Legal Services Principles

Question 1

Regulators of legal profession (x6)

Answer 1

Legal services board; SRA; BSB; chartered institute of legal executives; council for licensed conveyancers; costs lawyers standards board

Question 2

Who a client can complain to (x4)

Answer 2

1) Law firm (complaints procedure)

2) Legal ombudsman (resolving instead of disciplining - can require solicitor to apologies, pay compensation, put right error, take specific action, pay complainant’s costs, limit firm’s fees)

3) SRA (can issue warning to firm, impose disciplinary sanctions like fines, reprimand solicitor for professional misconduct, order solicitor to repay whole of part of costs to client, impose restrictions on lawyer’s ability to practice, institute disciplinary proceedings before SDT, revoke recognition of form, close down a firm)

4) Solicitors disciplinary tribunal (SDT - independent statutory body which deals with serious breaches and disciplines solicitors) (can strike solicitor off the roll, suspend solicitor, reprimand solicitor, impose fine, award costs against a party to proceedings, make a restriction order to area in which solicitor can practice)

Question 3

The law society

Answer 3

• Represents solicitors in England and wales to the public
• Supports solicitors in their career and practice
• Fights a solicitor’s corner

Question 4

Role of SRA (x3: ASD)

Answer 4

1) Authorises orgs to provide legal services. Orgs need authorising to provide:

• Reserved legal activities (unless exempt): ALIPO
• Immigration services (unless regulated by OISC)
• Claims management services (unless regulated by FCA)
• Regulated financial activities (unless regulated by FCA)

2) Standards (sets and enforces them) (SRA adopts a risk-based approach to regulation and requires law firms and staff to take steps to reduce those risks)

3) Disciplinary matters (see previous card on who client can complain to - x8)

Question 5

SRA standards and regulations

Answer 5

SRA principles; CCS; CCF; SRA accounts rules (regulate how law firms hold and manage client money)

Question 6

SRA Indemnity Insurance Rules

Answer 6

Requires law firms to take out professional indemnity insurance and they must not exclude or attempt to exclude liability below the minimum level of cover required

(Where a client or 3rd party claims against solicitor (or gives notice it will) and the claim may be covered by the firm’s indemnity insurance policy, the insurers should be notified immediately)

Question 7

Reserved legal activities (x5)

Answer 7

Can only be provided by someone authorised by an approved regulator (except certain charities)

1) Rights of audience (right to appear before and address court + call and examine witnesses)

2) Conduct of litigation

3) Reserved instrument activities (for transfer, charge, application, or registration under LRA 2002 + preparing other instrument relating to real (land) or personal estate)

4) Certain probate activities

5) Administration of oaths

Question 8

x3 types of organisations that can be authorised by SRA to provide legal services

Answer 8

1) Sole practice/ sole principal (indv practices in own name or under trading name. Can employ qualified solicitors as long as they’re not principals too. Not a limited company)

2) Legal services body (all managers/ interest holders are lawyers. Eg partnership, company, LLP)

3) Licensable body (aka ABS) (managers/ interest holders include non-lawyers. At least one non-lawyer must be a manger/ interest holder)

Question 9

Law firm structures

Answer 9

1) Traditional partnerships

• PAs supersede act
• Advs: flexible structure; culture; control and DM - owners are partners who make day to day decisions; profit sharing; privacy
• Disadvs: traditional methods for raising finance; shared D; partners run firm; unlimited liability; tax burden on indv; foreign expansion tricky as not recognised in every jurisdiction

2) LLPs

• Hybrid: internal flexibility but single entity with limited liability and separate legal personality
• Advs: limited liability; tax neutral; increased funding opportunities
• Disadvs: less tax efficient than a company; increased filing responsibilities; external investment

3) Incorporated company

• Most popular, esp post 2008
• Separate legal personality
• Directors owe duties to company, not shareholders
• Shareholders have rights against company
• Creditors contract with the company
• Advs: limited liability for shareholders; clear DM (board day to day); easier to raise finance; tax advantages; foreign expansion
• Disadvs: administration and filings; tax issues if transitioning from partnership plus company profits taken out as director renumeration which has significant NI liabilities; lack of transparency (CH - open to public)

Question 10

Multi national law firms

Answer 10

Registered foreign lawyers practising in England and Wales must comply with CCS and other SRA regs

SRA reg indvs and authorised bodies practising outside England and Wales must comply with SRA Overseas Rules 2013 (with certain CCS provisions - Overseas and Cross Border Practice Rules within SRA Standards and Regs)

