the case has been taken ill.

Which one of the following options best states the solicitor’s position?

Select one alternative:

The solicitor cannot represent the client at the hearing unless he has completed the additional assessment requirements to obtain Higher Rights of Advocacy.

The solicitor can represent the client at the hearing because he has been practising for five years.

The solicitor can represent the client at the hearing because solicitors can carry out advocacy in the County Court.

The solicitor can represent the client because solicitors can carry out advocacy in all courts and tribunals.

The solicitor cannot represent the client at the hearing because solicitors do not have Higher Rights of Audience.

Answer 27

The solicitor can represent the client at the hearing because solicitors can carry out advocacy in the County Court.
Answered and correct

This question required you to understand solicitors’ rights of advocacy in the Magistrates’ Court. Solicitors can carry out advocacy in the Magistrates’ Court, County Court, Tribunals and Appeal Tribunals. Solicitors are not generally authorised to carry out advocacy in the Higher Courts. Advocacy in these courts would ordinarily by carried out by barristers, and solicitors wishing to carry out advocacy in the Higher Courts must undertake training and pass assessments to obtain Higher Rights of Audience.

Question 28

Your client, a successful entrepreneur, instructs you to act for them in purchasing the entire issued share capital of a private limited company. The client wants you to prepare and negotiate all the necessary documentation to carry out the share purchase.

Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a ‘regulated activity’ as defined in the Financial Services and Markets Act 2000 and related secondary legislation.

Are you able to carry out these instructions without breaching the general prohibition on providing financial advice under FSMA?

Select one alternative:

Yes, because an exclusion applies if the transaction involves at least 50% of the voting shares in the company.

No, because the transaction involves the purchase of the entire issued share capital of the company and no exclusion or exemption applies.

Yes, because an exclusion applies if the transaction relates to the purchase of any number of shares in a private limited company.

No, because the client is seeking advice on the purchase of shares in a specific company and no exclusion or exemption applies.

Yes, because an exemption applies to professional firms which are supervised by the Solicitors Regulation Authority when they engage in corporate work.

Answer 28

Yes, because an exclusion applies if the transaction involves at least 50% of the voting shares in the company.

This question concerns the general prohibition on providing financial advice under s 19 FSMA. Shares are a specified investment under Article 76 RAO. The specified activity is arranging deals in shares (Article 25). However, the exclusion under article 70 RAO applies because the client will be buying 50% or more of the shares in the company, therefore there is no breach of s 19.

Question 29

Your client is 40 years old and has been charged with common assault.

Which one of the following statements describes where proceedings should most appropriately be commenced, heard and appealed?

Select one alternative:

Proceedings will be commenced in the Magistrates’ Court. The Magistrates’ Court will decide whether to try the offence in the Magistrates’ Court or the Crown Court, and the offence will be tried and sentenced accordingly.

Proceedings will be commenced, tried and sentenced in the Magistrates’ Court. Any appeal will be made to the Crown Court.

Proceedings will be commenced, tried and sentenced in the Magistrates’ Court, unless the client elects to be tried in the Crown Court in which case proceedings will be commenced in the Magistrates’ Court and tried and sentenced in the Crown Court.

Proceedings will be commenced in the Magistrates’ Court and the case will be sent to the Crown Court where the case will be tried and sentenced. Any appeal will be made to the Court of Appeal, Criminal Division.

Proceedings will be commenced, tried and sentenced in the Crown Court. Any appeal will be made to the Court of Appeal, Criminal Division.

Answer 29

Proceedings will be commenced, tried and sentenced in the Magistrates’ Court. Any appeal will be made to the Crown Court.

This question concerns jurisdiction of the criminal courts. The client is charged with assault. Students needed to recognise that assault is a summary only offence and is therefore only capable of being tried and sentenced in the Magistrates’ Court. Any appeal will be made to the Crown Court. This was covered in the element ‘Criminal Courts Structure’ in the topic ‘Legal System of England and Wales’ in the Professional Conduct + section in Adapt

Question 30

A father wishes to apply for a court order to gain access to his child who is 12 years old. However he is concerned that he will not have enough money to pay for the legal costs. What is the best advice to give him about civil Community Legal Service (‘CLS’) funding?

Select one alternative:

Civil CLS funding may be available, but only if his case is sufficiently strong and he meets the means test.

Civil CLS funding may be available but only if his case is strong enough.

Civil CLS funding will be available because it is always awarded for family disputes.

Civil CLS funding will not be available because the child is over the age of 10.

Civil CLS funding may be available but only if he meets the means test.

Answer 30

Civil CLS funding may be available, but only if his case is sufficiently strong and he meets the means test.

