PC Flashcards
1
Q
Which ONE of the following statements is CORRECT?
Every lawyer, whether they work in a law firm or in-house, is at risk of exposure to money laundering.
The money laundering regulations apply to law firms but not to in-house lawyers or other industries.
The money laundering regulations apply to corporate solicitors in law firms but not to other areas of practice or to in-house lawyers or other industries.
A
Every lawyer, whether they work in a law firm or in-house, is at risk of exposure to money laundering.
Correct. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR 2017’) apply to a wide range of people and businesses, not just law firms.
2
Q
Which ONE of the following statements is CORRECT?
There is a risk of a firm being involved in money laundering only when it receives proceeds of crimes in excess of £10,000 into its bank account.
There is a risk of a firm being involved in money laundering only when it receives proceeds of crimes in excess of £100,000 into its bank account.
Money laundering can include receiving small proceeds of minor crimes into your employer’s bank account.
A
Money laundering can include receiving small proceeds of minor crimes into your employer’s bank account.
Correct
Correct. Receiving the proceeds of crime, however small into your bank account can constitute possessing criminal property and could be a criminal offence.
3
Q
Which option correctly identifies the key pieces of legislation relating to money laundering in the UK?
The Proceeds of Crimes Act 2002 (‘PoCA’) and the Money Laundering Regulations 2007 (‘MLR’)
The Proceeds of Crime Act 2002 (‘PoCA’), and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’)
The Financial Services and Markets Act 2000 (‘FSMA’) and the Money Laundering Regulations 2007 (‘MLR’)
A
The Proceeds of Crime Act 2002 (‘PoCA’), and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’)
Correct
Correct, these are the two key pieces of legislation relating to money laundering in the UK.
4
Q
Identify whether the following scenario indicates a high or low risk of money laundering:
Your client, a British national, is purchasing a flat for his daughter. He deposits £500,000 in your firm’s client account for the purchase from a bank account in Bermuda. The next day he rings you to inform you that the purchase is not going ahead. He asks you to transfer the £500,000 to his wife’s bank account in the Cayman Islands
High risk, because the client’s deposit came from an offshore bank account in a tax haven, the transaction has been cancelled at short notice and the client is asking you to transfer the money to a different account, also offshore in a different tax haven
Low risk. Neither Bermuda nor the Cayman Islands are on the FATF list of countries with a high risk of money laundering.
High risk because Bermuda and the Cayman Islands are on the European Commission’s list of high risk jurisdictions.
A
High risk, because the client’s deposit came from an offshore bank account in a tax haven, the transaction has been cancelled at short notice and the client is asking you to transfer the money to a different account, also offshore in a different tax haven
Correct
Correct. There are a number of risk factors here which should alert you to the high risk of money laundering. The client has deposited a large sum of money in cash in your firm’s account. The money came from an offshore bank account in a tax haven. The transaction has been cancelled at short notice and the client is asking you to transfer the money to a different account, also offshore in a different tax haven.
5
Q
Identify whether the following scenario indicates a high or low risk of money laundering:
Your client, a French national, living in the UK is setting up a trust for her grandchildren. She plans to invest £50,000 in the trust over the course of two years.
High risk because the client is investing a large sum of money in a trust which is a suspicious area of activity because it could be a vehicle for money laundering.
Low risk because France is not a high risk country and there appears to be a legitimate reason for the client to set up the trust.
High risk because although the client is a French national, she is setting up a trust in the UK
A
Low risk because France is not a high risk country and there appears to be a legitimate reason for the client to set up the trust.
Correct. A client setting up a trust, does have the potential to be a vehicle for money laundering and you will need to carry out customer due diligence on the client, as you will see later in this topic. However there is nothing to suggest a high risk of money laundering here, France is not a high risk country and there appears to be a legitimate reason for the client to set up the trust.
6
Q
Identify whether the following scenario indicates a high or low risk of money laundering:
Your client, a South African national, has instructed you on a litigation claim and asked you to commence proceedings against her neighbour. The neighbour contacts you and wants to pay £100,000 into your firm’s client account to settle the matter.
Low risk because litigation is not a high risk activity from a money laundering perspective.
High risk because the dispute being settled early is an indicator that the litigation might be a sham. Also the other party is seeking to pay a large sum of money into your firm’s bank account.
High risk because South Africa is on the European Commission’s list of high risk jurisdictions.
A
High risk because the dispute being settled early is an indicator that the litigation might be a sham. Also the other party is seeking to pay a large sum of money into your firm’s bank account.
Correct. There are a number of risk factors here which should alert you to the high risk of money laundering. A dispute being settled early and easily should alert you to the risk of this being a sham litigation, and the other party seeking to pay a large sum of money into your firm’s account is another warning sign. South Africa is not on the list of high risk countries, but there are enough other factors here to indicate a high risk of money laundering.
7
Q
Which ONE of the following options completes the following sentence CORRECTLY:
It is a defence to the offence of concealing, disguising, converting or transferring criminal property to:
“report your suspicion to a nominated officer”
“report your suspicion to the SRA”
“report your suspicion to your manager”
A
“report your suspicion to a nominated officer”
Correct
Correct. You have a defence to the offence of concealing, disguising, converting or transferring criminal property under s. 327 PoCA if you made an authorised disclosure. Under s. 338 the disclosure should be made to a constable, customs office or a nominated officer. In practice the most practical thing to do is therefore to report your suspicion to your employer’s nominated officer.
8
Q
Which ONE of the following activities does NOT fall within the definition of ‘regulated sector’ in Schedule 9 of PoCA?
Advising a client on an employment dispute.
Advising a client on the purchase of a property.
Advising a client on setting up a trust for their grandchildren.
A
Advising a client on an employment dispute.
Correct. ‘Regulated sector’ as defined in Schedule 9 PoCA includes “participating in financial and real property transactions concerning:
the buying and selling of real property or business entities
the managing of client money, securities or other assets,
the opening or management of bank, savings or securities accounts;
the organisation of contributions necessary for the creation, operation and management of companies;
the creation, operation or management of trusts, companies or similar structures
Advising a client on the purchase of a property and on setting up a trust would fall within participating in financial and real property transactions. However advising on litigation matters (including an employment dispute) does not fall within the definition of regulated sector, as set out in Schedule 9.
9
Q
You are an apprentice in the property department of a law firm and you are contacted by a new client (‘Client’) who has never instructed the firm before. The Client contacts you directly asking for details of the firm’s client account. He wants to send the sum of £6,000,000 from an account in Bermuda to the firm’s client account in readiness for a quick completion of his purchase of a property in London, on which he is just about to instruct the firm (the ‘Purchase’). He insists that he wants you to act personally on the Purchase.
You explain to the Client that you are not able to give the Client the firm’s client account details. The Client tells you he will call in at the office tomorrow and he wants you to give him the firm’s client account details then.
Which ONE of the following statements is CORRECT?
You should meet the Client and give him the account details. There are no grounds for suspicion here as it is not unusual for a property in London to cost £6,000,000
You should meet the Client and give him the client account details – so as not to arouse suspicion.
When the Client arrives at the office, you should not give him the client account details, but tell him that you have reported the matter to the MLRO (money laundering reporting officer) because you suspect money laundering.
You should immediately make a disclosure to the firm’s MLRO (money laundering reporting officer) under the Proceeds of Crime Act 2002 (‘PoCA’) that you suspect the money is criminal property. You must wait to receive appropriate consent from the MLRO before carrying out the Client’s instructions.
A
You should immediately make a disclosure to the firm’s MLRO (money laundering reporting officer) under the Proceeds of Crime Act 2002 (‘PoCA’) that you suspect the money is criminal property. You must wait to receive appropriate consent from the MLRO before carrying out the Client’s instructions.
Correct
Correct. There are a number of risk factors here which should alert you to the risk of the Client attempting to launder money, notably: the client is new to your firm and has sent a large amount of money (£6 million) in cash to your firm’s client account, the client wants the transaction to complete quickly and he wants you (an inexperienced apprentice) to act personally on the transaction.
If you carry out the Client’s instruction you are at risk of committing an offence under s. 327 (transferring criminal property), s. 328 (becoming concerned in an arrangement which facilitates the acquisition…use or control of criminal property) and/or s. 329 PoCA (acquires, uses or has possession of criminal property).
You will also commit an offence under s. 330 PoCA if you fail to disclose your suspicion to the firm’s nominated officer. You should not take further action until you receive appropriate consent from the MLRO, s. 327(2)(a), s. 328(2)(a) PoCA.
You should be careful that you do not commit the offence of tipping off the client under s. 333A PoCA.
10
Q
Xavier Gaston is a French national. He has never instructed Price Prior before, where you are currently an apprentice in the corporate department. Xavier has sent the sum of £2,000,000 from an account in Jersey to Price Prior’s client account in readiness for a quick completion of his acquisition of all the shares in FWL (Retail) Ltd, which he is just about to instruct you on (the ‘Acquisition’). Xavier insists that he wants you to act personally on the deal.
If you proceed with Xavier’s instructions and complete the Acquisition WITHOUT making an authorised disclosure to Price Prior’s MLRO, which ONE of the following statements is CORRECT in relation to offences that you have committed under the Proceeds of Crime Act 2002 (‘PoCA’)?
You are likely to have committed an offence under section 333A PoCA.
You are likely to have committed an offence under sections 329 and 330 PoCA
You are likely to have committed a direct involvement offence under section 329 PoCA, but not a non-direct involvement offence because you are not working in the regulated sector.
You are not likely to have committed an offence under PoCA.
A
You are likely to have committed an offence under sections 329 and 330 PoCA
Correct
Correct. There are a number of risk factors here which should alert you to the risk of Xavier attempting to launder money, notably: the client is new to your firm and has sent a large amount of money (£2 million) in cash to your firm’s client account, the client wants the transaction to complete quickly and he wants you (an inexperienced apprentice) to act personally on the transaction.
If it is later discovered that the Acquisition was part of a money laundering operation, you will have had possession of criminal property (the proceeds of crime) so you are likely to have committed an offence under s. 329 PoCA 2002.
In addition, you will have committed an offence under s. 330 PoCA 2002 because there is sufficient grounds for you to suspect that Xavier is engaged in money laundering, for the reasons set out above. Under s. 330 PoCA 2002 it is an offence for someone practising in the regulated sector (which you are, as you are involved in buying a business entity) not to make a disclosure to your firm’s MLRO. You are practising in the regulated sector because you are buying a business entity which falls within the definition of “participating in financial and real property transactions concerning: the buying and selling of real property or business entities”.
You will not have committed an offence under s. 333A PoCA 2002 because you have not done anything to tip Xavier off to the fact that you suspect he may be attempting to launder money.
11
Q
Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:
Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for the client.
Ongoing monitoring
Standard CDD
Enhanced CDD
A
Standard CDD
Correct
Correct. There is nothing on these facts to suggest that this client present a high risk of money laundering. The is not from a high risk country and is funding 50% of the purchase through a mortgage. As this is a one-off transaction, it will be an occasional transaction and you should obtain standard CDD on the client before you start working for her.
12
Q
Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:
You have been instructed by a company Autolext Corporation (‘Autolext’) on the purchase of 60% of the shares in a data analytics company, Data Inc for £2 million. Data Inc is registered in the Cayman Islands. Autolext is registered in Bermuda and has a majority shareholder who is Iranian. Autolext has asked to you set up a wholly owned subsidiary, Autolext Data Limited which will be the vehicle that purchases the shares in the Data Inc. Autotext will pay cash for the shares.
Enhanced CDD
Ongoing monitoring
Standard CDD
A
Enhanced CDD
Correct
Correct. There are a number of factors that suggest that there is a high risk of money laundering in this scenario. The client is registered in Bermuda, an off-shore tax haven, and its majority shareholder is from a high risk country, Iran. The value of the transaction is high and is being funded in cash. The client is also asking you to establish a subsidiary for the sole purpose of purchasing the shares, which could indicate a transaction that is unusually complex with no apparent purpose. The target is also registered in an off-shore tax haven, the Cayman Islands. You would need to make further enquiries to satisfy yourself as to the source of the £2 million, the identity of the majority shareholder and that the transaction is genuine.
13
Q
Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:
Plaza Properties Limited is a private limited company and an existing client of your firm and regularly instructs you on the acquisition and sale of properties in its portfolio. You have received a new instruction to act for it on the acquisition of the freehold of an office building near Maidenhead for £10 million. Part of the acquisition is funded by a loan.
Ongoing monitoring
Standard CDD
Enhanced CDD
A
Ongoing monitoring
Correct
Correct. This is an existing client whom the firm acts for on a regular basis. The firm will already have carried out CDD on the client. The firm will need to carry out ongoing monitoring, by checking that the transaction is consistent with the firm’s knowledge of the client and checking at regular intervals that the identification documents it holds for the client are up to date. There is nothing on these facts to suggest that this client present a high risk of money laundering.
14
Q
BLP
You recently acted for a client in connection with the sale of his personal training business and that sale has now concluded.
The client tells you that following the sale, he now has £50,000 cash and he would like some advice about how to invest this money, specifically whether he should buy shares in XYZ Plc. He wants to know whether shares are generally a good investment at the moment and, in particular, whether or not he should buy the shares in XYZ.
Which one of the following statements is correct in relation to the above scenario?
You would be able to give the client generic advice on the rights attaching to shares because this advice does not fall within Article 53(1) RAO.
It is likely that Article 67 of the Financial Services and Markets Act (Regulated Activities) Order 2001 (‘RAO’) would apply to your advice.
You would be free to advise about the merits of the shares in XYZ Ltd because you could rely on the exclusion under Art 70 RAO.
The advice is likely to be complementary under Scope Rule 2.
The advice is not likely to be incidental under s 327 FSMA.
A
You would be able to give the client generic advice on the rights attaching to shares because this advice does not fall within Article 53(1) RAO.
Correct
15
Q
BLP
Which one of the following would not be classified as financial services and therefore not be regulated under FSMA?
Advising on the acquisition of a business.
Dealing in investment products on behalf of clients.
Advising on investment products on behalf of clients.
Arranging investment products on behalf of clients.
A
Advising on the acquisition of a business.
16
Q
BLP
You are a solicitor in the corporate department of Price Prior. Your client wishes to buy 50% of the shares in a company as an investment. Your client has instructed you to advise her on the acquisition (including on the merits).
Which one of the following statements is correct regarding authorisation under FSMA?
You will not need to be authorised by the FCA to act for the client because your advice will be excluded from FSMA under Article 70 RAO.
You will not need to be authorised by the FCA to act for the client because acting for a client who is acquiring shares in a company is not a specified activity under Article 53(1) RAO.
FSMA does apply and you will need to be authorised by the FCA to act for the client on the acquisition.
Shares are not a specified investment, therefore FSMA does not apply.
There is a specific exclusion relating to advising on the merits that will allow you to act.
A
You will not need to be authorised by the FCA to act for the client because your advice will be excluded from FSMA under Article 70 RAO.
17
Q
Which one of the following best describes who the SRA Accounts Rules apply to?
All law firms (including sole practices) worldwide, including all who manage or work within them.
Authorised bodies only.
Managers and employees of a law firm’s accounts department only.
All firms (including sole practices) the SRA regulates, including all who manage or work within them.
A
All firms (including sole practices) the SRA regulates, including all who manage or work within them.
Correct. The SRA make this clear in their introduction to the SRA Accounts rules and in Rule 1.
18
Q
Which topic do the majority of the SRA Accounts Rules relate to?
Dealings with other money (not client money) belonging to clients or third parties.
Client money and client accounts.
Application of the SRA Accounts Rules
Accountants’ reports and storage and retention of accounting records.
A
Client money and client accounts.
Correct. Rules 2-8 (of 13) are on this topic and are the largest section of the SRA Accounts Rules.
19
Q
Who is responsible for compliance with the SRA Accounts Rules?
All managers and employees of an authorised body are jointly and severally responsible.
The managers of an authorised body are severally responsible.
The managers of an authorised body are jointly and severally responsible.
Only the authorised body’s compliance manager is responsible.
A
The managers of an authorised body are jointly and severally responsible.
Correct. Rule 1.2 states that: ‘The authorised body’s managers are jointly and severally responsible for compliance by the authorised body, its managers and employees with these rules.
20
Q
A client is selling a property. You receive the deposit money for the property from the buyer’s solicitor before exchange and hold it to their order, as requested.
Which one of the following best explains whether the money is client money or not?
The money is not client money because you do not provide regulated services to the sender of the money (the buyer’s solicitor).
The money is not client money because it does not belong to a client of yours.
The money is client money because it is held by you on behalf of a third party in relation to regulated services delivered by you.
A
The money is client money because it is held by you on behalf of a third party in relation to regulated services delivered by you.