Question 11

Law centres (legal advice to public and casework undertaken for clients) and legal advice centres (for public but no casework undertaken)

Answer 11

Free service or subject to contribution from legal aid

Solicitors must comply with CCS even if unpaid + pro-bono work covered by indemnity

Could be authorised by SRA. MUST be if doing a reserved legal activity (eg litigation, rights of audience, etc)

Question 12

In house practice (in non-legal businesses)

Answer 12

CCS still relevant

Question 13

Equality Act 2010: protected characteristics; types of unlawful discrimination; reasonable adjustments requirement

Answer 13

Protected characteristics: age; disability; gender reassignment; marriage/ CP; pregnancy/ maternity; race; religion/ belief; sex; sexual orientation. Firm must NOT discriminate because of these

x4 types of discrimination:
1) DIRECT (treated less favourably by someone because of characteristic)
2) INDIRECT (acts/ decisions/ policies which aren’t intended to treat anyone less favourably but which disadvantage a group of people with a certain characteristic)
3) HARASSMENT (1) general = engaging in unwanted conduct related to characteristic which violates someone’s dignity or creates intimidating/ hostile/ degrading/ humiliating/ offensive environment for that person base on their perception/ circumstances/ reasonableness) (2) sexual + 3) less favourable treatment of comeone who rejected sexual or gender reassignment harassment)
4) VICTIMISATION (people bringing discrimination claims/ complaining of harassment or becoming involved in someone else’s discrimination complaints targeted)

Disability provisions
- Level playing field for disabled people necessitates not only the absence of negative treatment, but also positive steps to reduce the barriers that disabled people may face

Reasonable adjustments made by anyone providing goods, services, facilities to public or carrying out public functions or running association which encounters barriers to disabled people
- Needed where disabled person would otherwise be placed at a substantial disadvantage compared with people who are not disabled
- ANTICIPATORY duty - preempt what people with a range of impairments may reasonably need
- REASONABLE adjustments depends on size and nature of org, resources available, etc
- Disabled person can claim if can show barriers were present which should have been identified and where reasonable adjustment could have been made (£ + order to implement adjustment)
- x3 requirements: 1) change practice or stop it completely; 2) physical features of premises (remove it, alter it, give reasonable alternative); 3) auxiliary services (extra aids to make it easier for disabled people to make use of services)

Question 14

What is money laundering?

Answer 14

The cleaning of proceeds from serious crime (drug trafficking, terrorism, theft tax evasion, fraud, counterfeiting, blackmail) to make the source of the funds harder to trace OR simply benefiting from small proceeds of minor crime

Question 15

Why are law firms at risk of ML?

Answer 15

They can legitimise a transaction; have access to financial markets; advise on property and business deals

Question 16

Who do ML rules apply to?

Answer 16

Lawyers, business professionals, etc - broad

KYC policies come from MLR requirements

Question 17

Who ensures compliance with MLR and PoCA?

Answer 17

COLP, COFA, partners (managers), MLRO (required)

Indvs self-aware

Updated AML Risk Assessment written record of steps taken must be kept (reg 18)

Internal procedures/ policies/ reporting processes eg est procedures to forestall and prevent operations relating to ML

Question 18

x4 elements of ML

Answer 18

1) Criminal source of funds disguised
2) Form of funds converted
3) Trail of conversion is disguised
4) Launderer retains control of funds (direct or indirectly)

Question 19

What can solicitors do to protect from ML?

Answer 19

Careful of who give details of client account to - launderers could deposit money without solicitor knowing. Failure to manage client account properly breaches CCS and SRA Accounts Rules

Solicitors could be used in ML process as cash deposit account for inwards transmission to 3rd party; helping client acquire property/ invest in business/ buy asset with money from proceeds of crime; set up transaction structures and hide source of funds; firms client account mixed with clean and dirty cash to disguise audit trail

Referral from trusted client is NO defence to ML offences

Question 20

x7 ML warning signs

Answer 20

Instructions outside your firm

Use of client accounts

Unusual retainers

Money coming from or being sent to offshore tax havens

Money from high risk jurisdictions

Setting up a trust

Property purchase

Question 21

ML suspicious fact patters

Answer 21

Similar names and addresses of seller and buyer; seller and buyer both from jurisdiction outside UK; mistake overpayment to client account; money from 3rd party who’s not your client; client asking you to send money to an unknown 3rd party; docs appear to show seller and buyer with similar signatures; clients attempting to pay large sums in cash; offshore vehicles being made parties to a deal; money coming from or being requested to be sent to offshore tax havens