Civil CLS funding is subject to a means test and a merits test. If the client’s income is too high and/or the client has too much capital, they will be ineligible. Also, if the client’s position is insufficiently meritorious, they will not receive CLS funding. The majority of civil legal work is not eligible for CLS funding, but it is available for family disputes provided the client meets the means test and the merits test.

Question 31

You are acting for an individual in relation to the acquisition of a property. Prior to completion, the individual sends you a large overpayment to your firm’s client account. You have a concern about money laundering, so you report the overpayment to your firm’s Money Laundering Reporting Officer who makes a suspicious activity report to the NCA.

Which of the following options best describes the circumstances in which you can proceed with the transaction?

Select one alternative:

You can proceed with the transaction provided you are authorised to do so by the NCA.

You can proceed with the transaction as soon as the suspicious activity report has been made.

You can proceed with the transaction provided 5 working days has passed from the disclosure to the NCA and the NCA has not refused authority to proceed.

You can proceed with the transaction provided you notify the individual that a suspicious activity report has been made.

You can proceed with the transaction provided you are authorised to do so by the Money Laundering Reporting Officer.

Answer 31

You can proceed with the transaction provided you are authorised to do so by the NCA.

This question is about understanding what steps a solicitor can take once a suspicious activity report has been made by the firm’s MRLO to the NCA. If the MLRO makes a suspicious activity report to the NCA, you cannot proceed until the NCA provides authorisation, the MLRO cannot authorise you to proceed once an SAR has been made to the NCA. The correct notice period is 7 working days, not 5. You also need to be aware of the offence of ‘tipping off’ when acting in a transaction in the regulated sector (which this is). This was covered in the element on ‘ML offences under the PoCA’.

Question 32

A litigation solicitor volunteers one day a week in a law centre defending clients on debt claims. Which one of the following statements is CORRECT?
Select one alternative:

The law centre must be authorised by the SRA because the conduct of litigation is a reserved legal activity.

The law centre does not need to be authorised by the SRA unless the solicitor will be appearing before the court.

The law centre does not need to be authorised by the SRA but the solicitor must comply with the Code of Conduct for Solicitors.

The law centre does not need to be authorised by the SRA because the solicitor is working on a voluntary basis.

The law centre must be authorised by the SRA because advising on debt claims is a regulated activity.

Answer 32

The law centre must be authorised by the SRA because the conduct of litigation is a reserved legal activity.

Law centres must be authorised by the SRA if they provide reserved legal activities regardless of whether the solicitor works on a voluntary basis. Reserved legal activities are set down in section 12 and Schedule 2 to the Legal Services Act 2007. Rights of audience (the right to appear before court) is a reserved legal activity, but so is the conduct of litigation, so the law centre will need to be authorised in this case. The solicitor must comply with the Code of Conduct for Solicitors, but the law centre must also be authorised by the SRA. This was covered in Adapt: Good Business Practice: Managing Risk, element ‘types of legal businesses’ and the recording, ‘Introduction to the regulation of law firms’.

Question 33

Your client wishes to bring a breach of contract claim against a software company. The claim is valued at £120,000.

What is the best advice to give the client about where to issue the claim?

Select one alternative:

The claim must be issued in the High Court.

The claim can be issued in the High Court or the County Court.

The claim must be issued in the Circuit Commercial Court.

The claim must be issued in the County Court.

The claim must be issued in the Technology and Construction Court.

Answer 33

The claim can be issued in the High Court or the County Court.

This question required you to understand the court in which a non-personal injury claim with a value of more than £100,000 should be commenced. This was covered in the element, ‘the civil court system’ in Adapt. As this is a non-personal injury claim exceeding £100,000, both the County Court and High Court have jurisdiction. You will need to consider factors of value, complexity and importance to the public when making a final decision about whether to issue in the County Court or the High Court. The Technology and Construction Court is a specialist court within the Queens Bench Division of the High Court. The Circuit Commerical Court is a specialist court within the Queens Bench Division of the High Court.

Question 34

You are acting for an existing client in relation to the sale of a property in London for £750,000. The purchaser is buying the property in cash. The day before completion, you receive £1,200,000 in your firm’s client account from a bank in the Cayman Islands. This is a lot more money than you were expecting to receive. Your client calls you to say that he agreed to sell some furniture to the purchaser at the last minute and the monies relate to the sale of both the property and the furniture. Your client instructs you to transfer the full amount to a bank account in the British Virgin Islands.

Which offences are you at risk of committing under the Proceeds of Crime Act 2002 if you follow your client’s instructions?

Select one alternative:

Transferring criminal property; tipping off the client; using or possessing criminal property; becoming concerned in an arrangement which you suspect facilitates the use of criminal property.

Transferring criminal property; becoming concerned in an arrangement which you suspect facilitates the use of criminal property; using or possessing criminal property; failure to disclose your suspicions to your firm’s nominated officer.