Correct. This situation falls within Rule 2.1(b).
21
Q
Your client is buying a property and prior to completion of the purchase sends you a cheque in respect of the stamp duty land tax which will be paid on the purchase after completion.
Which one of the following best explains what kind of money this cheque represents and why?
It is non-client money as a bill has not yet been delivered to the client for the stamp duty land tax.
It is client money because it has been received in respect of an unpaid cost or expense.
It is non-client money as the stamp duty land tax is a paid disbursement.
A
It is client money because it has been received in respect of an unpaid cost or expense.
Correct. It is client money under Rule 2.1(d).
22
Q
Which one of the following is correct in respect of non-client money?
If you receive money generally on account of costs in a transaction from a client, it will be non-client money as it is not for a specific cost.
If you receive money from a client in respect of a paid disbursement, it is non-client money.
If you receive money from a client in respect of an unpaid disbursement, it is non-client money.
A
If you receive money from a client in respect of a paid disbursement, it is non-client money.
Correct. It will fall outside Rule 2.1(d) and the definition set out there of client money and so it will be non-client money.
23
Q
Which one of the following is NOT a requirement under Rule 8 of the SRA Accounts Rules?
To, at least every five weeks, for all client accounts, reconcile the bank statement with the cash book balance and the client ledger total.
To keep accurate, contemporaneous and chronological records in respect of client ledgers (including the business side of the client ledger account) and a cash book for client accounts.
To keep a record of all bills or other notifications of costs given by you.
To obtain, at least every week, bank statements for all client accounts and business accounts which you hold or operate.
A
To obtain, at least every week, bank statements for all client accounts and business accounts which you hold or operate.
Correct. Whilst this looks like the requirement under Rule 8.2, the correct frequency in Rule 8.2 is at least every five weeks not at least every week. The time period (at least every five weeks) matches that of the reconciliation required in Rule 8.3.
24
Q
Which of the following correctly sets out the accounts where a receipt of client money from Dr Jones (a client) on account of costs for her property purchase would be recorded by the authorised body?
Business side of the client ledger for Dr Jones’ property purchase and the client cash book.
Client side of the client ledger for Dr Jones’ property purchase and the client cash book.
Business side of the client ledger for Dr Jones’ company incorporation and the client cash book.
Client side of the client ledger for Dr Jones’ property purchase and the business account cash book.
A
Client side of the client ledger for Dr Jones’ property purchase and the client cash book.
Correct. See Rules 8.1(a)(i) and 8.1(c) as well as Rule 8.1(a) and SRA guidance ‘Helping you keep accurate accounting records’.
25
Which one of the following statements about the client ledger balance is correct?
The balance on the client side of a client’s client ledger account shows how much money in the client account belongs to that client.
The balance on the client side of a client’s client ledger account shows how much money that client owes to the authorised body.
The balance on the client side of a client’s client ledger account shows how much money there is in total in the client account.
The balance on the client side of a client’s client ledger account shows how much money in the client account belongs to that client.
26
Which one of the following is not an SRA Principle?
Act in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.
Act in a way that encourages equality, diversity and inclusion.
Act in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.
Act in the best interests of your employer.
Act with independence.
Act in the best interests of your employer.
Correct
Correct. Acting in the best interests of your employer is not an SRA Principle. Whether you work for a law firm or in-house, you are subject to the Principles to act with independence, with honesty, with integrity, and in a way that upholds public trust and confidence in the profession. If these Principles came into conflict with a desire to act in the best interests of your employer, the Principles would take priority.
27
CCS 2.3 relates to proceedings before the courts. It states:
‘You do not provide or offer to provide any benefit to witnesses dependent upon the nature of their evidence or the outcome of the case.’
If you breached this provision of CCS, which one of the following Principles would you also be in breach of?
Principle 6: act in a way that encourages equality, diversity and inclusion.
Principle 7: act in the best interests of each client.
Principle 1: act in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.
Principle 1: act in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.
Correct. If you provided a benefit to witness for providing evidence of a particular nature you would be jeopardising the proper administration of justice.
28
Which ONE of the following statements about the Principles is FALSE?
Your duty to act with integrity (under Principle 5) extends not only to your relationship with your client but also to your dealings with the court, other lawyers and members of the public.
If you behave in an untrustworthy way but that behaviour is outside of your usual professional practice, you cannot be found liable to have breached Principles 4 or 5.
Should the Principles come into conflict, those which safeguard the wider public interest take precedence over an individual client’s interests.
The Principles apply to all individuals authorised by the SRA to provide legal services, as well as authorised firms and their managers and employees.
If you behave in an untrustworthy way but that behaviour is outside of your usual professional practice, you cannot be found liable to have breached Principles 4 or 5.
Correct. Principles 4 and 5 apply to legal professionals in their personal as well as their professional lives. Therefore, the statement that you cannot be found liable to have breached Principles 4 and 5 if you behave in an untrustworthy way outside of your usual professional practice is FALSE.
29
Which ONE of the following is NOT a protected characteristic under the Equality Act 2010?
Race
Measles
Religion or belief
Sex
Measles
Correct. Measles is not one of the protected characteristics listed in your materials under the Equality Act 2010.
30
Which one of the following is NOT an example of direct discrimination?
A nightclub charges a higher price for entry to a man because of their sex where the service provided to a woman is exactly the same.
A bowls club will not admit someone with a hearing impairment as a member.
A shop will not serve someone because of their ethnic origin.
A large department store provides a private resting area for women who are pregnant or breastfeeding. A man feeling tired complains that he does not have access to a similar facility.
A large department store provides a private resting area for women who are pregnant or breastfeeding. A man feeling tired complains that he does not have access to a similar facility.
Correct.
Under section 13(1) Equality Act, direct discrimination occurs where “because of a protected characteristic, A treats B less favourably than A treats or would treat others”.
Note however that, under section 13(6)(b) of the Act, in considering discrimination against a man, it is not relevant to take into account any special treatment given to a woman in connection with pregnancy or childbirth. This example is not discrimination because a man cannot compare himself to a woman in connection with pregnancy, childbirth, or it would follow, breast feeding.
The other examples would amount to direct discrimination:
A shop will not serve someone because of their ethnic origin: in this example the protected characteristic is race and the shop is treating the customer less favourably than they would treat others.
A nightclub charges a higher price for entry to a man because of their sex where the service provided to a woman is exactly the same: in this example the protected characteristic is sex. The night club owner is treating men less favourably than they treat others (i.e women).
A bowls club will not admit someone with a hearing impairment as a member: in this example the protected characteristic is disability. The bowls club is treating the person with a hearing impairment less favourably than they treat others (people without a hearing impairment)
31
Which ONE of the following statements about the duty to make reasonable adjustments is CORRECT?
The duty to make reasonable adjustments aims to make sure that a disabled person can use a service as close as it is reasonably possible to get to the standard usually offered to non-disabled people.
The duty is ‘anticipatory’. This means a service provider cannot wait until a disabled person wants to use the service. They must think in advance (and on an ongoing basis) about what disabled people with a range of impairments (such as people who have a visual or hearing impairment, a mobility impairment or a learning disability) might reasonably need.
Many adjustments will not be particularly expensive and a service-provider is not required to do more than is reasonable.
The duty to make reasonable adjustments aims to make sure that a disabled person can use a service as close as it is reasonably possible to get to the standard usually offered to non-disabled people.
If a disabled person wants to use the service, the service provider must ensure that it makes reasonable adjustments to the service within a reasonable time of the disabled person’s request.
Many adjustments will not be particularly expensive and a service-provider is not required to do more than is reasonable.
The duty to make reasonable adjustments aims to make sure that a disabled person can use a service as close as possible to get to the standard usually offered to non-disabled people.
The duty is ‘anticipatory’. This means a service provider cannot wait until a disabled person wants to use the service. They must think in advance (and on an ongoing basis) about what disabled people with a range of impairments (such as people who have a visual or hearing impairment, a mobility impairment or a learning disability) might reasonably need.
The service-provider must use its best endeavours to provide the same service to a disabled person as to a non-disabled person, and bear the cost of all necessary expenditure.
The duty to make reasonable adjustments aims to make sure that a disabled person can use a service as close as it is reasonably possible to get to the standard usually offered to non-disabled people.
The duty is ‘anticipatory’. This means a service provider cannot wait until a disabled person wants to use the service. They must think in advance (and on an ongoing basis) about what disabled people with a range of impairments (such as people who have a visual or hearing impairment, a mobility impairment or a learning disability) might reasonably need.
Many adjustments will not be particularly expensive and a service-provider is not required to do more than is reasonable.
Correct
32
Which provision of the Code of Conduct for Solicitors, RELs and RFLs (‘CCS’) contains the duty of confidentiality:
“You keep the affairs of current and former clients confidential unless disclosure is required or permitted by law or the client consents”
CCS 6.3
CCS 6.2
CCS 6.4
CCS 6.3
Correct.
CCS 6.2 contains the principle that you do not act if you have a conflict of interest or a significant risk of a conflict of interest.
CCS 6.4 contains the principle that where you are acting for a client on a matter, you make the client aware of all information material to the matter of which you have knowledge (the duty of disclosure).
33
Which ONE of the following statements is CORRECT
The duty of disclosure under CCS 6.4 does not apply where you have reason to believe that serious physical or mental injury will be caused to your client or another if the information is disclosed.
The duty of disclosure under CCS 6.4 does not apply where you are satisfied it is reasonable in all the circumstances for you not to disclose information to the client.
The duty of disclosure under CCS 6.4 does not apply where the Compliance Officer for Legal Practice consents to you not disclosing the information to the client.
The duty of disclosure under CCS 6.4 does not apply where you have reason to believe that serious physical or mental injury will be caused to your client or another if the information is disclosed.
Correct. This is an exception to the rule in CCS 6.4, as set out in CCS 6.4(c ).
Under CCS and CCF, the decision as to whether or not you should disclose information that is material to your client’s matter does not rest with your Compliance Officer for Legal Practice or with what you consider to be reasonable.
34
In which ONE of the following circumstances will there not have been a breach of the duty of confidentiality?
Providing information to the court in compliance with a court order.
Disclosing information about your deceased client’s estate to a beneficiary without the consent of the deceased’s personal representatives.
Disclosing information about your client (A) from the firm you used to work for, which is material to the litigation matter on which you are advising your client (B) at your new firm.
Providing information to the court in compliance with a court order.
Correct. Complying with a court order falls within the exception “unless disclosure is required…by law” under CCS 6.3.
35
Which ONE of the following statements is correct?
The 3 Cs are customer due diligence, conflict check and client care letter
The 3 Cs are customer due diligence, confidentiality and client care letter.
The 3 Cs are conflict check, confidentiality and competence.
The 3 Cs are customer due diligence, conflict check and client care letter
Correct
36
Which ONE of the following statements is correct?
CDD is verifying the identity of your client on the basis of information from a government source.
CDD is identifying your client and verifying their identity on the basis of documents, data or information from a reliable source
CDD is identifying your client by taking a copy of their passport.
CDD is identifying your client and verifying their identity on the basis of documents, data or information from a reliable source
Correct
37
Which provision of CCS contains the principle that you do not act in relation to a matter if you have a conflict of interest?
CCS 6.1
CCS 6.2
CCS 6.3
CCS 6.2
Correct
38
Outdoor Pursuits Limited (‘Outdoor’) is an online retailer of outdoor leisure clothes and an existing client of your firm. Outdoor wishes to acquire Gorspex Limited (‘Gorspex’), an online climbing equipment retailer, (the ‘Acquisition’). Your firm has been instructed to advise Outdoor in connection with the Acquisition.
Which ONE of the following statements is correct?
Your firm might be able to act for Outdoor and Gorspex on the Acquisition as they will be competing for the same objective.
If anyone working at your firm owned shares in Gorspex, your firm would not be able to act on the Acquisition because there would be an ‘own interest conflict’.
You should check that your firm is not acting for Gorspex in relation to the Acquisition.
You should check that your firm is not acting for Gorspex in relation to the Acquisition.
Correct. If your firm was acting for Gorspex, there would be a conflict of interest and your firm would not be able to act for Outdoor.
Outdoor and Gorspex are not competing for the same objective here. The ‘objective’ Outdoor is ‘competing for’ is Gorspex, the target, so Gorspex cannot be competing for itself. Remember that the competing for the same objective exception applies mostly to tenders or auctions, not direct arm's length sales.
‘Own interest conflict’ is defined in the SRA Glossary as ‘any situation where your duty to act in the best interests of any client in relation to a matter conflicts or there is a significant risk that it may conflict with your own interests in relation to that or a related matter.’ If an individual solicitor owned shares in Gorspex, that solicitor would not be able to act on the acquisition due to their own interest conflict. But one solicitor in the firm owning shares in Gorspex would not prevent another solicitor in that firm from acting for Outdoor on the acquisition.
39
Which provision of the SRA Codes requires law firms to carry out client conflict checks?
SRA Code of Conduct for Firms (‘CCF’) 2.1
SRA Code of Conduct for Solicitors, Registered European Lawyers (RELs) and Registered Foreign Lawyers (RFLs) 6.2
SRA Code of Conduct for Solicitors, Registered European Lawyers (RELs) and Registered Foreign Lawyers (RFLs) 6.1
SRA Code of Conduct for Firms (‘CCF’) 2.1
Correct. CCF 2.1 states that you must ‘have effective governance structures, arrangements, systems and controls in place to ensure:
You comply with all the SRA’s regulatory arrangements, as well as with other regulatory and legislative requirements which apply to you’.
CCF 2.1 means that law firms need to have systems in place to ensure that there are no conflicts in place at the outset of the instruction.
40
John Smith has approached your firm to act for him on the sale of all his shares in John Smith Films Ltd (‘John Smith Films’) to Galaxy Inc (‘Galaxy’), a well-known film studio. Mars Inc (‘Mars’) has also been reported in the press as making an offer to John Smith for his shares in John Smith Films.
Which ONE of the following options correctly states the names against which you should carry out a conflict check?
John Smith and John Smith Films
John Smith, John Smith Films, Galaxy and Mars.
John Smith, John Smith Films, and Galaxy.
John Smith and Galaxy
John Smith, John Smith Films, and Galaxy.
Correct. You should carry out a conflict check against your client, John Smith, the target, John Smith Films and the counter party, Galaxy. There is no need to carry out a search against Mars because at this stage it is not involved in the transaction, there have just been reports in the press.
41
Which option below completes the following sentence correctly?
‘CCS 3.2 requires you to…’
send your client a client care letter within one week of receiving new instructions from them.
ensure that the service you provide to clients is competent and delivered in a timely manner.
consider and take account of your client’s attributes, needs and circumstances.
charge your client a fair and reasonable price for the service.
ensure that the service you provide to clients is competent and delivered in a timely manner.
Correct. This is an important standard from a client care perspective. You must be competent to give the advice your client requests and you must give it in a timely fashion. Many complaints arise from lawyers being too busy to give the client the level of service they are paying for.
42
‘Sending a client care letter is an SRA requirement under CCS 3.1.’
Which ONE of the following statements is CORRECT?
The statement is false because the requirement is under CCS 3.3
The statement is true.
The statement is false because there is no SRA requirement to send a client care letter.
The statement is false because there is no SRA requirement to send a client care letter.
Correct. Sending a client care letter is not a mandatory requirement under CCS. However, as the SRA requires that certain information is provided to clients in writing, most firms choose to send client care letters to their clients as a way of demonstrating that they have met the SRA’s requirements.
43
Which ONE of the following would NOT be a permitted reason to terminate your retainer with a client?
You are acting for a client on the sale of a company (‘Target’) and you discover that the client is selling the Target to a company in which your brother is a majority shareholder.
The client you are defending in a criminal trial has admitted that they lied on oath in their evidence and they are not willing to change their evidence.
Terminating your retainer to act on the divorce of a current client to give you time to concentrate on the divorce of a celebrity client who has just instructed you.
A two-partner accountancy firm has instructed you to act on the sale of their practice. However, you have not been able to obtain clear instructions from the partners because they disagree on the terms of the sale.
Terminating your retainer to act on the divorce of a current client to give you time to concentrate on the divorce of a celebrity client who has just instructed you.
Correct. You would be in breach of Principle 7 (act in the best interests of each client) and Principle 2 (act in a way that upholds public trust and confidence in the solicitors’ profession) amongst others if you did this. You would also be in breach of CCS 1.1.
44
Which ONE of the following statements is INCORRECT?
Law firms must ensure that clients are informed in writing at the time of engagement about any right they have to make a complaint to the Legal Ombudsman and when such a complaint can be made.
Law firms must ensure that clients are informed in writing at the time of engagement about how a complaint can be made and to whom.
Law firms must ensure that clients are informed in writing at the time of engagement about their right to complain about the firm’s service and their charges.