Buying property quickly, in cash from a relative

Question 22

ML Hugh risk jurisdictions

Answer 22

DPRK, Iran, Myanmar (FATF list)

Afghanistan, Barbados, Cambodia, Cayman Islands, Haiti, Syria, Uganda, Vanuatu, Yemen, Dem Rep Congo, South Sudan, Trinidad and Tobago, Tanzania, Philippines, Iran

Question 23

PoCA x3 direct involvement offences

Answer 23

s327 concealing, disguising, converting, or transferring/ removing criminal property from UK

s328 involvement in arrangement which you suspect/ know facilitates acquisition, retention, use or control of criminal property by or on behalf of another

s329 acquiring, using, or possessing criminal property

Question 24

Authorised disclosure definition

Answer 24

Disclosure to a constable, customs officer, or nominated officer by the alleged offender that property is criminal property AND s338 s2/2A/3 satisfied

Question 25

x3 defences to direct involvement offences

Answer 25

Golden rule: disclose to MLRO or other nominated official

1) Authorised disclosure s338 (s2 before prohibited act; s2A during prohibited act which started when person didn’t know ML risk and they then disclosed on their own initiative as soon as practicable; s3 after prohibited act and good reason for failure to disclose before act and disclosure made on own initiate and as soon as practicable); disclosure to nominated officer)

2) Authorised disclosure with appropriate consent (if before act); reasonable excuse for not doing so; prohibited act is related to enforcing PoCA provision

3) No ML offence if crim conduct which makes property crim property took place outside UK and was not unlawful in that place (and is not subject to sec of state order)

Question 26

Disclosure to a nominated officer definition s338(5)

Answer 26

Disclosure which is made to a person nominated by the alleged offender’s employer to receive authorised disclosures AND made in course of alleged offender’s employment

The MLRO in law firms

Question 27

PoCA non-direct involvement offences applying to ‘regulated sector’

Answer 27

1) Failure to disclose your suspicions to a nominated officer/ MLRO s330 if you know/ have reasonable grounds to suspect someone is laundering, you receive info in course of business in regulated sector, you can identify the person who is laundering OR whereabouts of crim property OR identify info above which helps identify the person laundering

Disclose must contain identity of suspected launderer, whereabouts of laundered prop, info on which your knowledge/ suspicion is based

2) Tipping off s333A clients about any report made of info that came to you in course of business in regulated sector, disclose to client that investigation is being contemplated or carried out

Question 28

Regulated sector definition s9 PoCA

Answer 28

Participating in financial and real property transactions, insurance, investments, accounting, insolvency, tax advice, etc

Question 29

Have long until you can take further action after disclosing to MLRO/ NCA?

Answer 29

Until authorised by NCA to undertake prohibited act; 7 working days (notice period) during which time NCA has not refused authority to proceed, 31 day moratorium expires after NCA refused consent during 7 working day notice period

Question 30

Penalties for direct and non-direct involvement offences under PoCA

Answer 30

Direct:

1) On SUMMARY CONVICTION to imprisonment for a term not exceeding 6mos; a fine not exceeding the statutory maximum; or **both*
2) On CONVICTION ON INDICTMENT to imprisonment for a term not exceeding 14yrs; a fine; or both

Indirect:

1) On SUMMARY CONVICTION to imprisonment for a term not exceeding 6mos; a fine not exceeding the statutory maximum; or **both* (same as above)
2) On CONVICTION ON INDICTMENT to imprisonment for a term not exceeding 5yrs; a fine; or both

Difference = imprisonment term for convictions on indictment (direct: 14yrs, indirect: 5yrs)

Question 31

PoCA vs MLR

Answer 31

PoCA: anticipates the reporting of suspicious transactions where someone benefits form the proceeds of crime

MLR: requires organisations to get themselves into a position to identify potential ML and report as necessary

Question 32

Who does MLR apply to? Orgs, institutions, professional advisors. Reg 8(2)

Answer 32

Credit institutions, financial institutions, auditors/ insolvency practitioners/ external accountants/ tax advisors, independent legal professionals, trust or company service providers, estate agents, high value dealers, casinos

(Lawyer sits in legal pros and company service providers)

ML doesn’t apply to all types of legal work, eg NOT employment or most litigation cases (be alert to sham litigation). In practice most firms implement practices anyway

Question 33

CDD (required by MLR) - what is it? When should it be carried out?