Becoming concerned in an arrangement which you suspect facilitates the use of criminal property; and transferring criminal property.

Using or possessing criminal property; tipping off the client; failure to disclose your suspicions to a nominated officer.

Failure to disclose your suspicions to your firm’s nominated officer; using or possessing criminal property; transferring criminal property.

Answer 34

Transferring criminal property; becoming concerned in an arrangement which you suspect facilitates the use of criminal property; using or possessing criminal property; failure to disclose your suspicions to your firm’s nominated officer.

This question concerns recognising the factors which indicate a risk of money laundering and understanding the direct and non direct involvement offences under POCA. This was covered in the element on ‘ML offences under POCA’. You will be transferring criminal property from the firm’s client account and therefore potentially becoming concerned in an arrangement that facilitates the use of criminal property by your client/purchaser. Whilst the monies remain in your firm’s client account, you will be in possession of criminal property. If you do not disclose your suspicions to the nominated officer, you are also guilty of failure to disclose. The offence of tipping off the client does not arise on the facts.

Question 35

A solicitor has agreed a fixed fee of £500 to draft a will for a long standing client of the firm. Some of the provisions in the will were complex and took more time for the solicitor to draft than she originally anticipated. When preparing a bill for the client, the solicitor notices that she has recorded fees of £700 based on her hourly rate for the time she spent on the matter.

Which of the following best states the action she should take?
Select one alternative:

She should invoice the client £500 now and invoice the client £200 next month.

She must invoice the client £500 and write off the additional £200.

She should charge the client £700.

She should write to the client with a revised cost estimate of £700 and then invoice the client the full amount.

She should invoice the client £500 for drafting the will and transfer the remaining £200 to the client’s general file so that the firm can bill for this time at a future date.

Answer 35

She must invoice the client £500 and write off the additional £200.

This question concerns fixed fee agreements which are common for drafting a will or conveyancing. With a fixed fee the law firm must invoice the client for the fixed amount agreed with the client regardless of the time spent by fee earners. In the absence of any agreement with the client to vary the fee, any time spent by fee earners in excess of the fixed fee must be written off. If the firm had incurred less time on the file, the firm would still be able to charge the fixed fee of £500. Transferring £200 to another file of the client would be a very serious breach of the SRA’s regulations and potentially fraud.

Question 36

You are on the panel interviewing candidates for a role as solicitor at your firm. Your office is a modern three storey building. A candidate of exceptional quality presents herself for interview. Her CV is impressive and she answers the panel’s questions extremely well. She is blind and, at the end of the interview, mentions that she would need a small ramp outside the entrance of the building and railings on the stairs to the upper floors in order to be able to access the building safely. After all the candidates have all been interviewed, the committee is deciding who should be offered the job. You are very keen on the blind candidate, but the others are not keen on offering it to her as this would involve paying for a ramp and railings. The ramp and railings would require minimal cost and disruption to the business of the firm.

How should you advise the committee?

Select one alternative:

If the candidate is the best person for the role, the law firm must appoint her. However, as the candidate can access the building perfectly well, the law firm does not have to provide the ramp and railings.

If the candidate is the best person for the role, the law firm must appoint her. However, it has a discretion as to whether it provides the ramp and railings.

If the law firm appoints the candidate, it must provide the ramp and railings. If the firm does not wish to incur this expense, they should appoint a different candidate.

If the candidate is the best person for the role, the law firm must appoint her and must provide the ramp and railings.

The law firm does not have to appoint the candidate to the post and does not have to provide the ramp and railings.

Answer 36

If the candidate is the best person for the role, the law firm must appoint her and must provide the ramp and railings.

This question concerns the requirement to make reasonable adjustments and not to discriminate against a person because of their disability under the Equality Act. The Equality Act 2010 puts a positive obligation on organisations to make reasonable adjustments to make sure that a disabled person is not placed at a substantial disadvantage compared to a non-disabled person. If the adjustments are reasonable which they are here (minimal cost and disruption to the business), there is no discretion to make the adjustments. In addition, the firm must not discriminate against a person because of their ‘protected characteristic’ which includes a disability, e.g. blindness. If this candidate is the best candidate for the job, she should be offered the role and the firm should pay for the adjustments.

Question 37

You recently acted for a client in connection with the sale of their 20% shareholding in a construction business. The client received £75,000 from the sale. They are thinking about buying a small shareholding in a large multinational plc and have asked you:

To review the articles of the company and advise about the rights attaching to the shares; and
Whether the shares represent a good investment in the current climate.
Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a regulated activity. Are you able to give the client the advice requested?

Select one alternative:

You can provide advice on both issues because advising on the purchase of the new shares is complementary to advising on the sale of the shares in the construction business.

You can provide advice on both issues, since advising on the purchase of the new shares is a necessary part of other services provided in the course of your profession.