Clients do not need to be informed of a law firm’s complaints procedure until you become aware that an issue has arisen which you reasonably believe may lead to the client wanting to make a complaint.
Clients do not need to be informed of a law firm’s complaints procedure until you become aware that an issue has arisen which you reasonably believe may lead to the client wanting to make a complaint.
Correct answer. This statement is false. CCS 8.3 requires legal professionals (and this requirement applies to firms under CCF 7.1) to inform their clients in writing at the time of engagement about their right to complain, how a complaint can be made and their right, if any, to make a complaint to the Legal Ombudsman.
45
Which ONE of the following statements is CORRECT?
If a law firm does not resolve a complaint from a client within 8 weeks following the event giving rise to the complaint, solicitors must ensure that the client is informed, in writing, of any right they have to complain to the Legal Ombudsman and the time frame for doing so
If a law firm does not resolve a complaint from a client within 6 weeks following the making of the complaint, solicitors must ensure that the client is informed, in writing, of any right they have to complain to the Legal Ombudsman and the time frame for doing so.
If a law firm does not resolve a complaint from a client within 8 weeks following the event giving rise to the complaint, solicitors must ensure that the client is informed, in writing, of any right they have to complain to the SRA and the time frame for doing so.
If a law firm does not resolve a complaint from a client within 8 weeks following the making of the complaint, solicitors must ensure that the client is informed, in writing, of any right they have to complain to the Legal Ombudsman and the time frame for doing so.
If a law firm does not resolve a complaint from a client within 8 weeks following the making of the complaint, solicitors must ensure that the client is informed, in writing, of any right they have to complain to the Legal Ombudsman and the time frame for doing so.
Correct. See CCS 8.4 (which applies to firms by virtue of CCF 7.1).
46
Which ONE of the following statements is CORRECT?
CCS requires legal professionals to ensure that clients receive the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter and any costs incurred.
CCS requires legal professionals to inform their clients in writing of who will be carrying out the work for the client, and how the firm will charge for the work.
CCS requires legal professionals to inform their clients in writing at the time of engagement about how their matter will be priced and the likely overall cost of the matter.
Law firms may charge clients for the reasonable costs incurred by a firm in dealing with a complaint if the complaint is resolved in favour of the firm.
CCS requires legal professionals to ensure that clients receive the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter and any costs incurred.
Correct. See CCS 8.7. Note that CCS does not require this information to be provided in writing, but it is good practice to put this in writing.
47
Which ONE of the following correctly states two of the largest liabilities of a law firm?
Training events for staff and client entertainment
Rent and salaries
Fees paid by clients and marketing
Rent and salaries
Correct. Two of the main liabilities of a law firm are rent and salaries. Many firms are based in central city locations to be close to the businesses which they represent. The downside to this is, of course, the higher rent. Equally, while more staff mean that more work can be taken on, the salaries of those staff are considerable.
Fees paid by clients are the main source of income for a law firm, not outgoings. Marketing expenses is an outgoing but should not be one of the largest two liabilities of a law firm. Training events for staff should not be one of the largest liabilities of a law firm although it is an outgoing. Expenditure on client entertainment is also an outgoing, but again should not be one of the largest outgoings of a law firm.
48
Which ONE of the following statements is CORRECT?
Hourly charging is the traditional method of billing a client. However, it is coming under increasing pressure as clients seek to control the extent of their legal costs, and other methods of billing are therefore becoming more common.
Hourly charging is the method of billing most favoured by clients as it enables clients to see how much time has been spent on a matter by all the lawyers working on it.
Hourly charging is the most common method of billing clients used by law firms.
Hourly charging is the traditional method of billing a client. However, it is coming under increasing pressure as clients seek to control the extent of their legal costs, and other methods of billing are therefore becoming more common.
Correct. The problem with hourly charging from the client’s perspective is that there is no limit on the amount the firm charges the client for the work. If the lawyers take 100 hours to complete the project, the firm could charge for the full amount, assuming the partner responsible for the matter considers that to be a reasonable amount for the work. Clients are therefore increasingly looking to agree other billing methods, such as fixed fees or a cap on legal fees to help them manage the amount they spend on external lawyers.
49
Which ONE of the following statements CORRECTLY defines a fixed fee agreement?
In a fixed fee agreement, the law firm will record (and bill) their fees in the normal way, but the fees will not exceed a pre-agreed amount for the particular transaction.
If the recorded time on a file reaches the fixed amount, the legal team may be asked to stop work on the file while the partner attempts to renegotiate the fixed amount.
Otherwise, work will continue as normal past the fixed amount, and any fees incurred above the amount will have to be written off.
In a fixed fee agreement, the law firm will invoice a client for a fixed amount, regardless of the amount of time spent by fee earners on the transaction. The fixed amount will be fixed at the agreed amount whether the hours worked by the lawyers on an hourly charging basis work out as more or less than the fixed fee. Fixed fee agreements are common for conveyancing or wills eg drafting a will for a set fee of £95 plus VAT
Fixed fee agreements are common in litigation and mediation cases. Under fixed fee agreements, the lawyers do not recover any fees if they lose the case. If they win, they may recover their fees out of the damages awarded to the client. The maximum amount the lawyer can recover is capped, eg at 25% for personal injury cases. There are rules in place as to when and how fixed fee agreements can be used and enforced.
In a fixed fee agreement, the law firm will invoice a client for a fixed amount, regardless of the amount of time spent by fee earners on the transaction. The fixed amount will be fixed at the agreed amount whether the hours worked by the lawyers on an hourly charging basis work out as more or less than the fixed fee. Fixed fee agreements are common for conveyancing or wills eg drafting a will for a set fee of £95 plus VAT
Correct. In a fixed fee agreement the law firm will charge the client the fixed fee whether the hours worked by the lawyers on the task work out as more or less than the fixed fee. If the hours worked by the lawyers work out as more than the fixed fee the firm will make a loss, if the hours work out as less than the fixed fee, the firm will be able to charge the full amount of the fixed fee. Fixed fees tend to be used for projects the firm carries out regularly where they can confidently predict the number of hours it will take to complete the work.
A capped fee agreement is where the law firm will record (and bill) their fees in the normal way, but the fees will not exceed a pre-agreed amount for the particular transaction. If the recorded time on a file reaches the cap, the legal team may be asked to stop work on the file while the partner attempts to renegotiate the cap. Otherwise, work will continue as normal past the cap, and any fees incurred above the amount will have to be written off.
A conditional fee agreement is common in litigation and mediation cases. The lawyers do not recover any fees if they lose the case. If they win, they may recover their fees out of the damages awarded to the client. The maximum amount the lawyer can recover is capped, eg at 25% for personal injury cases. There are rules in place as to when and how conditional fee agreements can be used and enforced.
50
You have acted for a client whose transaction has now finished. You are not currently acting on any other matters for them although they are a long-standing client. There is some client money belonging to them in the client account. Which one of the following best sets out what you should do with this?
You must send the money to the client and the relevant accounting entries are as follows:
Credit client ledger business side
Debit cash sheet business account.
There is no need to send the money to the client. It can remain in your client account until you are next instructed by the client.
You must send the money to the client and the relevant accounting entries are as follows:
Credit client ledger
Debit cash sheet client account.
You must send the money to the client and the relevant accounting entries are as follows:
Debit client ledger
Credit cash sheet client account.
You must send the money to the client and the relevant accounting entries are as follows:
Debit client ledger
Credit cash sheet client account.
Correct. Rule 2.5 states that you must ensure that client money is returned promptly to the client for whom it’s held, as soon as there is no longer any proper reason to hold those funds. These are the correct accounting entries for withdrawing money from the client account to send it (in a cheque or by electronic transfer) to the client.
51
A client has no money in the client account. Their solicitor pays a Land Registry fee on their behalf. Which one of the following correctly sets out the accounting entries to record this?
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 business account.
Credit client ledger business account
Debit cash sheet business account.
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.
52
A client has no money in the client account. Their solicitor pays a Land Registry fee on their behalf. Which one of the following correctly sets out the accounting entries to record this?
Credit client ledger client account
Debit cash sheet client account.
Credit client ledger business account
Debit cash sheet business account.
Debit client ledger business account
Credit cash sheet business account.
Debit client ledger client account
Credit cash sheet client account.
Credit client ledger business account
Debit cash sheet business account.
Correct. When the cheque reimbursing you is received, the entries needed are these ones to record the receipt of non-client money into the business account (because the cheque cannot be paid into petty cash as it is not an actual bank account).
53
You act for a client who has no money in the client account. You use cash from petty cash to pay a taxi fare to attend a meeting with your client. Your client later sends you a cheque to reimburse you for the taxi fare. Which one of the following correctly sets out the accounting entries to record the receipt of the cheque?
Credit client ledger business account
Debit cash sheet business account.
Credit client ledger client account
Debit cash sheet client account.
Debit client ledger business account
Credit cash sheet petty cash account
Credit client ledger business account
Debit cash sheet business account.
Credit client ledger business account
Debit cash sheet business account.
Correct. When the cheque reimbursing you is received, the entries needed are these ones to record the receipt of non-client money into the business account (because the cheque cannot be paid into petty cash as it is not an actual bank account).
54
A solicitor is dealing with the administration of a deceased’s estate for a client. At the outset the solicitor gave a written estimate of the likely total costs of £10,000 including disbursements. A few weeks later the client instructs the solicitor to arrange for some shares in an overseas company to be sold. The solicitor decides the best way to do this is to instruct an agent to sell the shares. The agent’s fees will be an additional £1000.
Which of the following best explains what the solicitor should do next?
A The solicitor does not need to do anything because the client was informed that it was only an estimate at the outset.
B The solicitor does not need to do anything because the agent’s fees will be incurred outside England and Wales.
C The solicitor does not need to do anything because the agent will invoice the client directly.
D The solicitor should write to the client to inform him about the agent’s fees and ask for his instructions because a solicitor must get prior approval for every item of expenditure.
E The solicitor should write to the client to inform him about the agent’s fees and ask for his instructions because the original estimate is no longer accurate.
E The solicitor should write to the client to inform him about the agent’s fees and ask for his instructions because the original estimate is no longer accurate.
55
A client telephones a solicitor to instruct her to draft wills for himself and his brother. They both wish to leave their estates to each other.
Which of the following best explains what the solicitor should do?
A The solicitor must draft wills for the client and the brother if the brother has given written authorisation in advance of the client’s authority to give instructions on his behalf and provided the solicitor has as no reason to doubt the instructions reflect the brother’s
wishes.
B The solicitor may draft wills for the client and the brother if the brother has given written authorisation in advance of the client’s authority to give instructions on his behalf.
C The solicitor cannot draft the wills for the client and the brother unless the brother provides instructions to her directly.
D The solicitor cannot draft the wills for the client and the brother because there is a conflict of interests between them.
E The solicitor can draft the wills for the client and the brother because they are related to each other and there is a low risk that the instructions do not represent the
brother’s wishes.
B The solicitor may draft wills for the client and the brother if the brother has given written authorisation in advance of the client’s authority to give instructions on his behalf.
- authorisation does not need to be direct (just proper)
- not a conflict of interest at this stage
- no such thing as a low risk instruction
- real debate between A and B: question of wording ("must" vs "may")
56
A disabled employee at a firm of solicitors has requested that the firm buy some computer software for him to use at work. This software enables a person with the employee’s disability to use a computer more effectively. The partners in the firm want
advice on their obligations under the Equality Act 2010 (‘the Act’).
What must the partners in the firm do to meet their obligations under the Act?
A They must make substantial adjustments to ensure that the disabled employee is not placed at a disadvantage compared to those who are not disabled.
B They must make reasonable adjustments to ensure that the disabled employee is not placed at a substantial disadvantage compared to those who are not disabled.
C They must make adjustments to ensure that the disabled employee is not placed at a significant disadvantage compared to those who are not disabled.
D They must make significant adjustments to ensure that the disabled employee is not placed at a disadvantage compared to those who are not disabled.
E They must make adjustments to ensure that the disabled employee is not placed at an unreasonable disadvantage compared to those who are not disabled.
B They must make reasonable adjustments to ensure that the disabled employee is not placed at a substantial disadvantage compared to those who are not disabled.
- "reasonable" is the wording from the legislation
57
A solicitor is advising a client who wants to leave a considerable sum of money to a charity in his will. The following day the solicitor sits next to a new acquaintance at a golf club dinner. The new acquaintance tells the solicitor that he is concerned that the charity he works for is bound for financial failure because the directors are being sued for misappropriation of the charity’s funds. The new acquaintance then tells the solicitor the name of the charity he works for. Much to the solicitor’s surprise, it is, by coincidence, the charity the client is proposing to bequeath to.
Is the solicitor obliged to inform the client of the reported concerns about the prospects of the charity?
A No, because the information was obtained in the course of the solicitor’s
personal life and therefore does not impact on his professional obligations.
B No, because the duty of confidentiality overrides the duty of disclosure.
C No, because information obtained from clients must be kept confidential unless disclosure is required or permitted by law or the client consents.
D Yes, because the information is material to the client’s matter.
E Yes, because the duty of disclosure overrides the duty of confidentiality.
D Yes, because the information is material to the client’s matter.
- no duty owed to the acquaintance
- need to act in the best interest of the client
- personal duty of solicitor: does not matter that it is outside the office
-
58
Arjun Patel sends a cheque to the law firm acting for him on the drafting of his will. He sends the cheque at the start of the transaction and it is generally on account of costs to be incurred in connection with the matter.
Which pair of double entries shows how the receipt of the cheque from Mr
Patel should be recorded in your firm’s accounts?
A Credit client ledger client account: Arjun Patel
Debit cash sheet client account
B Debit client ledger client account: Arjun Patel
Credit cash sheet client account
C Debit client ledger business account: Arjun Patel
Credit cash sheet business account
D Credit client ledger client account: Arjun Patel
Debit client ledger business account: Arjun Patel
E Credit client ledger business account: Arjun Patel
Debit cash sheet business account
A Credit client ledger client account: Arjun Patel
Debit cash sheet client account
- get rid of those that only mention business account
- D is wrong since the double entry does not match
- client money credit since no bill has been sent
- B is the wrong way around: looking for a credit in the client ledger!
59
A solicitor in a law firm has received a phone call from the managing director of a private limited company incorporated in the UK, which is a new client. The managing director wants to know why the solicitor’s firm is asking for documents to verify the identity of the company’s shareholder. The company’s shareholder lives in Russia and owns and holds the entire shareholding of the company.
Which of the following responses best explains the advice the solicitor should give
to the managing director?
A. The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives outside the UK.
B. The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives in Russia.
C. The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.
D. The structure of the company and the way the shares are held by the shareholder
may raise issues about tax evasion.
E. The solicitor is considering making a suspicious activity report to the firm’s nominated
officer
C. The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.
- the focus is on the beneficial owner as they earn more than 25%
60
Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for her.
Which of the following best explains the action you should take with regard to
customer due diligence?
A. You should carry out simplified CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
B. You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
C. You should carry out enhanced CDD on the client because she presents a high risk of money laundering.
D. You should carry out ongoing monitoring on the client because you have not acted for
her before.
E. You should carry out standard CDD on the client and identify and verify the beneficial owner of the high street bank.
B. You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
not A -- the type of investment is not low risk and implied that there are only two types (simplified or high risk) but there is a third type: standard!
not C -- not high risk
not D -- first time and one off
not E -- beneficial ownership irrelevant
61
For each of the following scenarios, is there:
* a conflict of interest
* an own interest conflict
* neither?
Scenario 1: A developer client asks you to advise on a large development. You realise that it is sited next to your brother’s house and will likely affect its value.
Scenario 2: A client asks you to act on the purchase of a house. You have already been instructed to act for the seller of the property.
Scenario 3: You act for the landlord of a leasehold flat. The tenant is a friend from school. The tenant is in arrears on payment of the rent, and the landlord instructs you to commence proceedings for the rent arrears.
Scenario 4: You are a partner acting for the tenant of an office on a claim against the freeholder for disrepair. The freeholder rings a different partner in the team to instruct them to defend the claim.
scenario 1 -- own conflict
scenario 2 -- conflict of interest
scenario 3 -- own conflict
scenario 4 -- conflict of interest
62
Conflicts of interest exceptions
For each of the following scenarios, which of the exceptions applies?
* a substantially common interest
* competing for the same objective
* neither
Scenario 1: acting for the purchaser of a residential property and the mortgage company lending the purchase price to the purchaser. The purchaser and the mortgage company will be using a loan agreement, security documentation and a standard form certificate of title approved by the Law Society and UK Finance.
Scenario 2: acting for company X and bank Y on bank Y’s loan of £500,000 to buy land for the development of a shopping centre. The terms of the loan will be negotiated at arm’s length.