Answer 33

Customer due diligence: identify and verify identity of clients and carry out ongoing monitoring

Must carry out when (reg 27):

1) Est business relationship

2) Carrying out an occasional transaction

3) Suspects ML or terrorist financing

4) Has doubts about veracity or adequacy of identification docs/ data/ info previously provided

Question 34

MLR’s CDD: what defines business relationship and an occasional transaction?

Answer 34

Business relationship (reg 4(1)): at outset of matter it looks like an ongoing relationship will be set up with the client

Occasional transaction (reg 3): one-off/ not carried out as part of business relationship. If exceeds €1000 (single operation or several which appear linked) CDD must be carried out

Question 35

Standard CDD (reg 28) - always

Answer 35

Do if at outset of deal any work being done for a client falls within MLR

Relevant persons must:

1) Identify customer and verify their identity based on info given from a reliable/ independent source; assess/ obtain info on purpose and intending nature of business relationship or transaction

2) Company customer: name, number, address, registered office if different, principal place of business, law it’s subject to, constitutional docs, names of directors or members of mgmt body, names of senior mgmt

3) Identify beneficial owner reg 28(4) (owner/ controller of customer (eg company/ trust/ partnership)/ whose behalf work is being undertaken on) (eg PSCs (ppl with >25% voting rights) or who otherwise exercise control over mgmt in private limited company), take sufficient measures to verify their identity, and take measures to understand the ownership and control structure of person/ trust/ arrangement

Cannot just rely on PSC register (reg 28(9)) but it’s a good place to start

4) Ongoing monitoring of business relationship, eg updated docs

Question 36

Enhanced CDD (Reg 33) - higher risk of ML. In addition to standard CDD

Answer 36

Circumstances:

A) High risk of ML or terrorist financing
B) Transaction or business relationship with person est in a high-risk 3rd country
C) Correspondent relationships
D) (Potential) customer is a PEP, or family member/ known close associate is
E) Customer provided false or stolen ID docs or info on est a relationship
F) Transaction is complex
G) Transaction is unusually large
H) Unusual pattern of transactions, or they have no apparent economic or legal purpose

Level (depends on entity type and circumstances above, but include):

1) Examine background and purpose of transaction
2) Increase degree and nature of monitoring of relevant relationship to determine if transaction or relationship appears suspicious
3) Use additional independent reliable sources to verify info
4) Take additional measures to understand background and financial situation of customer and other parties to transaction AND take further steps to ensure transaction is consistent with purpose and intended nature of relationship

If being used because of high-risk third country, enhanced CDD must include)

1) Obtaining additional info on: client and beneficial owner, intended nature of business relationship, source of funds and wrath of client and any beneficial owner of client, reasons for transaction
2) Obtaining approvals of senior mgmt of practice for est or continuing business relationship
3) Conduct enhanced monitoring of business relationship by increasing number of and timing controls applied AND selecting patterns of transactions that need further examination

Question 37

Simplified CDD - low risk of ML/ terrorist financing (reg 37) having taken into account risk assessment carried out (reg 18) and risk factors (37(3))

Answer 37

1) Continue to comply with standard CDD but can adjust the extent, timing, or type of CDD measures it conducts to reflect its low-risk assessment of ML

2) Carry out sufficient monitoring to enable it to detect any unusual or suspicious transactions

Risk factors (37(3)):

A) Customer risk factors where customer is: public administration (eg local authority), publicly owned enterprise, financial or credit institution, listed company on regulate market like LSE, indv resident in geographic area of low risk (inc third country with effective systems to combat ML/ TF)

B) Product, service, transaction, or delivery channel - whether product/ service is: a life insurance policy with low premium, a pension scheme which meets certain prescribe conditions, a child trust fund, junior ISA

Question 38

Ongoing monitoring of a business relationship

Answer 38

= Ongoing CDD

Including:
1) Scrutiny of transactions undertaken throughout the course of the relationship (inc source of funds) to ensure they’re consistent with law firm’s knowledge of the customer, customer’s business, and risk profile
2) Review existing records periodically and keep docs/ info obtained for CDD purposes (eg ID) up to date

Enhanced CDD = increase monitoring of business relationship AND greater scrutiny of transactions

Question 39

When should CDD be carried out

Answer 39

Before the est of the relationship/ transaction

During est of business relationship if delay is necessary to as to not interrupt normal conduct of business AND there is little risk of TF

Question 40

CDD carried out by someone else

Answer 40

YOU REMAIN LIABLE so best to do your own..