You can provide advice on both issues because the client is purchasing shares in a body corporate.

You should not provide advice on either issue, since to do so will breach the general prohibition under FSMA.

You would be only able to review the articles of the company and advise about the rights attaching to the shares.

Answer 37

You would be only able to review the articles of the company and advise about the rights attaching to the shares.

This question concerns the general prohibition on providing financial advice under s 19 FSMA. Shares are a specified investment under Article 76 RAO and advising on the merits is a specified activity under Article 53(1) RAO, therefore the advice under point 2 should not be provided. None of the exceptions apply here. The exclusion under article 70 will not apply as the client is not buying more than 50% of the shares in a Plc. This advice is a new piece of work and does not arise out of the original sale of the shares in the construction business therefore it is not complementary to advising on the sale of shares in the construction business. Advising the client on the merits of the share purchase is not a necessary part of advising them on the share purchase transaction. Advising on the rights attaching to shares is permitted since this is generic advice and will not therefore fall under Article 53(1).

Question 38

A claim for damages for breach of contract is settled on terms that the defendant must pay the claimant damages of £50,000 together with the claimant’s legal costs, to be assessed on the standard basis (unless the parties can agree the amount to be paid). The claimant has a written conditional fee agreement with her solicitor which provided for a success fee of 80% of the fees charged by the firm. The solicitor has calculated their professional fees at £20,000 before the addition of the success fee and VAT.

What sum may the solicitor charge the client for their professional fees, net of VAT?

Select one alternative:

£16,000

£25,000

£20,000

£40,000

£36,000

Answer 38

£36,000

This question concerns the conditional fee agreements which was covered in the element ‘Funding’. The success fee is 80%. 80% of £20,000 is £16,000. This can be charged on top of the ‘normal’ fee of £20,000. So the total charge is £36,000.

Question 39

You receive instructions to act for Company A in relation to the sale of a portfolio of properties. All the shares in Company A are owned by a man who is a UK resident. You have not acted for Company A before.

Which of the following statements best explains what customer due diligence (‘CDD’) you must undertake?

Select one alternative:

You should carry out simplified CDD on Company A and identify and verify the man as he is the beneficial owner of Company A.

You should carry out enhanced CDD on Company A and identify and verify the man as he is the beneficial owner of Company A.

You should carry out standard CDD on Company A and identify and verify the man as he is the beneficial owner of Company A.

You should carry out standard CDD on Company A.

You should carry out ongoing monitoring on Company A and the man because you have not acted for Company A before.

Answer 39

You should carry out standard CDD on Company A and identify and verify the man as he is the beneficial owner of Company A.

This question is about the level of CDD that must be carried by a solicitor when they are carrying out an occasional transaction or establishing a business relationship. This was covered in the element on ‘Money laundering – CDD’. There is nothing to suggest Company A presents a high risk of money laundering (which would require enhanced CDD), adn simplified CDD is only appropriate where there is a low degree of risk of money laundering. Where the client is a company, you must also identify and verify the beneficial owner (the person who owns more than 25% of the voting shares in the company).

Question 40

A potential new client has been referred to you by one of the firm’s longest-standing and most trusted clients. You meet the man at your offices, and he explains that he would like you to act for him on the purchase of a property in London. The seller is the man’s cousin. The man is buying the property at a discount with cash. He wants to complete the transaction within the next few days. He asks for your client account details to transfer the purchase funds.

Which of the following statements best describes what you should do?

Select one alternative:

Do not accept the monies into the firm’s client account and make an authorised disclosure to the Solicitors’ Regulation Authority without alerting the man to your concerns.

Accept the monies into the firm’s client account and proceed with the transaction because the man was referred to you by a trusted client.

Accept the monies into the firm’s client account but, before proceeding further, advise the man of your concerns and ask him for evidence of the source of the funds.

Accept the monies into the firm’s client account and make an authorised disclosure to your firm’s Money Laundering Reporting Officer without alerting the man to your concerns.

Do not accept the monies into the firm’s client account and make an authorised disclosure to your firm’s Money Laundering Reporting Officer without alerting the man to your concerns.

Answer 40

Do not accept the monies into the firm’s client account and make an authorised disclosure to your firm’s Money Laundering Reporting Officer without alerting the man to your concerns.

These are suspicious facts raising a concern about money laundering as the man is buying property quickly, in cash from a relative. You should not accept monies on account in these circumstances nor should you alert the man of your concerns to avoid the risk of “tipping off” under s 333A. This course of action accords with s 327-329 and the firm will have a defence if it makes an authorised disclosure to the MLRO/Police under s 338 PoCA. The SRA is not the appropriate body to report money laundering concerns to. The referral from a trusted client is no defence to money laundering offences.