Scenario 3: acting for company A and company B who are both bidding against each other in an auction to buy the shares in company C.
scenario 1 -- substantially common interest
scenario 2 -- neither
scenario 3 -- competing for same objective
63
Were the solicitor’s actions in accordance with the SRA Standards and Regulations?
A. Yes, because a solicitor can act where there is an own interest conflict if he has received written consent from the client.
B. Yes, because a solicitor can act where there is an own interest conflict if he is satisfied it is in his client’s best interests.
C. Yes, because a solicitor can act where there is an own interest conflict if the solicitor and the client have a substantially common interest.
D. No, because a solicitor cannot act if there is an own interest conflict unless the solicitor and the client are competing for the same objective.
E. No, because a solicitor cannot act if there is an own interest conflict or a significant risk of an own interest conflict.
E. No, because a solicitor cannot act if there is an own interest conflict or a significant risk of an own interest conflict.
64
Client money?
For each of the scenarios, decide whether the money described is client money or not.
Scenario 1: money received by a law firm from a client on account of costs generally.
Scenario 2: money received by a law firm from a client in respect of a company search fee that has already been paid by the
solicitor on the client’s behalf.
Scenario 3: money received by a law firm from a client in respect of a company search fee. The solicitor has incurred the search fee, and the solicitor’s firm has received the invoice, but the invoice has not yet been paid by the solicitor’s firm
scenario 1 -- client money
scenario 2 -- not client money
scenario 3 -- client money
65
Client money MCQ 1
A firm of solicitors is acting on behalf of a client who is selling their property and purchasing a new property. A deposit of £35,000 has been received from the buyer’s solicitor in respect of the sale and is held as stakeholder. The firm of solicitors has not sent a bill of costs to the client yet.
Which one of the following best explains whether the £35,000 is client money?
A. Yes, it is client money.
B. No, it is not client money because it has been received from a third party and not from the client.
C. No, it is not client money because it is held as stakeholder and has not been released to the client.
D. No, it is not client money because a bill of costs has not yet been sent to the client.
E. No, it is not client money because it has been received by the firm of solicitors and not by the client.
A. Yes, it is client money.
66
Client money MCQ 2
You work in a firm of solicitors which receives a cheque for £4,500. The cheque is made payable to the firm and is drawn on the client account of Elford & Partners (another firm of solicitors). The cheque arrives with a covering letter from Elford & Partners, stating that it represents payment of damages owed by one of their clients to one of your clients, Sonia Jones, who you represented in her claim for damages. The partner in your firm who has been dealing with the matter is away from the office for one week on holiday and cannot be contacted. Sonia Jones is out of the country on a business trip.
Which one of the following sets out the best course of action your firm should take?
A. Send the cheque immediately to Sonia Jones by first class post.
B. Bank the cheque immediately in the firm’s client account and notify Sonia Jones that the money has been received.
C. Hold the cheque and try to contact Sonia Jones to find out what she would like your firm to do with the cheque.
D. Bank the cheque immediately in the firm’s business account until the partner dealing with the matter returns from holiday.
E. Hold the cheque until the partner dealing with the matter returns from holiday.
B. Bank the cheque immediately in the firm’s client account and notify Sonia Jones that the money has been received.
67
A firm of solicitors is acting on behalf of a client who is selling his property and purchasing a new property. A deposit of £25,000 has been received in respect of the sale and is held as stakeholder.
Which pair of double entries shows how the receipt of the deposit should be recorded?
A. Credit cash sheet client account
Debit stakeholder ledger
B. Credit cash sheet business account
Debit stakeholder ledger
C. Credit client ledger client account
Debit stakeholder ledger
D. Credit stakeholder ledger
Debit cash sheet client account
E. Credit cash sheet client account
Debit client ledger client account
D. Credit stakeholder ledger
Debit cash sheet client account
68
A solicitor acts for a client in relation to the acquisition of a private limited
company. Two days before the transaction is due to complete the solicitor
suspects that his client will be using the transaction to launder money. The
solicitor reports this to the nominated officer who makes a suspicious activity
report to the relevant authority.
What action should the solicitor now take?
A. Proceed with the transaction as the solicitor has made the disclosure to
the nominated officer.
B. Proceed with the transaction only after receiving authorisation from the
relevant authority.
C. Proceed with the transaction after a period of three days if no response is
received from the relevant authority.
D. Explain to the client that he cannot act as a suspicious activity report is
pending.
E. Explain to the client that a suspicious activity report has been made and
then proceed with the transaction.
B. Proceed with the transaction only after receiving authorisation from the
relevant authority.
A -- need authorisation or wait 7 WORKING days
C -- wrong notice period: need to be 7 WORKING days
D -- tipping off!
E -- tipping off!
(technically B should also include the possibility to proceed after the notice period of 7 working days but it is the best answer here)
69
A man instructs his solicitor to act for him in the purchase of the entire issued share
capital of a private limited company from another company. The solicitor advises on the share purchase and helps to prepare and negotiate all the necessary documentation. Neither the solicitor nor his firm is 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.
Has the solicitor breached the general prohibition against carrying on a regulated
activity?
A. Yes, because the solicitor has given advice on the purchase of shares in a specific company and no exclusion or exemption applies.
B. Yes, because the transaction involves the purchase of the entire issued share
capital of the company and no exclusion or exemption applies.
C. No, because an exemption applies to professional firms which are supervised by the Solicitors Regulation Authority when they engage in corporate work.
D. No, because an exclusion applies if the transaction relates to the purchase of any
number of shares in a private limited company.
E. No, because an exclusion applies if the transaction involves at least 50% of the
voting shares in the company.
E. No, because an exclusion applies if the transaction involves at least 50% of the
voting shares in the company.
Step 1
Shares are a specified investment
Step 2
Arranging deals in shares is a specified activity
Step 3
Excluded activity as over the 50% of the voting shares in the company are
being sold
70
A solicitor acts for a client who is raising finance secured against his home to fund his new business. The solicitor will be providing advice and preparing all the necessary documentation in connection with the mortgage. The client asks the solicitor to explain the key differences between a repayment mortgage and an endowment mortgage. Neither the solicitor nor his firm is authorised by the Financial Conduct Authority to carry on a regulated activity.
Can the solicitor give the explanation requested about the types of mortgages?
A. Yes, because such advice is a necessary part of the provision of his legal services.
B. Yes, because he is subject to the Solicitors' Financial Services (Scope) Rules 2001 and therefore falls within an exemption from the Financial Services and Markets Act 2000.
C.Yes, because the provision of generic advice is outside the scope of the Financial
Services and Markets Act 2000.
D. No, because such advice does not fall within an exemption from the Financial Services and Market Acts 2000.
E. No, because he is not authorised by the Financial Conduct Authority to give advice in
respect of either type of mortgage.
C.Yes, because the provision of generic advice is outside the scope of the Financial
Services and Markets Act 2000
Step 1
Mortgages are a specified investment
Step 2
Advising on the merits of investments is a specified activity
But generic advice 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.
71
A solicitor acts for a client who is found guilty of shoplifting. The client asks the solicitor to present a plea in mitigation on her behalf. At the hearing, the client gives the court a false address and date of birth in order to conceal the fact that she has previous convictions.
Which of the following statements best describes what the solicitor should do?
A. Cease to act immediately.
B. Not refer to the client's character or previous convictions.
C. Immediately correct the information about the client’s address and date of birth without further reference to the client.
D. Not refer directly to the client's previous convictions but imply that she is of good character.
E. Ask the client to correct the information about her address and date of birth and if she refuses, cease to act.
72
A solicitor has been contacted by a woman who asks him to represent her father by attending at the police station. The father has been arrested on suspicion of attempted murder and is in custody at the police station. The solicitor is fully aware of the circumstances of the allegation as he represented the woman’s brother several days ago when the brother was arrested for the same offence. The brother has now been charged with the offence. The firm will carry out the usual conflict of interest check.
Do the rules of professional conduct allow the solicitor to represent the woman’s father at the police station?
No, although the solicitor can accept instructions from a third party, he cannot accept instructions from a close family member of the proposed client.
B. No, the solicitor cannot accept instructions from a third party under any circumstances.
C. Yes, the solicitor can accept instructions from the woman provided he is satisfied that the woman has the authority to give instructions and that there is no conflict of interest or risk of conflict.
D. Yes, the solicitor can accept instructions from the woman provided he is satisfied that the woman has the authority to give instructions. A conflict of interest can never arise between close family members and there is no need to wait for the outcome of the conflict of interest check.
E. Yes, the solicitor can accept instructions from the woman provided he is satisfied that the woman has the authority to give instructions. A conflict of interest will not arise where close family members are implicated in the same offence and there is no need to wait for the outcome of the conflict of interest check.
73
You are duty solicitor and are called to attend your local police station. The police have arrested Jack and Ben on suspicion of robbery and both have requested the duty solicitor.
You have a private consultation with Jack who tells you that both he and Ben were involved in the robbery although not to the extent that the police would allege.
You then have a private consultation with Ben. Ben immediately asks you what Jack has said to you as he wants to know if Jack has ‘dropped him in it’ as this is rubbish because he was at home with his mates all night.
Can you act for Ben?
Can you still act of Jack?
No and No!
The starting point is to ask whether you can act in the best interests of each client, Principle 7.
You cannot act if there is a client conflict CCS 6.2.
Here, Jack has implicated Ben while Ben intends to deny any involvement.
You cannot act for Ben as you are unable to act in both Jack’s and Ben’s best interests Principle 7. This would be a conflict between clients.
In addition, we cannot tell Ben what Jack has said as we owe Jack a duty of confidentiality CCS 6.3 and cannot tell Ben without Jack’s consent CCS 6.4(b).
Ben must be advised to seek representation from another firm. When speaking to the police it is important not to disclose any confidential information
Another issue now arises as you potentially have information from Ben (that he denies all involvement in the robbery) which is material to Jack’s case (as Jack says he carried out the robbery with Ben but not to the extent that the police allege).
You have a duty to disclose this to Jack CCS 6.4 . You also have a duty of confidentiality to Ben, which continues even though you no longer act for him CCS 6.3.
Confidentialitywill overridedisclosure.
You are now unable to act in Jack’s best interests Principle 7 as you are unable to disclose material information to him.
You therefore will have to cease to act for Jack as well to ensure that you meet your mandatory Principles.
It is always good practice to ask each client before taking instructions whether they think there might be a conflict.
When we first saw Ben we should have advised him we were acting for Jack and asked whether this would potentially cause an issue.
If he had said yes, then we might have been able to extricate ourselves from the situation before coming into possession of confidential information.
This would have enabled us to continue to act for Jack.
74
You are on call during the night. Ron has been arrested on suspicion of assault occasioning actual bodily harm (‘ABH’) on his girlfriend, Sophie , contrary to s.47 Offences against the Person Act 1861. Sophie is alleged to have suffered severe bruising following an argument with Ron.
You have your private consultation with Ron and he is subsequently interviewed under caution. During both, Ron denies the assault. He says that he has been ‘stitched up’ by Sophie, who has a serious drinking problem and that her injuries were caused when she fell over after she had picked a fight with him. He told her that the relationship was over and she then said, ‘I’ll make you sorry – I am going to tell the police that you hurt me’. Sophie then called 999 and Ron was arrested.
The next day when you are in the office, opening a file relating to this matter, you discover that Sophie instructed Price Prior’s family law department nine months ago, seeking a non-molestation order against her then boyfriend, Angus . Sophie withdrew her application before the hearing and the file has now been closed.
Can you continue to act for Ron?
NO
no such thing as information barrier in criminal law
You have taken instructions from Ron who has accused his girlfriend of lying in relation to an allegation of assault against him.
You have now discovered that your firm previously acted for Sophie and that she had previously made an allegation of assault against another boyfriend which she subsequently withdrew.
Clearly this information is material to Ron’s case and should be disclosed to him CCS 6.4.
You cannot do so without Sophie’s consent because of your duty of confidentiality to her CCS 6.3, notwithstanding the fact that you no longer act for her.
You therefore cannot act in Ron’s best interests and should cease to act for him because of the conflict between your duties to each client Principle 7.
75
You are acting for Kathy Selwood, a long standing client of the firm, who has pleaded not guilty to theft.
It is the day before the trial and you are having a meeting with Kathy to go over the prosecution case and take her instructions ready for cross examination. You discuss with Kathy that the prosecution evidence includes a witness who saw the theft take place and who has identified Kathy in a video identification procedure (‘VIPER’) as being the person responsible.
Kathy tells you that she did steal the items but that her mother is willing to come to court and provide Kathy with an alibi for the relevant time. She says that should be enough to ‘get her off the hook’.
Can you continue to act for Kathy?
DEPENDS! (in theory yes, but depends if Kathy insists on having her mum as a witness or on taking the stand herself)
You cannot mislead the court.
Kathy has indicated that she wants to call a witness whose evidence you know is untrue. You cannot comply with her instructions as this would mislead the court CCS 1.4 by calling a witness whose evidence you know to be untrue. You would not be complying with Principles 1, 4 and 5.
If Kathy insists on calling her mother you will have to withdraw from acting.
If you withdraw, you must not disclose the confidential information CCS 6.3. At most, you should only inform the court that your professional duties prevent you from continuing to act. The court cannot pressure you into providing reasons nor try to get you to reconsider; the decision to withdraw rests with you.
Kathy is entitled to put the prosecution to proof.
You could theoretically continue to act for Kathy but you would be very limited in your conduct of the trial as you would be unable to raise a positive case.
76
A claimant instructs its solicitor to put forward a breach of contract claim despite the solicitor's advice that the claim is incoherent – it has no legal basis. Which of the following is the best advice as to whether such a claim should be put forward?
A - The solicitor should not help in putting this claim forward. The claimant can pursue the claim but risks a costs order against it.
B - The solicitor should help the claimant in putting the claim forward. The claimant risks a costs order against it.
C -The claimant cannot pursue the claim.
D- The solicitor should not help in putting this claim forward and should prevent the claimant from pursuing the claim.
E -The solicitor should help the claimant in putting the claim forward. The claimant and solicitor risk costs orders against them.
A - The solicitor should not help in putting this claim forward. The claimant can pursue the claim but risks a costs order against it.
Rule 2.4 requires that you (as a solicitor) only put forward statements, representations or submissions to the court which are properly arguable. B and E are therefore wrong. Whether the claimant pursues the claim is up to the claimant, so C and D are wrong. A is correct.
77
W hat information is the firm required to provide to new clients in writing at the time of engagement?
A. The client’s right to complain about your services and your charges; how a complaint can be made and to whom; and any right they have to complain to the Legal Ombudsman and when they can make any such complaint.
B. The client’s right to complain about your services and your charges; how the firm will charge for the work; and as their matter progresses, the likely overall cost of the matter and any costs incurred.
C. W ho will be carrying out the work for the client; how the firm will charge for the work; and any right they have to complain to the Legal Ombudsman and when they can make such a complaint.
D. W ho will be carrying out the work for the client and the supervising partner; the overall costs of the matter and any costs incurred; and how a complaint can be made and to whom.
E. That complaints will be dealt with properly, fairly and free of charge; the services provided by the firm are regulated by an approved regulator; and whether any work done for the client will be carried out by an authorised person.
A. The client’s right to complain about your services and your charges; how a complaint can be made and to whom; and any right they have to complain to the Legal Ombudsman and when they can make any such complaint.
CCS 8.3
"required" at "time of engagement"
B - mentions as the matter progresses
C - no need to mention who will carry out the work
D - no need to mention who will carry out the work
E -
78
Which one of the following is not a quality you would expect from a legal professional?
Morality.
A high level of education and training.
A desire to get the best outcome for your client, whatever the circumstances.
A desire to promote the public good.
Integrity.
A desire to get the best outcome for your client, whatever the circumstances.
Correct
Correct. The circumstances may be such that your obligation to act in the best interest of your client is replaced by an overriding duty to promote the public good.
79
Which one of the following statements correctly describes the key aspects of being a legal professional?
Being a legal professional requires you to demonstrate knowledge, skill, and expertise and therefore a high level of education and training. Provided you act in the best interests of your client, you will meet the standard expected of a legal professional.
You do not need to worry about demonstrating trust, morality and integrity if you are working in-house because your only obligation is to present the best case for your employer.
As well as knowledge and expertise, being a legal professional requires you to demonstrate trust, morality and integrity. Trust, morality and integrity are important so that your clients know that they can trust the advice you give them.
As well as knowledge and expertise, being a legal professional requires you to demonstrate trust, morality and integrity. Trust, morality and integrity are important to maintain the public’s trust in the legal profession.