When done by: FSMA authorised credit or financial institution, auditors, insolvency practitioners, external accountants and tax advisers, independent legal professionals (eg solicitors)

Can rely on first solicitor’s work if second solicitor:
1) Obtains all info needed to satisfy MLR
2) Enters written agreement with first sol (the 3rd party) enabling second sol to obtain copies of ID and verification data and relevant docs on identity of customer/ beneficial owner IMMEDIATELY on request AND requires third party to retain such copies for a specified period

Question 41

CDD Evidence (AMLG guidance - docs for identifying and verifying from reliable source independent of client if possible): UK natural person, UK partnership, UK companies

Answer 41

UK natural person (name, address, DOB)
- Passport
- Driving Licence

Eg check electoral roll, CH, credit reference agencies, passport office, DVLA

UK partnership (small ones see above for person, large ones treated as private companies see below)
- Names of indvs
- Address (registered; trading)
- Name of business

ALL UK companies
- Name
- Number
- Address of registered office (and principal place of business if different)
- Trace beneficial ownership of legal person (trust, company, etc) to natural person and take reasonable steps to verify identify of beneficial owner. If not possible NCA disclosure may be needed

UK companies on stock market need only simplified CDD (EXC beneficial owners and reasonable measures to identify names or directors and senior persons)
- Can just obtain confirmation of listing (eg copy of website, photocopy of listing in reputable daily newspaper, info from reputable online registry)
- Verification of ID using company registry, certificate of incorporation, copy of audited accounts, info from reputable electronic verification service provider
- Ongoing monitoring still needed

UK private companies
- Determine law the company is subject to and its constitution
- Confirm full names of board of directors and senior persons responsible for operations
- Verification sources inc: certificate of incorporation, articles of association, filed audited accounts, details from relevant registry confirming company details and directors’ (inc their addresses), reputable electronic verification service provider

Be risk sensitive to including certain exchanges in regulated markets definition

Question 42

Investments

Answer 42

Products like bank deposits, pensions, endowment policies, shares, unit trusts, bonds, etc

Risk appetite, ROI (regular payments or willing to lock money up for longer for more long-term capital value growth of underlying investment), tax advantages, etc

Financial services providers giving investment advice are heavily regulated in UK t protect consumers from negligence

Main UK regulators: Bank of England (manages UK monetary policy and maintains supply of money in the economy), Prudential Regulation Authority (PRA), FCA

Question 43

FCA

Answer 43

Responsible for conduct of business, supervision of PRA and FCA firms, and the prudential regulation of firms not regulated by PRA (eg law firms carrying out work not related to financial services)

Question 44

FSMA 2000: you (anyone/ not just solicitors) must NOT carry out a regulated activity in the UK unless you are authorised or exempt (s19)

Answer 44

Breach is a CRIMINAL offence. Solicitor must ALWAYS assess if activity they are proposing to carry out for client is covered by s19

Regulated activity = specified investment + specified activity

Specified activities inc (FSMA 2000 RAO 2001 Part II) - in relation to investments:
- Dealing (eg buy/ sell) as principal or agent
- Arranging deals
- Managing
- Advising on merits (opinion AND recommendation)

Specified investment = any asset, right, or interest

Very few law firms FCA authorised (very high regulatory burden)

Law firms generally refer clients to an independent financial advisor who is authorised by the FCA

(‘Specified’ = in an order made by the Treasury (ie RAO))

Question 45

FSMA 2023

Answer 45

• Not yet in force but has received royal assent
• Enables HM Treasury and FCA to introduce a designated activities regime for certain activities on financial markets

Question 46

FSMA decision tree

Answer 46

Not specified investment = FSMA doesn’t apply

Specified investment but not specified activity = FSMA doesn’t apply

Specified investment + specified activity (regulated activity) = if NOT excluded (necessary part/ body corporate/ authorised person) FSMA WILL apply is some form but FCA authorisation MAY/ MAY NOT:

A) Activity fulfils basic conditions in s327 FSMA AND SRA Scope Rule 2 which means its EXEMPT = law firm must comply with SRA Scope Rules AND be SRA authorised AND comply with SRA Financial Services (Conduct of Business (COB) Rules) (ie firm supervised by a designated professional body)

B) Activity does NOT fulfil both s327 FSMA AND SRA Scope Rule 2 = firm must be FCA/ PRA authorised AND comply with FCA Handbook in relation to activity, or not carry it out (ie firm directly authorised)

If firm doesn’t meet FSMA s327 AND SRA scope rules AND isn’t authorised by FCA, it must refuse regulated activity and refer client to person authorised by FCA instead

Remember SRA principles and CCS - public trust, integrity, competent/ timely service, account to clients for financial benefit you receive as result of their instruction except where they agree otherwise, skill and competence to provide the relevant advice

Question 47

Specified investments (x6)

Answer 47

• Rights under a contract of insurance
• Shares in a company
• Instruments creating or acknowledging indebtedness
• Governments and public securities
• Rights under a pension scheme
• Regulated mortgage contracts (at least 40% land used as a dwelling by indv/ beneficiary receiving mortgage directly or on trust). Does cover typical home buyers mortgage but NOT a loan to buy an office or loans to companies

Question 48

Specified activities (FSMA 2000 RAO 2001 Part II)

Answer 48

In relation to investments:

• Dealing (eg buy/ sell) as principal or agent
• Arranging deals
• Managing
• Advising on merits (opinion AND recommendation) of a particular investment

Generic advice is not a specified activity, eg explaining legal rights attached to classes of shares

Question 49

Excluded regulated activities = FSMA doesn’t apply

Answer 49

Solicitor NOT carrying out specified activities if:

1) Specified activity a necessary part of other services provided in that profession/ business

• Exclusion does NOT apply: if specified activity is remunerated separately from the other services; to contracts of insurance; to certain investment firms/ institutions
• It must not be possible for other services to be provided unless the dealing/ arranging/ advising also is
• Solicitors generally don’t do specified activities/ will usually refer work to an authorised person, so in practice it’s rarely necessary to rely on this exclusion

2) Sale of a body corporate - activity carried out in connection with purchase or sale of shares in a company where they consist of 50% or more of voting shares; or where in addition to shares already held by purchaser would consist of 50% or more voting shares (eg already hold 20% and buying 30%); or where object of transaction is the acquisition of day-to-day control of the affairs of the body corporate

• Commonly used exception
• The two entities need not be the same type

3) Authorised persons - solicitor not dealing with investments as an agent or arranging deals in investments (and therefore not doing specified activity) if enters into transaction as agent for client with/ through authorised person provided: on authorised persons advice OR it’s clear client is not seeking/ has not sought solicitor’s advice about merits of transaction

• Exclusion does NOT apply if transaction relates to contract of insurance OR if solicitor receives a commission/ advantage from anyone but client which he does not account to client

Question 50

s327 FSMA conditions to be satisfied for a regulated activity to be exempt from FCA authorisation

Answer 50

1) Person carrying out activity must be a professional

2) Person must not receive a pecuniary reward/ other advantage (eg commission) from 3rd party is respect of regulated activity UNLESS accounts to client for commission (eg held to client’s order and may only keep it if client gives informed consent)

3) Specified activity must be provided in a way that’s incidental to provision of professional services (not a major part of the practice of the firm. Consider: scale of regulated activity in proportion to other services provided, whether/ to what extent regulated activities are held out as separate services, impression (eg via advertising) given of how firm provides regulated services)

4) Person must only carry out regulated activity where permitted by rules set out by relevant designated professional body (eg SRA scope rules for SRA)

Question 51

SRA scope rules for law firm to be carrying out exempt regulated activity (incorporates FSMA s327)

Answer 51

Scope rule 2 x4 basic conditions:

1) Satisfy s327 FSMA

2) Activities arise out of/ are complementary to the provision of a particular professional service to a particular client (what prompted the activity/ was it naturally caused by work solicitor is doing for client) (eg legal advice on regulated mortgage, tax advice on sale of specified investment, legal advice on court proceedings where regulatory matters are involved). Ie must NOT be undertaking regulated activity in isolation

3) No order/ direction is in force by FCA under FSMA s328/ 329 which prevent you carrying out activities

4) Activities are not otherwise prohibited by these rules

Question 52

SRA COB rules for firms carrying out exempt regulated activities

Answer 52

Obligations for firms inc:

• Disclosure of info about solicitor’s status
• Keep records of transactions
• Keep records of commissions
• Safekeeping of client’s investments
• Rules for solicitors involved in insurance activities

Question 53

FSMA restrictions relating to share sales

Answer 53

1) s21 criminal offence for unauthorised person to communicate a financial promotion unless an authorised person (who needs FCA permission to approve prospectus) approves the contents or a relevant exception applies

• Solicitors often involved in producing invitations to engage in investment activity (eg info memorandum where shares being sold at auction)
• x3 exemptions:

A) Sale of a body corporate: Communication relates to a transaction to acquire 50% or more of the shares or day to day control of the company if certain conditions are met (see conditions for body corporate excluded regulated activity)
- Most useful