As well as knowledge and expertise, being a legal professional requires you to demonstrate trust, morality and integrity. Trust, morality and integrity are important to maintain the public’s trust in the legal profession.
Correct
Correct. As well as owing a duty to your clients, you also have a duty to promote the public good. Trust, morality and integrity are therefore important qualities in a legal professional.
80
Your colleague, a newly qualified solicitor in the property department, is giving you a lift back to the office after a football match. Your colleague has a minor collision with another car. As your colleague exchanges details with the owner of the other car, you hear your colleague say:
“Don't bother suing me for the damage to your car. I’ve just qualified as a solicitor so you will be wasting your time. It’ll cost you so much in legal costs, which you won’t recover whatever happens, I’m sure you’ll regret suing me for a very long time”.
Which one of the following statements is true?
Your colleague has not breached the standards expected of a legal professional because the collision was not with a client.
Your colleague is giving free advice to the owner of the other car and has not breached the standards expected of a legal professional.
Your colleague has not breached the standards expected of a legal professional because the collision occurred outside working hours.
Your colleague has breached the standards expected of a legal professional.
Your colleague has breached the standards expected of a legal professional.
Correct
Correct. The standards of truth, integrity and morality apply to legal professionals in their personal as well as their professional lives and when they are dealing with members of the public as well as clients.
81
Which one of the following statements is false?
Clients can refer complaints about poor service from a solicitor to the Legal Ombudsman at any time.
The Solicitors Disciplinary Tribunal deals with serious breaches of the SRA’s rules and disciplines solicitors.
The SRA sets the principles and codes of conduct that solicitors and lawyers regulated by the SRA must comply with.
The Legal Services Board regulates all lawyers in England and Wales.
Clients can refer complaints about poor service from a solicitor to the Legal Ombudsman at any time.
Correct. The statement is false. The right to refer a complaint to the Legal Ombudsman applies to individuals, small businesses, charities, clubs and trusts. It does not apply to larger companies. In addition the client should exhaust the law firm’s procedure before referring a complaint to the legal Ombudsman.
82
Which one of the following is not a power of the SRA?
Impose a disciplinary sanction on a firm, for example a fine.
Commence disciplinary proceedings against a solicitor by the Solicitors Disciplinary Tribunal
Order a solicitor to repay or refund the whole of part of the costs to the client.
Strike a solicitor off the roll.
Close down a law firm.
Strike a solicitor off the roll.
Correct. This a power of the Solicitors Disciplinary Tribunal.
83
Which one of the following is not a power of the Solicitors Disciplinary Tribunal?
Award compensation to a party that has suffered loss.
Reprimand a solicitor.
Award costs against a party to proceedings.
Impose a restriction on the area in which a solicitor can practice.
Impose a fine.
Award compensation to a party that has suffered loss.
Correct. This action would have to be taken by a court.
84
Which ONE of the following is the CORRECT definition of an undertaking as set out in the SRA Glossary?
“A statement, given orally or in writing, whether or not it includes the word “undertake” or “undertaking” to someone who reasonably places reliance on it, that you or a third party will do something or cause something to be done, or refrain from doing something”.
“A statement, given in writing to someone that you or a third party will do something or cause something to be done, or refrain from doing something”.
“A statement, given orally or in writing to someone who reasonably places reliance on it, that you or a third party will do something or cause something to be done, or refrain from doing something”.
“A statement, given orally or in writing, whether or not it includes the word “undertake” or “undertaking” to someone who reasonably places reliance on it, that you or a third party will do something or cause something to be done, or refrain from doing something”.
Correct. Note that
an undertaking can be given orally or in writing, and
does not have to include the word “undertake” or “undertaking”.
If the recipient reasonable places reliance on the statement it will be binding on the person giving it.
85
Which ONE of the following statements about undertakings is CORRECT?
An undertaking can be given by any individual in a law firm who is legally qualified. An undertaking could therefore be given by a partner or a qualified lawyer, but not by an apprentice, or a secretary.
An undertaking can be given by any individual in a law firm provided it can be reasonably relied upon by the recipient. An undertaking could therefore be given by a partner, a qualified lawyer, an apprentice, secretary or any other individual in the firm.
An undertaking can only be given by a partner in a law firm.
An undertaking can be given by any individual in a law firm provided it can be reasonably relied upon by the recipient. An undertaking could therefore be given by a partner, a qualified lawyer, an apprentice, secretary or any other individual in the firm.
Correct. Note that it is important that any individual in a law firm can be found to have given an undertaking.
86
Which provision of CCS contains the following requirement:
“You draw the court’s attention to relevant cases and statutory provisions, or procedural irregularities of which you are aware, and which are likely to have a material effect on the outcome of the proceedings.”
CCS 2.6
CCS 2.3
CCS 2.7
CCS 2.4
CCS 2.7
Correct. CCS 2.3 contains the requirement that you do not provide or offer to provide any benefit to witnesses dependent upon the nature of their evidence or the outcome of the case. CCS 2.4 contains the requirement that you only make assertions or put forward statements, representations or submissions to the court or others which are properly arguable. CCS 2.6 contains the statement that you do not waste the court’s time.
87
You are a solicitor in the residential conveyancing department. Your client, the seller, is due to complete on a sale today. You received part of the completion monies (£450,000) from the buyer’s solicitors yesterday, which you undertook to hold to the order of the buyer’s solicitors pending completion.
You have just received an email from the buyer’s solicitors advising you that their clients have instructed them not to proceed with the completion today as their mortgage advance will not be available for another four days. The buyer’s solicitors have instructed you to return the £450,000 immediately. You have (correctly) explained to your client that by failing to complete today, the buyer is now in breach of contract.
Your client is aware that you hold the £450,000 and has instructed you to send him the money immediately.
Which ONE of the following statements CORRECTLY states what you should do next?
You should forward the £450,000 to your client, as part payment of the balance due to your client.
You must return the £450,000 to the buyer’s solicitors immediately, even though their client is in breach of contract. If you fail to do so you will have breached your undertaking to the buyer’s solicitors.
You should not return the money to the buyer’s solicitors because the buyer is in breach of contract. You should not forward the money to your client because you would be breaching your undertaking to the buyer’s solicitors. You should therefore keep the money in your firm’s account until the buyer has sufficient funds to complete the transaction.
You must return the £450,000 to the buyer’s solicitors immediately, even though their client is in breach of contract. If you fail to do so you will have breached your undertaking to the buyer’s solicitors.
Correct. You undertook to hold the £450,000 to the order of the buyer’s solicitors. This means that you cannot send the money to your client without the agreement of the buyer’s solicitors. The money does not belong to you or to your client. If you fail to return the money, you will be in breach of CCS 1.3.
incorrect
You should not return the money to the buyer’s solicitors because the buyer is in breach of contract. You should not forward the money to your client because you would be breaching your undertaking to the buyer’s solicitors. You should therefore keep the money in your firm’s account until the buyer has sufficient funds to complete the transaction.
Incorrect
Incorrect. You should read CCS 1.3 again. You undertook to hold the £450,000 to the order of the buyer’s solicitors. This means that you must comply with the buyer’s solicitors’ instructions. The money does not belong to you or to your client. If you fail to return the money, you will be in breach of CCS 1.3.
88
You have been helping your supervisor write advice to a client on the likelihood of his claim against a counter party succeeding. You have just amended the advice and your supervisor has not yet reviewed it. As your supervisor left the office for the evening, she asked you to email it to her that evening so that she could review it before sending it to the client tomorrow morning.
The client rings you up. He has been trying to get hold of your supervisor. The client explains that the advice has suddenly become urgent and asks you to email it to him as soon as possible that evening so that he can send it to his managing director who is waiting for it.
Which one of the following should you do?
Explain the position to the client. Say that you will try to get hold of your supervisor and get back to the client. Then leave for the evening. You have a team drinks event you have been looking forward to. The matter can wait until the morning.
Email the advice to the client straight away. It is nearly final, your supervisor seemed happy with it and you feel relatively confident that your supervisor would be happy for you to send the advice out.
Refuse to send the advice to the client. Tell him that he will have to wait until your supervisor is back in the morning. Then leave the office for the evening, you have a team drinks event you have been looking forward to.
Explain the position to the client. Say that you will try to get hold of your supervisor and check whether it is ok to send him the advice. Then ring your supervisor on her mobile, follow her instructions and ring the client back and update him.
Explain the position to the client. Say that you will try to get hold of your supervisor and check whether it is ok to send him the advice. Then ring your supervisor on her mobile, follow her instructions and ring the client back and update him.
Correct
Correct. This course of action would be the best. You should not send the advice out without your supervisor’s approval. There may be points that she wants to change. In getting your supervisor to check the work first and, at the same time, keeping your client informed of what is going on, you are providing a competent service to your client in a timely manner in accordance with CCS 3.2.
89
Which paragraph of the SRA Code of Conduct for Solicitors, RELs and RFLs (‘CCS’) contains the provision that you must not seek to influence the substance of evidence, including generating false evidence or persuading witnesses to change their evidence?
CCS 2.2
CCS 2.1
CCS 1.4
CCS 2.2
Correct
Correct. CCS 2.1 states that you must not misuse or tamper with evidence, and CCS 1.4 contains the rule that you must not mislead your clients, the court or other people.
90
Which one of the following statements, regarding the use of the client account, is correct under the Solicitors Accounts Rules?
Provided you have acted on a transaction for a client, you may retain any remaining client money belonging to them in your client account, earning interest, until the client requests that the money is returned to them.
Withdrawals from an authorised body’s client account must be in respect of the delivery of regulated services – your legal and professional services.
You may only withdraw money from the client account following receipt of instructions to do so from your client.
Withdrawals from an authorised body’s client account must be in respect of the delivery of regulated services – your legal and professional services.
Correct. This is in Rule 3.3.
91
In which one of the following scenarios can the solicitor properly withdraw money from their firm’s client account, in accordance with the Solicitors Accounts rules?
The client account currently holds £15,000, your client currently has £500 held in the client account. Their £500 was sent three days ago on account of costs generally for their property purchase transaction.
You withdraw £550 from the client account, on receipt of instructions from your client to pay Land Registry fees for registering their purchase of the property.
You withdraw £1,500 from the client account to pay stamp duty land tax on your client’s property purchase.
You withdraw £250 from the client account to pay for the desktop environmental search which needs to be carried out in connection with the client’s property purchase.
You withdraw £250 from the client account to pay for the desktop environmental search which needs to be carried out in connection with the client’s property purchase.
Correct
Correct. Under Rule 5.1 this would fall within reason (a) for being able to withdraw money from the client account – that you are withdrawing the money for the purpose for which it is being held (generally on account of costs involved in their transaction). The client also has sufficient funds for this payment in the client account (Rule 5.3).
92
Which one of the following would be in accordance with the Solicitors Accounts Rules?
Transferring money from the client account to your business account following a phone call with your client where you let them know that you would shortly be sending them a bill and they authorised the transfer of costs and have sufficient funds in the client account.
Paying a mixed payment into your business account and leaving the client money element in the business account for seven days whilst you prepare and send a bill to the client, to prevent the need to transfer the client money element into the client account and then back to the business account to pay the bill later.
Transferring money from the client account to your business account to pay a bill which has been sent to the client where they have authorised the transfer of the costs and have sufficient funds in the client account.
Transferring money from the client account to your business account to pay a bill which has been sent to the client where they have authorised the transfer of the costs and have sufficient funds in the client account.
Correct
Correct. Transferring money from the client account to your business account to pay a bill which has been sent to the client where they have authorised the transfer of the costs and have sufficient funds in the client account is in accordance with the SRA Accounts Rules.
93
Which provision of CCS states:
“you ensure that any publicity in relation to your practice is accurate and not misleading, including that relating to your charges and the circumstances in which interest is payable by or to clients.”
CCS 8.8
CCS 8.7
CCS 8.9
CCS 8.8
Correct.
CCS 8.9 contains the requirement that you do not make unsolicited approaches to members of the public in order to advertise legal services.
CCS 8.7 states that you must ensure that clients receive the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter and any costs incurred.
94
Easy Property Selling Limited (‘EPS’) is a firm of estate agents. It has agreed to introduce property sellers and buyers to Price Prior’s residential property department. Price Prior has agreed to pay EPS £200 plus VAT in respect of each such introduction.
Which ONE of the following statements is CORRECT
This arrangement relates to a referral fee which will not be permitted under CCS 5.2.
This arrangement is an introduction and Price Prior will need to comply with CCS 5.1
This arrangement is not an introduction or a referral because the arrangement is not with a lawyer, so CCS 5.1 does not apply.
This arrangement is an introduction and Price Prior will need to comply with CCS 5.1
Correct
Correct. This arrangement is an introduction. Price Prior is
making a payment to a third party (either within your firm or outside) for introducing the client;
the payment is a fixed fee or calculated with reference to the amount being charged to the client as a percentage of your gross or net fees; and
the third party may be another lawyer, but not necessarily so.
Here the third party is not a lawyer, but this does not stop the arrangement being caught by CCS 5.1.
95
Which ONE of the following statements completes the following sentence CORRECTLY?
“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 claims which are subject to legal restrictions imposed in the interests of national security
… solicitors from referring or receiving referrals in respect of a clients who are the subject of criminal proceedings.
… 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.
… 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.
Correct. This is a prohibited referral fee. Solicitors are not permitted to pay or receive a fee for referring or receiving referrals for these types of claims.
incorrect
… solicitors from referring or receiving referrals in respect of a clients who are the subject of criminal proceedings.
Incorrect. This prohibition is contained in CCS 5.1(d), not section 56(1) LASPO. Check your notes and attempt the question again.
96
Your supervisor has been asked to act for the local conservative MP on the sale of their house. Your supervisor is a member of the labour party and refuses to act on the sale because they do not want to ‘help’ a member of the conservative party. Which section of CCS has your supervisor breached?
CCS 1.1: ‘you do not unfairly discriminate by allowing your personal views to affect your professional relationships and the way in which you provide your services. ‘
CCS 1.4: ‘you do not mislead or attempt to mislead your clients, the court or others, either by your own acts or omissions or allowing or being complicit in the acts or omissions of others (including your client).’
CCS 1.2: ‘you do not abuse your position by taking unfair advantage of clients or others.’
CCS 3.2 ‘you ensure that the service you provide to clients is competent and delivered in a timely manner.’
CCS 1.1: ‘you do not unfairly discriminate by allowing your personal views to affect your professional relationships and the way in which you provide your services. ‘
Correct. In refusing to accept the instructions, the supervisor has allowed their personal political views to affect their professional relationships.
97
Your client has asked you to lie to the police and provide a witness statement stating that you were in a meeting with your client at the time a crime was alleged to have been committed. You were not in a meeting with the client at that time. Should you:
Comply with the client’s request in order to comply with Principles 1 and 2.
Comply with the client’s request and provide the witness statement in order to comply with Principle 7.
Refuse to provide the witness statement, as to do so would breach Principles 1, 2, 3, 4 and 5.
Refuse to comply with the client’s request as to do so would breach Principle 6.
Refuse to provide the witness statement, as to do so would breach Principles 1, 2, 3, 4 and 5.
Correct. If you complied with your client’s instruction, you would be breaching Principles 1 (upholding the rule of law and the proper administration of justice), 2 (upholding public trust and confidence in the solicitor’s profession), 3 (act with independence), 4 (act with integrity) and 5 (act with honesty).
98
You are acting for a client in relation to a dispute. You receive a defence from the individual on the other side which is badly drafted and contains numerous errors. You suspect that the individual does not have legal representation.
Which ONE of the following statements is CORRECT?
The existence of errors in the other side’s defence is good news for your client. You should continue your client’s case as aggressively as you can in order to comply with Principle 7.
You should contact the individual on the other side and suggest that they instruct a lawyer. Failing to do so puts you at risk of breaching CCS 1.1.
The existence of errors in the other side’s defence is good news for your client. You should continue your client’s case as aggressively as you can in order to comply with Principle 3.
You should contact the individual on the other side and suggest that they instruct a lawyer. Failing to do so puts you at risk of breaching CCS 1.2.
You should contact the individual on the other side and suggest that they instruct a lawyer. Failing to do so puts you at risk of breaching CCS 1.2.
Correct
Correct. Acting for your client where the individual on the other side does not have legal representation can be very challenging and puts you at risk of breaching CCS 1.2 ‘you do not abuse your position by taking unfair advantage of clients or others’. The simplest solution for you is for the individual on the other side to get their own lawyer.
99
The SRA’s requirements in relation to equality, diversity and inclusion apply to which ONE of the following categories:
Managers of law firms only.
All individuals regulated by the SRA in relation to their dealings with clients, the people they work with and other members of the public they deal with.
Legal professionals in their dealings with clients only.
Legal Professionals in their dealings with fellow members of staff only.