B) Investment professionals: documentation (eg info memorandum) only distributed to investment professionals

C) HNW companies/ indvs: documentation (eg info memorandum) only distributed to HNW companies (called up share capital at least £5mil or £500,000 for body corporate with over 20 members)/ indvs (certified HNW indvs and certified sophisticated investors)

2) s85 requirement for approved prospectus (by relevant regulatory authority, eg FCA) where shares offered to the public

• Exemptions: offer directed at less than 150 people (most useful); offer sent to qualified investors (banks, investment institutions, national and regional governments)

Question 54

Funding options for legal services

Answer 54

Duty to act in client’s best interests include drawing their attention to range of funding options available and appropriate to them. Must conduct reasonable and proportionate search but not an exhaustive treasure hunt (eg through insurance policies for one that include legal expenses). Raise BTE when first obtain instructions

1) Private retainer (self-fund): common for businesses, less common for indvs

2) Professional funding (trade union/ professional org etc): funds legal services, eg civil/ criminal litigation involving defending a professional in a professional negligence claim or employer primary/ vicarious liability claim

3) BTE insurance (cap on cover + low premiums): taken out BEFORE legal work arises and then pays out when needed. May or may not include disbursements. Often sold in conjunction with household insurance, motor insurance, etc. Usually have a financial limit on cover provided or stipulate they’ll only meet a certain proportion of costs (often less than 1% of cover sought). For any work but often for litigation, but premiums not generally recoverable from otherwise if policy holder successful

4) CFA (agreement) (solicitor’s costs for civil litigation (not expert or court fees etc)): No win no fee. Win = normal/ basic fee plus uplift/ success fee (% of normal) from C’s damages. Uplift can be up to 100% of normal fee. Whilst court orders loser to pay winner’s solicitor’s costs and disbursements, the success fee comes out of C’s damages ie opponent doesn’t pay

• Personal injury: success fee caped at 25% of damages

5) DBA (agreement) (solicitor’s costs for civil litigation (not expert or court fees etc)): No win no fee. Win = solicitor paid proportion of client’s damages

• Personal injury: fees capped at 25% of damages
• Employment tribunal: 35%
• All other cases: 50%

6) ATE insurance (civil litigation) (high cost (eg premiums can exceed 25% of cover sought) and not always an option): taken out AFTER dispute arises. Usually only covers client’s disbursements and their opponent costs and disbursements if client loses. Often used in conjunction with CFA/ DBA. Premiums not recoverable from loser (EXCEPT for clinical negligence expert reports)

7) 3rd party funding (civil litigation) (banks, PE firms, hedge funds, etc): win = entity doing the funding gets investment back plus uplift if claim succeeds. Association of Litigation Funders code of conduct for these 3rd parties: promotional literature clear and not misleading; funders must not try and take control of litigation from solicitors/ barristers; funders must have sufficient funds to meet their funding commitments

• Mostly used in commercial cases of high value/ not yet suitable for consumer cases/ PI/ claims without a sufficiently high level of damages

8) Community Legal Services (formerly known as legal aid): strict eligibility, eg kids, homeless, domestic violence, poverty, etc/ people who couldn’t afford it. Help and advice through to full representation. Eligibility: indvs (very rarely for company); most civil work possible claims but often not eligible; client income to high and/ or have too much capital = ineligible; client position not sufficiently meritorious = ineligible. Ie MEANS and MERITS tests makes case sufficiently strong

No win no fee = solicitor not paid unless case is successful

Question 55

Charging options

Answer 55

1) Hourly charging (traditional method - client pays for time lawyers spend on their matter): recorded time in 6min blocks (work in progress) reviewed at regular intervals and end of matter and partner ascertains how much will be billed to client (according to charge out rates of lawyers/ fee earners on the matter) and how much will be written off. Fees usually invoiced monthly and at end of matter unless otherwise agreed with client

2) Fixed fees: fee fixed regardless of time spent being over or under the fixed what the fee amount equates to (although time still recorded). Client invoiced at end of transaction. Common for conveyancing and wills. Surplus/ excess written off.

3) Capped fees: hourly rate but fees will not exceed a pre-agreed amount. If recorded time reaches cap, legal team may be asked to stop work whilst partner tries to negotiate a new cap. Otherwise, work continue past cap and fees incurred above it have to be written off…

4) Unbundled legal services: solicitor paid for a specific task, eg preparing bundle docs for court or drafting a single doc (instead of representing client generally)

Question 56

Funding options in criminal proceedings

Answer 56

• Right to free legal advice at the police station for everyone. Solicitor accredited by Legal Aid Agency. Telephone only for non-imprisonable offences
• Court proceedings:

1) Private funding or self-representation
2) Public funding if pass two tests to obtain representation order

A) Means test

• Automatic pass for Ds u18; those on specified welfare benefits (eg Universal Credit or income-based Jobseeker’s Allowance)

i) MC: weight gross annual income of applicant (added to partner’s as long as they’re not involved in proceedings) to account for number of people living in household. £12,475 or less = eligible. £22,325 or more = ineligible. In between = undertake fill means test to establish applicant’s annual household disposable income. Below £3,398 threshold = eligible for public funding

• Applicant can apply for eligibility review if they fail means test
• Applicant can apply for hardship review if they have unusable high outgoings or defence costs

ii) CC: assessed on income and capital (eg equity in property). Defence costs beyond £30,000 allowance applicants can be required to contribute to balance of from income and/ or capital. Annual household disposable income at least £37,500 = ineligible. £3,398 or less = eligible without any contribution from applicant. In between = eligible WITH contribution that’s income-based (90% of disposable income for 6mos max, paid in instalments, subject to maximum based on type of offence (refunded with interest if D acquitted)

• Applicant can apply for eligibility review if they fail means test
• Applicant can apply for hardship review if they’re subjected to a contribution order and applicant suspect an error, or circumstances have changed

B) Merits test (IOJ for applicant to be legally represented)

• Automatic pass if D charged with indictable-only offence; D charged with an either-way offence which is later sent to CC

Some/ all of 10 propositions must be supported with evidence in application form to show if matter is so serious or complicated that D could not conduct their own defence:

1) I will lose my liberty (likely/ real and practical possibility)

• See aggravating and mitigating circumstances in sentencing guidelines to determine likelihood of custodial sentence reference. Not enough that the offence is imprisonable

2) I have been given a sentence that is suspended or non-custodial. If I break this, the court may be able to deal with me for the original offence

• D not complying with terms of non-custodial sentence = sentencing court may think they don’t deserve benefit of community-based sentence if convicted
• D received suspended sentence which isn’t over = court should activate it once D convicted of new offence

3) It is likely I will lose my livelihood

• Eg mitigation that will avoid a penalty interfering with employment should be argued here
• Custodial sentence likely even where D pleads guilty means IOJ generally passed

4) It is likely I will suffer serious damage to my reputation

• Consider D’s profession and nature of allegation
• Eg would affect job prospects of someone who is currently of good character
• Sexual offence conviction damaging to those who may have convictions of a different type only

5) A substantial question of law may be involved

• Issue of law - specific, eg admissibility because of breach of PACE

6) I may not be able to understand the court proceedings or present my own case

• Language of D, interpreter not sufficient, legal phrases not understandable even if interpreter there, D a youth, D learning or mental difficulties

7) Witnesses may need to be traced or interviewed on my behalf

• Why can’t D speak to them, why tracing needed, member of public, consider giving court the evidence D is seeking to adduce via witness

8) The proceedings may involve expert cross examination of a prosecution witness

• Could D satisfactorily conduct a trial without sol/ with just assistance of authorised court officer, are there any issues making it difficult for D to XE witness, D age, legal argument present at all, complainants also witnesses, would an experienced police officer require XE

9) It is in the interests of another person (involved in court proceedings, ie not family that’s not involved) that I’m represented

• Would complainant/ victims feel uncomfortable if XE by D personally (eg sexual offence), young victim

10) Any other reasons

• Eg plea, CC likelihood, child or vulnerable witnesses

Question 57

Criminal proceedings - what can a solicitor claim costs for?

Answer 57

Preparation (inc taking instructions, interviewing witnesses, assessing prosecution case, advising on plea and mode of trial, preparing and perusing docs, dealing with non-routine letters and telephone calls, preparing for advocacy, instructing counsel in CC, instructing expert witnesses, conferences, consultations, views, work done in connection with advice on appeal or case stated

Advocacy (inc applications, eg for bail)

Routine letters and telephone calls

Question 58

Criminal proceedings - D fails means or merits tests

Answer 58

Fails means = no right of appeal but can submit another form if circumstances change

Fail merits in MC = can submit another application and if unsuccessful can appeal to MC

Fails either/ both and charged with imprisonable offence = can consult duty solicitor but they can only represent D on one occasion (eg first hearing at court)

D can instruct solicitor privately if don’t qualify for public funding OR represent themselves with assistance and support of court