All individuals regulated by the SRA in relation to their dealings with clients, the people they work with and other members of the public they deal with.
Correct. Principle 6 is broad. As stated in the SRA’s guidance on their approach to equality, diversity and inclusion (‘EDI’), it applies to an individual’s dealings with the people they work with, clients and others.
100
Which ONE of the following is NOT a protected characteristic under the Equality Act 2010?
Gender Reassignment.
Age.
Vegetarianism
Disability.
Vegetarianism
Correct. Vegetarianism is not one of the protected characteristics listed in your materials under the Equality Act 2010.
101
Which one of the following statements about a legal professional’s obligations in relation to EDI under the SRA’s Guidance on their approach to EDI is FALSE?
Firms and individuals regulated by the SRA must encourage diversity at all levels of the workforce.
Law firms have a legal obligation to provide reasonable adjustments to disabled clients and employees to make sure they are not at a substantial disadvantage compared to those who are not disabled. Law firms may pass on the costs of those adjustments to those clients or employees.
Law firms must collect, report and publish data about the diversity of their workforce.
Individuals regulated by the SRA are responsible for upholding the reputation of the profession in their professional and personal life and for treating people fairly and with dignity and respect. They should ensure their personal views do not have a negative impact on others. This includes expressing extreme personal, moral or political opinions on social media.
Law firms have a legal obligation to provide reasonable adjustments to disabled clients and employees to make sure they are not at a substantial disadvantage compared to those who are not disabled. Law firms may pass on the costs of those adjustments to those clients or employees.
Correct. This statement is FALSE. Read the guidance note again to check whether law firms can pass on the costs of such adjustments.
102
Which ONE of the following statements is CORRECT about the following data protection principle:
‘personal data must be handled in a way that ensures appropriate security, including protection against unlawful or unauthorised processing, access, loss, destruction or damage’.
It applies only to partners and managers in an organisation.
It applies only to law firms.
It applies to you and everyone in your workplace.
It applies to you and everyone in your workplace.
Correct
Correct. This principle is something everyone needs to be concerned with. Accidental disclosure / human error is the most common cause of breach of the data protection legislation. You must comply with your employer’s IT / data protection policy. For example, not disclose your password etc.
103
Which ONE of the following statements is CORRECT?
Personal data does not include information about a person that is public knowledge.
Information about someone’s professional life cannot be personal data for the purposes of the Data Protection Act.
Personal data’ does not include truly anonymous information. However, if you could still identify someone from the details, or by combining it with other information, it will count as personal data.
Personal data’ does not include truly anonymous information. However, if you could still identify someone from the details, or by combining it with other information, it will count as personal data.
Correct
Correct
104
You are making amendments to a witness statement you and your supervisor are finalising ready to serve at court and on the other side in a few days’ time. You receive a call from a friend who is working at the firm acting for the other side. The friend asks if you can send her the witness statement that evening so that her supervisor can read it and prepare for the hearing.
Which one of the following correctly states what you should do and why?
Refuse your friend’s request because you would be breaching your duty of confidentiality to your client if you disclosed this information to your friend.
Email the draft witness statement to your friend that evening. You will be serving it on the other side soon, and a few days’ advance notice is unlikely to cause your client any harm. In addition, your friend might help you out on another matter should the occasion arise.
Anonymise the witness statement to remove any personal information about your client, and send it to your friend. You will be serving it on the other side soon, and a few days’ advance notice is unlikely to cause your client any harm, and at least you will be complying with the Data Protection Act.
Refuse your friend’s request because you would be breaching your duty of confidentiality to your client if you disclosed this information to your friend.
Correct. The witness statement contains information which is confidential to your client. You would be breaching your duty of confidentiality to your client under CCS 6.3 if you disclosed this information to any person, let alone the other side, without your client’s consent or being required to do so by law.
105
In which ONE of the following scenarios should you NOT accept the client’s instructions?
If you consider the client’s instructions to be contrary to your religious belief.
If you do not like the client.
If you would be breaching the law in accepting the client’s instructions.
If you would be breaching the law in accepting the client’s instructions.
Correct
Correct. Under Principle 1 you must act in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice. You would not be able to comply with this Principle if you accepted instructions that require you to breach the law.
The other options may put you in a difficult position personally and there might be an argument for getting a colleague to act on the matter, but it is not a reason to refuse to act at all.
106
You are an apprentice in the litigation department. You have been working long hours preparing for a case that is coming to trial next week. You are preparing a document your supervisor has asked you to complete so that it can be sent out to the client that day. You think it will take you about three hours to prepare the document. You also think you are likely to be working at the weekend preparing for the trial. You receive a telephone call from a different client whom you have advised previously, asking for your help on a new matter. The new client wants you to attend a conference call from 3pm until 5pm that afternoon. What should you do?
Agree to attend the call with the new client. You want to do the best for that client and build up a good relationship with them. You will worry about the trial later.
Explain to the new client that unfortunately you are very busy at the moment so will not be able to attend the conference call, and recommend they try a different law firm.
Advise the new client that although you may not personally be able to attend the call that afternoon, you will speak to your supervisor to see if you or another lawyer in your team can attend. Then speak to your supervisor and agree whether you should work on the document for the trial or attend the call and advise the client accordingly.
Explain to the client that you cannot attend a call that afternoon and agree to attend a conference call tomorrow morning instead.
Advise the new client that although you may not personally be able to attend the call that afternoon, you will speak to your supervisor to see if you or another lawyer in your team can attend. Then speak to your supervisor and agree whether you should work on the document for the trial or attend the call and advise the client accordingly.
Correct. CCS 3.2 states that you must ensure that the service you provide is competent and delivered in a timely manner. If you do not agree the work allocation with your supervisor there is a risk that you will not be providing a timely service on the matter that is coming to trial. There is also the possibility that you are too busy to act on the new matter, but another lawyer in your team might be able to do so.
107
A client asks you to act for him and his wife on the re-mortgage of the family home. He explains that he is re-mortgaging the house as security for a loan to finance the expansion of a company he recently started. He is the sole shareholder of the company. He explains that he will be giving the instructions as his wife is overseas visiting family.
Which ONE of the following statements BEST describes what you should do?
You should recommend that the wife obtains her own independent advice on the re-mortgage because there is a risk that you would not be acting in the wife’s best interests if you acted for both the husband and the wife.
You can act for the husband and the wife, but you will need authority from the wife to take instructions from her husband. You should talk to the wife to satisfy yourself that she is happy to proceed and get her to confirm her agreement in writing. Once you have this authority you will be able to act for both the husband and the wife.
You can act for the husband and the wife, but you will need authority from the wife to take instructions from her husband. You should talk to the wife to satisfy yourself that she is happy to proceed and get her to confirm her agreement in writing. You will have a continuing obligation to act in the best interests of both the husband and the wife, so if you become concerned that the re-mortgage is not in the wife’s best interests you will need to stop acting for her.
You can act for the husband and the wife. As the wife is overseas it makes sense for you to act on the husband’s instructions, but you should confirm she is happy for you to act on her behalf when she returns.
You should recommend that the wife obtains her own independent advice on the re-mortgage because there is a risk that you would not be acting in the wife’s best interests if you acted for both the husband and the wife.
Correct. There is a risk that you would not be acting in the wife’s best interests if you acted for both the husband and the wife here. If the husband defaults on the loan, the wife could lose her home and she does not appear to be benefitting from the loan as it is to expand the husband’s business. You should recommend that the wife obtains her own independent advice.
108
Which ONE of the following is the correct definition of an own interest conflict as set out in the SRA Glossary?
Any situation where your duty to act in the best interests of any client conflicts with your own interests or the interests of a member of your family in relation to that matter.
Any situation where your duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with your own interests in relation to that or a related matter
Any situation where your duty to act in the best interests of any client in relation to a matter conflicts with the interests of an existing client in relation to that matter
Any situation where your duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with your own interests in relation to that or a related matter
Correct
109
Which ONE of the following options correctly sets out the circumstances in which you can act where there is a conflict of interest?
The clients have a substantially common interest in relation to the matter or the aspect of it, as appropriate; or the clients are competing for the same objective.
There are no circumstances in which you can act where there is a conflict of interest.
The clients have a substantially common interest in relation to the matter or the aspect of it, as appropriate; or the clients are competing for the same objective, and the conditions set out in CCS 6.2(i)-(iii) are met.
The clients have a substantially common interest in relation to the matter or the aspect of it, as appropriate; or the clients are competing for the same objective, and the conditions set out in CCS 6.2(i)-(iii) are met.
Correct
Correct. This is the correct position as set out in CCS 6.2.
110
Which ONE of the following options correctly defines a conflict of interest?
A situation where you believe there is a significant risk that you will not be able to act in the best interests of your client because you are already acting for a client with a conflicting interest.
A situation where your separate duties to act in the best interests of two or more clients in the same or a related matter conflict.
A situation where you cannot comply with your duty to uphold the rule of law because the interests of two or more clients in the same matter conflict.
A situation where your separate duties to act in the best interests of two or more clients in the same or a related matter conflict.
Correct
111
Which ONE of the following circumstances is likely to give rise to an ‘own interest conflict’ as defined in the SRA Glossary?
A client asks you to act on the purchase of a company (‘target’). A company search reveals that the target is a wholly owned subsidiary of an existing client of your firm.
A client asks you to represent her in relation to a dispute against ABC Limited. You were instructed to act for ABC on the same dispute yesterday.
Acting for a client on a dispute against your spouse.
Acting for a client on a dispute against your spouse.
Correct
Correct. This is an example of an own interest conflict. As the client has a dispute against your spouse, there is a risk that the interests of the client could conflict with your interest. There is a risk you may not wish the client’s claim to be successful.
112
Which ONE of the following circumstances could give rise to an ‘own interest conflict’ as defined in the SRA Glossary?
A new client asks you to represent her in relation to a dispute with her employer. You discover that your firm acted for the employer 6 months ago on an international restructuring project.
A client asks you to represent her in relation to a dispute with her employer. When you read the email from your client, you realise that your mother owns 50% of the shares in the company which employs her.
You are a legal apprentice in the legal department at a large listed company. A solicitor from the law firm your company instructed on a recent transaction invites you to a day at the firm’s box at Wimbledon.
A client asks you to represent her in relation to a dispute with her employer. When you read the email from your client, you realise that your mother owns 50% of the shares in the company which employs her.
Correct. This is an example of an own interest conflict. As your mother owns 50% of the shares in the company employing the client there is a risk that the interests of the client could conflict with your interest. There is a risk you may not wish the client’s claim to be successful.
113
Which ONE of the following circumstances could give rise to a ‘conflict of interest’ as defined in the SRA Glossary?
A tenant wants you to advise them on a dispute with their landlord. The tenant does not realise that you and your partner own the flat as the tenancy has been handled by a property agent.
A new client has asked your firm to act for them on the purchase of a company from a large international company. Your firm has acted for the international company on a number of acquisitions and disposals in the past, although your firm has not been instructed to act for them on this disposal.
A new client wants to instruct your firm on a software licence with an international software provider. Your conflict search reveals that your firm’s property department is currently acting for the software provider on its lease of office space.
A new client has asked your firm to act for them on the purchase of a company from a large international company. Your firm has acted for the international company on a number of acquisitions and disposals in the past, although your firm has not been instructed to act for them on this disposal.
Correct. Conflict of interest is defined in the SRA Glossary as ‘a situation where your separate duties to act in the best interests of two or more clients in the same or a related matter conflict’. You have two clients here, the new client and the international company. Although you have not been instructed by the international company on the same matter, your firm has acted for them on disposals in the past, and this could be a situation where your separate duties to act in the best interests of both clients conflict.
incorrect
A new client wants to instruct your firm on a software licence with an international software provider. Your conflict search reveals that your firm’s property department is currently acting for the software provider on its lease of office space.
Incorrect
Incorrect. Technically the software licence and the lease of the office space are not the same or a related matter. Therefore, strictly, this does not fall within the definition of a conflict of interest. However, many firms would not feel comfortable acting for the new client when they are advising the counter party on an unrelated matter. There is a separate issue here of complying with Principles 2, 3, 4, 5, and 7. In practice most firms would seek the software provider’s consent before agreeing to act for the new client.
114
Which ONE of the following statements sets out the CORRECT definition of ‘competing for the same objective’?
Any situation in which two or more clients are competing for an “objective” which, if attained by one client, will make that “objective” unattainable to the other client or clients, and “objective” means an asset, contract or business opportunity which two or more clients are seeking to acquire or recover through a liquidation (or some other form of insolvency process) or by means of an auction or tender process of a bid or offer, but not a public takeover.
A situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved.
Any situation in which two or more clients are competing for an “objective” which can only be attained by one of the clients, and “objective” means an asset which two or more clients are seeking to acquire by means of an auction or tender process.
Any situation in which two or more clients are competing for an “objective” which, if attained by one client, will make that “objective” unattainable to the other client or clients, and “objective” means an asset, contract or business opportunity which two or more clients are seeking to acquire or recover through a liquidation (or some other form of insolvency process) or by means of an auction or tender process of a bid or offer, but not a public takeover.
Correct. You have correctly identified the definition of competing for the same objective. The other options were the definition of substantially common interest, and an incorrect definition of competing for the same objective.
115
A company is selling its subsidiary (‘Target’) by way of auction. Your firm has been approached by two separate bidders for the Target. Both bidders would like the same partner and associate solicitor to act for them on their bids.
Which of the following statements best states the correct position?
As both bidders have a substantially common interest in purchasing the Target, the partner and associate solicitor can act for both bidders.
As both bidders are competing for the same objective (the Target), the partner and associate solicitor can act for both bidders.
As there is a significant risk of a conflict of interest arising if you act for both bidders, your firm cannot act for either of them.
As both bidders are competing for the same objective (the Target), the firm can act for both bidders provided different teams of lawyers act for each bidder.
As both bidders are competing for the same objective (the Target), the firm can act for both bidders provided different teams of lawyers act for each bidder.
Correct
Correct. There is a conflict of interests here, but this is a case where both bidders are competing for the same objective (the Target). The firm can act for both bidders provided they meet the conditions set out in CCS 6.2. One of the conditions is that you put in place effective safeguards to protect your clients’ confidential information. If the same partner and associate solicitor act for both bidders, the confidential information of each bidder will not be protected. The firm should therefore ensure that different teams of lawyers act for each bidder.
116
In which ONE of the following circumstances might it be possible for a solicitor to act for both the parties stated in bold on the grounds that they have a ‘substantially common interest’ as defined in the SRA Glossary?
Su Sukit Singh and Parul Shah who live together and are buying a property together.
Each of the partners in Waterloo & Co – a partnership which is being dissolved and selling all of its ass assets to an unassociated third party, Nelsons of Avon Ltd.
Bagshaws Bank who have agreed to lend £1 million to Beaumont Limited to fund the acquisition of a company.
Su Sukit Singh and Parul Shah who live together and are buying a property together.
Correct. ‘Substantially common interest’ is defined in the SRA Glossary as ‘a situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved.’ Here the clear common purpose for Sukit and Parul is buying the house. It is likely that they have a strong consensus on how to achieve that purpose, as they will both want to purchase good title to the house without any problems.
117
Which of the following SHOULD be included in a client care letter as a matter of good practice?
i. A clear explanation of how the firm will charge for the work.
ii. The names of the lawyers who will be working on the matter.
iii. A description of the work the firm will carry out.
iv. The responsibilities of the firm and the client.
v. An explanation of the client’s right to complain to the Law Society if it is not satisfied with the firm’s service.
Please choose ONE of the following options:
(i), (ii) and (iii)
(i), (ii), (iii) and (iv)
(iv) and (v)
(i) only
(i), (ii), (iii) and (iv)
Correct
Correct. (i) is good practice as well as helping a firm comply with CCS 8.7. (ii), (iii) and (iv) are good practice and recommended in the SRA’s guidance on client care letters. (v) is not correct, a client would not complain to the Law Society. Clients such as individuals who have a right to complain to the Legal Ombudsman should be informed of this in writing under CCS 8.3.
118
Which ONE of the following statements is CORRECT?
A client care letter should be written in a small font size so that all the terms can be included on one page.
A client care letter should set out what is going to happen and what the client needs to do.
A client care letter should include all the generic terms and conditions between a solicitor and the client, but not information about costs as this should be agreed separately.
A client care letter should set out what is going to happen and what the client needs to do.
Correct. These are two recommendations from the SRA guidance on client care letters
119
Which ONE of the following statements is CORRECT?
A law firm will have met the SRA’s requirements on client care if it sends a client care letter to its client at the beginning of every matter.
A law firm must send a client care letter to a client at the beginning of every new instruction.
A client care letter must set out all the firm’s terms and conditions in full.
One benefit of a client care letter that is clear, easy to understand and contains the right information is that it can reduce potential complaints by clearly setting out what a client can expect, particularly in relation to costs.
One benefit of a client care letter that is clear, easy to understand and contains the right information is that it can reduce potential complaints by clearly setting out what a client can expect, particularly in relation to costs.
Correct
Correct. This is one benefit of a clearly written client care letter as described in the SRA’s Guidance on Client Care letters.
120
Civil CLS funding is subject to ____________
A merit test.
A means test.
A merit test and a public interest test.
A means test and a merit test
A means test and a merit test
Correct. Civil CLS funding is only available for clients with limited income and capital, and if the client's position is sufficiently meritorious.
121
_________categories of civil claim qualify in principle for Civil CLS funding.
Very few
No
All
Most
Very few
Correct. The vast majority of civil legal work is not eligible for CLS funding.
122
Which of the following best describes the situation in relation to a CFA where the client wins their case at trial?
The client may recover the basic fee from the opponent but cannot recover the disbursements, success fee or damages
The client may recover the basic fee, disbursements, damages and success fee from the opponent
The client may recover the basic fee and disbursements from the other side, together with damages. The client will owe the solicitor a success fee which will be payable from the damages and is not recoverable from the opponent
The client may recover the basic fee and damages from the opponent. The client will owe the solicitor a success fee which will be payable from the damages and is not recoverable from the opponent.
The client may recover the basic fee and disbursements from the other side, together with damages. The client will owe the solicitor a success fee which will be payable from the damages and is not recoverable from the opponent
Correct. Well done!
123
Your client, Mr. Ibbotson, would like to know how damages based agreements (‘DBAs’) work in practice. Which one of the following best describes the advice you would give to him on this matter in relation to a typical DBA?
Lawyers do not recover any fees if they lose the case. If they win, they receive a proportion of the damages awarded to the client by way of payment for their work.
Lawyers will recover their basic fee if they lose the case. If they win, they can recover double the basic fee.
Lawyers do not recover any fees if they lose the case. If they win, they can recover their normal fees plus an uplift out of the damages awarded to the client.
Lawyers will recover their basic fee if they lose the case. If they win, they can recover a success fee from the damages awarded to the client.
Lawyers do not recover any fees if they lose the case. If they win, they receive a proportion of the damages awarded to the client by way of payment for their work.
Correct. Well done.
124
Mrs Meade has been told that her solicitors have taken on her claim on a ‘no win, no fee’ CFA basis. Does this mean that if she loses, she won’t have to pay any costs?
Yes. A conditional fee agreement means that she won’t have to pay any solicitors’ costs if she loses.
Yes. Her solicitors will have to pay the defendant’s costs if she loses.
No. She will still be liable for her own disbursements and might still be held liable for the other side’s costs.
No. She will still be liable for both sides’ costs.
No. She will still be liable for her own disbursements and might still be held liable for the other side’s costs.
Correct. Well done.
125
Martha Van Hoffer is the managing director of VanH Limited (“VanH”). VanH have instructed your firm to act on their behalf in relation to a large litigation action. Martha is interested in taking out ‘after the event’ insurance, if possible, but is concerned about the level of the premium. She would like to know whether any premium might be recoverable from her opponent if VanH is successful in the litigation. VanH do not have ‘before the event’ legal expenses insurance.
Which one of the following statements is correct if VanH win at trial and is awarded its costs?
If successful, VanH should be able to claim any premium paid from the other side as part of the costs of the proceedings, so long as it is reasonable
VanH will only be able to claim a certain percentage of the premium, provided that it is not in excess of £10,000
VanH will not be able to claim the premium.
VanH is not in fact able to take out ‘after the event’ insurance because it is a company, not an individual
VanH will not be able to claim the premium.
VanH will not be able to claim the premium.
126
You represent a man suspected of the offence of battery and is charged with common assault. He is currently out of work and so receives welfare benefits.
Which of the following best explains whether you client is eligible for public funding?
He will receive public funding because the offence of battery is an imprisonable offence.
He will automatically pass the means test because he is in receipt of welfare benefits but he must also pass the merits test to be eligible.
He will automatically qualify for public funding because he is in receipt of welfare benefits.
He will have to pass both the means test and the merits test in order to be granted public funding.
He will pass the means test if he can show that his income and capital are below a certain limit.
He will automatically pass the means test because he is in receipt of welfare benefits but he must also pass the merits test to be eligible.
Correct
He is passported through the means test because of his receipt of welfare benefits, but he will still have to show that it is in the interests of justice for him to receive public funding for his defence.
The other answers are plausible but incorrect:
- He does not need to pass the means test – he automatically passes it
- He won't automatically qualify for public funding because he still has to pass the merits test
- Whether the offence is imprisonable or not is not a deciding factor.
127
Your client has been charged with burglary. She is in receipt of benefits and therefore is passported through the means test. You are assisting your client in completing the CRM 14 form.
She informs you that she has numerous convictions for burglary, including one last year when she was given a suspended sentence. She denies the offence and says she has an alibi. However, your client is worried about what the arresting officer will say. The arresting officer said she had admitted the offence on arrest, when she did not say anything. She’s also worried about her daughter who is only 12 and will be left on her own if she is sent to prison.
Which of these is not a matter to include in the CRM 14 form?
She is likely to lose her liberty
An alibi witness will need to be traced and interviewed
She has been given a sentence that is suspended which will be activated if she is convicted of the current offence
It is in the interests of her daughter that she is represented
The proceedings will involve the cross examination of a police officer
It is in the interests of her daughter that she is represented
Correct
For the purposes of the merits/ interests of justice test, the interests of another person does not include family members impacted by a sentence.
The other answers while plausible are not correct. All could be included in the relevant sections of the CRM 14 form.
incorrect
The proceedings will involve the cross examination of a police officer
Incorrect
Cross examination of a prosecution witness should be included. Please review your materials on funding and the 10 propositions in particular.
An alibi witness will need to be traced and interviewed
Incorrect
She says she has an alibi so they will need to be traced and interviewed. Please review your materials on funding and the 10 propositions in particular.
She is likely to lose her liberty
It seems likely on these facts that she would receive a custodial sentence. Please review your materials on funding and the 10 propositions in particular.
128
Your client is a university professor who lives alone and earns £90,000. He is suspected of the offence of battery on a student and is charged with common assault. He is due to appear before the magistrates’ court He has no previous offences and intends to plead not guilty.
Is your client likely to obtain a representation order that grants public funding for his defence?
He will not obtain a representation order because he is not in receipt of benefits
He will not obtain a representation order as will fail the means test
He will obtain a representation order because it is likely he will lose his livelihood
He will not obtain a representation order because it is not in the interests of justice that he be represented
He will obtain a representation order because it is likely that he will suffer serious damage to his reputation
He will not obtain a representation order as will fail the means test
Correct
In light of the university professor’s salary and the size of his household (he lives alone) he will be ineligible for public funding because his weighted gross annual income will be above the upper threshold i.e. £22, 325.
The other answers while plausible are incorrect:
· While he will suffer serious damage to his reputation, might lose his livelihood and therefore it might be in the interests of justice that he be represented, he will not pass the means test.
· While he is not in receipt of benefits that does not mean he will automatically fail the means test.
129
Which ONE of the following statements is CORRECT?
All organisations providing legal activities for the public must be authorised by the SRA.
Any organisation providing reserved legal activities for the public must be authorised by the Law Society unless they are exempt.
Any organisation providing reserved legal activities for the public must be authorised by the SRA unless they are exempt.
Any organisation providing reserved legal activities for the public must be authorised by the SRA unless they are exempt.
Correct. The SRA Guidance note, “Firm Authorisation” , contains guidance on when organisations need to be authorised by the SRA, including if they provide reserved legal activities.
130
Which ONE of the following statements is CORRECT?
Reserved legal activities are defined in section 12 Legal Services Act 2007 and are: (i) rights of audience: the right to appear before and address a court, (ii) conduct of litigation, (iii) Reserved instrument activities which includes preparing instruments relating to land, (iv) certain probate activities; and (v) administration of oaths.
Reserved legal activities are defined in section 12 Legal Services Act 2007 and are: (i) rights of audience: the right to appear before and address a court, (ii) conduct of litigation, (iii) acting for a client on the acquisition of a company, (iv) Reserved instrument activities which includes preparing instruments relating to land, and (v) certain probate activities.
Reserved legal activities are defined in section 12 Legal Services Act 2007 and are: (i) rights of audience: the right to appear before and address a court, (ii) Reserved instrument activities which includes preparing instruments relating to land; and (iii) administration of oaths.
Reserved legal activities are defined in section 12 Legal Services Act 2007 and are: (i) rights of audience: the right to appear before and address a court, (ii) conduct of litigation, (iii) Reserved instrument activities which includes preparing instruments relating to land, (iv) certain probate activities; and (v) administration of oaths.
Correct. Reserved legal activities are defined in section 12 LSA and are: (i) rights of audience: the right to appear before and address a court, (ii) conduct of litigation, (iii) Reserved instrument activities which includes preparing instruments relating to land, (iv) certain probate activities; and (v) administration of oaths. The term does not include acting for a client on the acquisition of a company.
131
Which ONE of the following statements is CORRECT?
A sole practice is a practice operated by a single solicitor. A sole practitioner can employ a maximum of three other members of staff provided they are not qualified solicitors.
A sole practice is a practice operated by a single solicitor. A sole practitioner can employ other members of staff provided they are not qualified solicitors.
'Sole practice' means a sole principal. A sole practitioner can employ several qualified solicitors, as long as those solicitors are not also principals (e.g. not partners or co-owners) of the practice.
'Sole practice' means a sole principal. A sole practitioner can employ several qualified solicitors, as long as those solicitors are not also principals (e.g. not partners or co-owners) of the practice.
Correct
Correct. 'Sole practice' means a sole principal. A sole practitioner can employ several qualified solicitors, as long as those solicitors are not also principals (e.g. not partners or co-owners) of the practice.
132
The SRA publishes a risk outlook each year. Which ONE of the following is the risk the SRA put at the top of its priority list for the year 2020-21?
Information and cyber security
Keeping client money safe
Money Laundering
Increasing diversity in the legal profession.
Money Laundering
Correct. The SRA put issues with money laundering at the tops of its priority risk in the Risk Outlook for 2020-21.
133
Which ONE of the following statements is CORRECT?
It is the responsibility of individual solicitors to keep their knowledge up to date, but it is the sole responsibility of the partners in law firms to ensure that the individuals they manage provide a competent service to their clients.
It is the responsibility of supervisors to ensure that the individuals they manage are competent to carry out their role and keep their professional knowledge and skills up to date. There is no corresponding obligation on individual solicitors to keep their knowledge up to date.
It is the responsibility of supervisors to ensure that the individuals they manage are competent to carry out their role and keep their professional knowledge and skills up to date. Individual solicitors also have a responsibility under CCS to maintain their competence and keep their knowledge up to date.
It is the responsibility of supervisors to ensure that the individuals they manage are competent to carry out their role and keep their professional knowledge and skills up to date. Individual solicitors also have a responsibility under CCS to maintain their competence and keep their knowledge up to date.
Correct
Correct. CCS 3.3 requires individual lawyers to maintain their competence to carry out their role and keep their professional knowledge and skills up to date. CCS 3.6 requires legal professionals to ensure that the individuals they manage are competent to carry out their role and keep their professional knowledge and skills up to date. So the responsibility falls on both individual lawyers and supervisors.
134
Which ONE of the following statements is CORRECT?
Only solicitors with a minimum of five years post qualification experience may supervise individuals working on client files.
Although most persons supervising individuals working on client files will have a legal qualification, such persons do not necessarily have to be legally qualified.
All people supervising individuals working on client files in a law firm must be legally qualified.
Although most persons supervising individuals working on client files will have a legal qualification, such persons do not necessarily have to be legally qualified.
Correct. As long as they have suitable experience, knowledge and competence to deal with any issue which may arise and such persons have clear guidance as to when and to whom issues outside their competence or authority should be referred ‘upwards’, people who are not legally qualified are permitted to supervise client matters.
135
Which ONE of the following statements is CORRECT?
The Compliance Officer for Legal Practice (‘COLP’) must be an individual who is authorised to carry on reserved legal activities by an approved regulator. This is not a requirement for the Compliance Officer for Finance and Administration (‘COFA’).
The Compliance Officer for Legal Practice (‘COLP’) and the Compliance Officer for Finance and Administration (‘COFA’) must both be legally qualified.
The Compliance Officer for Legal Practice (‘COLP’) and the Compliance Officer for Finance and Administration (‘COFA’) must both be individuals who are authorised to carry on reserved legal activities by an approved regulator.
The Compliance Officer for Legal Practice (‘COLP’) must be an individual who is authorised to carry on reserved legal activities by an approved regulator. This is not a requirement for the Compliance Officer for Finance and Administration (‘COFA’).
Correct. This requirement is true for a COLP, but not a COFA. A COFA’s role is to ensure the firm complies with the SRA Accounts Rules and as such the COFA does not need to be a lawyer.
136
Which ONE of the following statements is CORRECT?
The COFA has responsibility:
to ensure the firm complies with all the terms and conditions of authorisation by the SRA;
to ensure the firm complies with its statutory obligations;
to record any failures to comply with the firm’s authorisation or statutory obligations and make records available to the SRA;
to report any material failure to the SRA as soon as is practicable.
The COLP and COFA are jointly responsible:
to ensure the firm complies with all the terms and conditions of authorisation by the SRA;
to ensure the firm complies with its statutory obligations;
to record any failures to comply with the firm’s authorisation or statutory obligations and make records available to the SRA;
to report any material failure to the SRA as soon as is practicable
The COLP has responsibility:
to ensure the firm complies with all the terms and conditions of authorisation by the SRA;
to ensure the firm complies with its statutory obligations;
to record any failures to comply with the firm’s authorisation or statutory obligations and make records available to the SRA;
to report any material failure to the SRA as soon as is practicable.
The COLP has responsibility:
to ensure the firm complies with all the terms and conditions of authorisation by the SRA;
to ensure the firm complies with its statutory obligations;
to record any failures to comply with the firm’s authorisation or statutory obligations and make records available to the SRA;
to report any material failure to the SRA as soon as is practicable.
Correct
Correct. The COLP’s role is to ensure appropriate systems are in place to minimise the risk of non-compliance with the Codes. Much of the COLP’s day to day responsibilities will be spent trying to ensure that the firm, its staff and managers are meeting the standards in CCF and CCS.
137
Which ONE of the following statements is CORRECT?
All the partners and solicitors in a firm are jointly responsible for the firm’s compliance with the SRA Code of Conduct for Firms.
The managers of a firm have joint and several responsibility for the firm’s compliance with the SRA Code of Conduct for Firms.
The COLP and the COFA are the people in a law firm who bear ultimate responsibility to the SRA for ensuring the firm complies with the SRA’s regulatory requirements under the SRA Code of Conduct for Firms.
The managers of a firm have joint and several responsibility for the firm’s compliance with the SRA Code of Conduct for Firms.
Correct. Compliance with the SRA’s requirements is ultimately the responsibility of the owners and managers of the Firm. Under CCF 8.1 managers have responsibility for compliance by the Firm with CCF. This responsibility will be joint and several with other managers of the firm. Nevertheless, COLPs and COFAs clearly have a pivotal function in their organisation for ensuring that the right systems, procedures and checks are in place to minimise the risk of non-compliance.
138
Which ONE of the following statements about partnerships is CORRECT
One advantage of a traditional partnerships is that although they are governed by the Partnership Act 1890, in practice most of their arrangements are set out in partnership agreements, which are not a matter of public record.
One advantage of a traditional partnership is that the liability of the partners is limited to the amount they have invested in the partnership.
One of the main disadvantages of a traditional partnership is that they are governed by the Partnership Act 1890 which is inflexible and largely out of date.
One advantage of a traditional partnerships is that although they are governed by the Partnership Act 1890, in practice most of their arrangements are set out in partnership agreements, which are not a matter of public record.
Correct. Although technically partnerships are governed by the Partnership Act 1890, in practice most partnerships agree the arrangements for how they are run in partnership agreements. There are no requirements on partnerships to disclose the contents of their partnership agreements which means that arrangements relating to profit sharing and running the partnership can be kept confidential. One disadvantage of a traditional partnership is that the liability of individual partners is unlimited opening the partners to potentially large exposure of risk.
139
Which ONE of the following statements about Limited Liability Partnerships (‘LLPs’) is CORRECT?
An LLP is a separate legal entity, distinct from its members. An LLP can own property in its own name, and employ employees. However one disadvantage of an LLP is that they have to file certain information with Companies House, including financial statements, which can be accessed by the public.
An LLP is a separate legal entity, distinct from its members. An LLP can own property in its own name, and employ employees. They are also more tax efficient than incorporated companies.
An LLP is a separate legal entity, distinct from its members. An LLP can own property in its own name, and employ employees. They are also recognised in foreign jurisdictions making foreign expansion easier than for a traditional partnership.
An LLP is a separate legal entity, distinct from its members. An LLP can own property in its own name, and employ employees. However one disadvantage of an LLP is that they have to file certain information with Companies House, including financial statements, which can be accessed by the public.
Correct. An LLP is a separate legal entity, distinct from its members. An LLP can own property in its own name, and employ employees. LLPs are subject to many provisions of the Companies Act 2006, which means that they have to file certain information with Companies House, including financial statements and information about the members (or partners), which can be accessed by the public.
LLPs are generally considered to be less tax efficient than incorporated companies. In addition unlike incorporated companies, they are not recognised in foreign jurisdictions so foreign expansion is more difficult.
140
Which ONE of the following statements is CORRECT?
Incorporated companies can raise finance by issuing shares to investors but cannot borrow money from lenders because they are separate legal entities and cannot grant security to lenders.
Traditional partnerships can use working capital to finance growth but cannot borrow money or issue shares to investors
Incorporated companies can raise finance by issuing shares to investors and can borrow money from lenders.
Incorporated companies can raise finance by issuing shares to investors and can borrow money from lenders.
Correct
Correct. Incorporated companies are separate legal entities in their own right. They can borrow money from lenders, grant security to lenders, and they can also raise finance by issuing shares to investors.
Traditional partnerships can use working capital to finance growth, and can also use overdrafts or take out loans from lenders. Traditional partnerships cannot issue shares to investors.
141
In which ONE of the following circumstances are you NOT required need to carry out customer due diligence (‘CDD’) under the the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’)?
When you submit a proposal to a prospective client in a beauty contest to provide them with legal services.
When you establish a business relationship
When you carry out an occasional transaction.
When you submit a proposal to a prospective client in a beauty contest to provide them with legal services.
Correct. Under regulation 27 MLR a relevant person must carry out CDD if they establish a business relationship, carry out an occasional transaction, suspect money laundering, or doubt the veracity of documents or information provided by the client.
When you submit a proposal to a client in a beauty contest, you don’t know whether you will win the work, so it is too early to carry out CDD.
142
Which regulation of the MLR sets out the definition of a business relationship?
Regulation 3
Regulation 5
Regulation 4
Regulation 4
Correct
Correct. Regulation 4 sets out the definition of business relationship. The definition of occasional transaction is set out in regulation 3. The definition of beneficial owner is set out in regulation 5.
143
Which regulation of the MLR sets out the requirements for enhanced CDD?
Regulation 37
Regulation 33
Regulation 12
Regulation 33
Correct
Correct. Regulation 33 sets out the requirements for CDD. Regulation 37 sets out the requirements for simplified CDD and regulation 12 sets out the definition of independent legal professional.
144
Which ONE of the following statements is CORRECT?
A solicitor can rely on CDD carried out by another law firm, but not if the first law firm conducted the CDD more than six month’s previously.
A solicitor can never rely on CDD carried out by another person.
Technically a solicitor may rely on CDD carried out by another law firm with the consent of that law firm, but in practice this is rare partly because the solicitor will remain liable for any failure to carry out CDD.
Technically a solicitor may rely on CDD carried out by another law firm with the consent of that law firm, but in practice this is rare partly because the solicitor will remain liable for any failure to carry out CDD.
Correct
Correct. A solicitor may rely on CDD carried out by another person under regulation 39, but the solicitor will remain liable for any failure to apply CDD so in practice it is rare to rely on the CDD carried out by another person.
145
Which ONE of the following statements is CORRECT?
The money laundering regulations apply to corporate solicitors in law firms but not to other areas of practice or to in-house lawyers or other industries.
Every lawyer, whether they work in a law firm or in-house, is at risk of exposure to money laundering.
The money laundering regulations apply to law firms but not to in-house lawyers or other industries.
Every lawyer, whether they work in a law firm or in-house, is at risk of exposure to money laundering.
Correct. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR 2017’) apply to a wide range of people and businesses, not just law firms.
146
Which ONE of the following statements is CORRECT?
There is a risk of a firm being involved in money laundering only when it receives proceeds of crimes in excess of £100,000 into its bank account.
There is a risk of a firm being involved in money laundering only when it receives proceeds of crimes in excess of £10,000 into its bank account.
Money laundering can include receiving small proceeds of minor crimes into your employer’s bank account.
Money laundering can include receiving small proceeds of minor crimes into your employer’s bank account.
Correct
Correct. Receiving the proceeds of crime, however small into your bank account can constitute possessing criminal property and could be a criminal offence.
147
Which option correctly identifies the key pieces of legislation relating to money laundering in the UK?
The Proceeds of Crime Act 2002 (‘PoCA’), and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’)
The Financial Services and Markets Act 2000 (‘FSMA’) and the Money Laundering Regulations 2007 (‘MLR’)
The Proceeds of Crimes Act 2002 (‘PoCA’) and the Money Laundering Regulations 2007 (‘MLR’)
The Proceeds of Crime Act 2002 (‘PoCA’), and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’)
Correct, these are the two key pieces of legislation relating to money laundering in the UK.
148
Which ONE of the following statements about the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’) is CORRECT?
The MLR apply to financial institutions, some legal work, auditors, estate agents and casinos.
The MLR apply to all legal work and financial institutions.
The MLR apply to financial institutions, all legal work and auditors.
The MLR apply to financial institutions, some legal work, auditors, estate agents and casinos.
Correct. These organisations are listed in Regulation 8(2) MLR. The MLR do not apply to all types of legal work, only those falling within Regulation 8(2).
149
Which ONE of the following statements is CORRECT?
The MLR are designed to ensure that organisations that take part in money laundering will be criminally liable.
The MLR are designed to ensure that organisations establish procedures to forestall and prevent operations relating to money laundering.
The MLR are designed to ensure that organisations report their suspicions of money laundering to the police.
The MLR are designed to ensure that organisations establish procedures to forestall and prevent operations relating to money laundering.
Correct. The Proceeds of Crime Act 2002 anticipates the reporting of suspicious transactions involving the proceeds of crime. MLR requires organisations to get themselves in a position to identify potential money laundering and report it as necessary.
150
Which ONE of the following statements is CORRECT?
A solicitor who advises their client on a litigation claim for personal injury is likely to fall within the definition of independent legal professional and be caught by the MLR.
A solicitor who sets up a company for a client is not likely to fall within the definition of independent legal professional and be caught by the MLR.
A solicitor advising a company on the sale of a business entity is likely to fall within the definition of independent legal professional and be caught by the MLR.
A solicitor advising a company on the sale of a business entity is likely to fall within the definition of independent legal professional and be caught by the MLR.
Correct
Correct. A solicitor advising a company on the sale of a business entity would fall within regulation 12(1)(a) MLR, “the buying and selling of real property” and would therefore fall within the definition of an independent legal professional.
A solicitor who sets up a company for a client is likely to fall within the definition of independent legal professional under regulation 12(1) (e) “ the creation, operation of management of trusts, companies…” and also “trust or company service provider” under regulation 12(2)(a), “forming companies”, and would therefore be caught by MLR.
A solicitor who advises their client on a personal injury litigation matter would not fall within the definition of independent legal professional and is therefore not likely to be caught by the MLR.
151
Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for the client.
Which ONE of the following options correctly states the evidence of identity and verification you should obtain to demonstrate you have carried out the required level of CDD on this client?
A utility bill or bank statement showing the client’s address for the last three years.
A copy of the title deeds for the client’s current address or if her accommodation is rented, a copy of the rental agreement.
Assuming you meet your client face to face, producing a valid passport or photocard ID should meet the CDD requirements.
Assuming you meet your client face to face, producing a valid passport or photocard ID should meet the CDD requirements.
Correct
Correct. This is the evidence recommended in the guidance on anti-money laundering regulations (‘AMLG’) published by the Legal Sector Affinity Group. It is good practice to have either one ‘government document’ which verifies either the name and address or name and date of birth; or a ‘government document’ which verifies the client’s full name and another supporting document which verifies the name and either their address or date of birth.
152
You have been instructed by a company Autolext Corporation ('Autolext')on the purchase of 60% of the shares in a data analytics company, Data Inc for £2 million. Data Inc is registered in the Cayman Islands. Autolext is registered in Bermuda and has a majority shareholder who is Iranian. Autolext has asked to you set up a wholly owned subsidiary, Autolext Data Limited which will be the vehicle that purchases the shares in the Data Inc. Autolext will pay cash for the shares.
Which ONE of the following options correctly states the evidence of identity and verification you should obtain to demonstrate you have carried out the required level of CDD on this client?
You should identify the name, registered number and address of the registered office of Autolext, and verify it, for example by a search of the relevant company registry in Bermuda. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations.
There is a high risk of money laundering here, so you will need to examine the background and purpose of the transaction, to determine whether the transaction or relationship appear suspicious. This would involve making enquiries to understand the background and financial situation of Autolext, getting additional independent sources to verify the information you obtain and satisfying yourself that the transaction is legitimate.
You should identify the name, registered number and address of the registered office of Autolext, and verify it, for example by a search of the relevant company registry in Bermuda. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations. In addition you will need to examine the background and purpose of the transaction, to determine whether the transaction or relationship appear suspicious. This would involve making further enquiries to understand the financial situation of the company, getting additional independent sources to verify the information you obtain and satisfying yourself that the transaction is legitimate.
You should identify the name, registered number and address of the registered office of Autolext, and verify it, for example by a search of the relevant company registry in Bermuda. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations. In addition you will need to examine the background and purpose of the transaction, to determine whether the transaction or relationship appear suspicious. This would involve making further enquiries to understand the financial situation of the company, getting additional independent sources to verify the information you obtain and satisfying yourself that the transaction is legitimate.
Correct
Correct. There are a number of factors that suggest that there is a high risk of money laundering in this scenario and you therefore need to carry out enhanced CDD. This means that in addition to carrying out ‘standard CDD’ of identifying and verifying the identity of Autolext, you will need to carry out further enquiries to satisfy yourself that the client and the transaction is legitimate.
153
Regency Investment PLC is listed on the London Stock Exchange and is an existing client of your firm. It regularly instructs you on the acquisition and sale of properties in its portfolio. You have received a new instruction to act for it on the acquisition of the freehold property for £7 million.
Which ONE of the following options correctly states the evidence of identity and verification you should obtain and CDD you should carry out on this client?
As Regency Investment PLC is an existing client, you should already have carried out CDD on it. As a listed company, it is likely that you will have carried out simplified CDD for example by obtaining a copy of the dated page of the website of the relevant stock exchange showing the listing, and verifying it by a search of the company registry. You will need to conduct ongoing monitoring by checking that the identification documents you hold are up to date and checking the transaction is consistent with your firm’s knowledge of the client.
As Regency Investment PLC is a listed public company, you should carry out simplified CDD for example by obtaining copy of the dated page of the website of the relevant stock exchange showing the listing, and verifying it by a search of the company registry.
You should carry out standard CDD by identifying the name, registered number and address of the registered office of Regency Investment PLC, and verifying it, for example by a search of the company registry. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations.
As Regency Investment PLC is an existing client, you should already have carried out CDD on it. As a listed company, it is likely that you will have carried out simplified CDD for example by obtaining a copy of the dated page of the website of the relevant stock exchange showing the listing, and verifying it by a search of the company registry. You will need to conduct ongoing monitoring by checking that the identification documents you hold are up to date and checking the transaction is consistent with your firm’s knowledge of the client.
Correct. This is an existing client whom the firm acts for on a regular basis and a listed public company. It is likely the firm will already have carried out simplified CDD on the client. The firm will need to carry out ongoing monitoring, by checking that the transaction is consistent with the firm’s knowledge of the client and checking at regular intervals that the identification documents it holds for the client are up to date.
154
Which ONE of the following options best states why financial services are regulated in the UK?
There are many complex investment products available on the market. The provision of financial services is regulated in the UK to ensure that you can only advise on financial products if you have a maths degree.
There are many different investment products available on the market and individuals increasingly look to professional advisers to help them decide which investment to make. The provision of financial services is regulated in the UK to ensure that consumers only invest in safe financial products.
There are many different investment products available on the market and individuals increasingly look to professional advisers to help them decide which investment to make. The provision of financial services is regulated in the UK to ensure that the banks that offer the products do not collapse.
There are many different investment products available on the market and individuals increasingly look to professional advisers to help them decide which investment to make. The provision of financial services is regulated in the UK to ensure that consumers are adequately protected from negligent financial advice.
There are many different investment products available on the market and individuals increasingly look to professional advisers to help them decide which investment to make. The provision of financial services is regulated in the UK to ensure that consumers are adequately protected from negligent financial advice.
Correct
Correct. Individuals need to make decisions on difficult issues including the level of risk they should take and the return they seek when making an investment. Financial advisors in the UK must be authorised to ensure that they do not give negligent advice to their clients.
155
Which ONE of the following statements is CORRECT?
There are two regulators of financial services in the UK, the Bank of England and the Financial Conduct Authority.
There are two regulators of financial services in the UK, the Bank of England and the Financial Services Authority.
There are two regulators of financial services in the UK, the Prudential Regulation Authority and the Financial Conduct Authority.
There are two regulators of financial services in the UK, the Prudential Regulation Authority and the Financial Conduct Authority.
Correct
Correct. The two regulators of financial services in the UK are the Prudential Regulation Authority and the Financial Conduct Authority. The Prudential Regulation Authority is currently a subsidiary of the Bank of England.
156
Which ONE of the following statements is CORRECT?
It is a criminal offence to carry on a regulated activity, for example advising on the merits of an investment, unless you are authorised by the Financial Conduct Authority to do so, or exempt.
If you were to carry out a regulated activity, for example advising on the merits of an investment, without being authorised by the Financial Conduct Authority to do so, or exempt, this would be a serious matter of misconduct which would be determined by the Solicitors Disciplinary Tribunal.
It is a civil offence to carry on a regulated activity, for example advising on the merits of an investment, unless you are authorised by the Financial Conduct Authority to do so, or exempt.
It is a criminal offence to carry on a regulated activity, for example advising on the merits of an investment, unless you are authorised by the Financial Conduct Authority to do so, or exempt.
Correct. See section 19 Financial Services and Markets Act 2000 (FSMA).
157
Which ONE of the following would be MOST HELPFUL for you in navigating the FSMA decision tree?
SRA Code of Conduct for Solicitors, RELs, and RFLs 2019
Financial Services Act 2012
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
Correct
Correct. The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (‘RAO’) contains the majority of the detail you will need to navigate the FSMA decision tree. Part III lists the specified investments, and Part II lists the specified activities. In addition, each chapter within Part II RAO lists the specified activity and then the exclusions that apply to that specified activity. This is very helpful in helping you navigate questions 1, 2 and 3 of the FSMA decision tree.
158
Which section of the Financial Services and Markets Act 2000 (‘FSMA’) sets out the general prohibition that no one may carry out a regulated activity unless they are either authorised or exempt?
Section 19 FSMA
Section 23 FSMA
Section 327 FSMA
Section 19 FSMA
Correct. Section 19 FSMA contains the general prohibition. Section 23 relates to offences for contravening section 19. Section 327 relates to the exemption from the general prohibition.
159
Which ONE of the following CORRECTLY summarises the conditions for carrying out an exempt regulated activity?
The person must be (i) a member of a profession, (ii) must not receive payment or commission unless this is passed on to the client (or the client agrees otherwise), (iii) the activities must be incidental, and (iv) the person must comply with their relevant designated professional body’s rules.
The person must be (i) a member of a profession, (ii) must not receive payment or commission unless this is passed on to the client (or the client agrees otherwise), (iii) the activities must be specified in Part II RAO, and (iv) the person must comply with the FCA Rule Book.
The person must be (i) a solicitor, (ii) must not receive payment or commission unless this is passed on to the client (or the client agrees otherwise), (iii) the activities must relate to a specified investment, and (iv) the person must comply with the SRA (Conduct of Business) Rules 2019.
The person must be (i) a member of a profession, (ii) must not receive payment or commission unless this is passed on to the client (or the client agrees otherwise), (iii) the activities must be incidental, and (iv) the person must comply with their relevant designated professional body’s rules.
Correct. See section 327 Financial Services and Markets Act 2000 (FSMA).
160
Which section of the Financial Services and Markets Act 2000 (‘FSMA’) defines a regulated activity?
Section 20
Section 22
Section 19
Section 22
Correct
Correct. Section 22 FSMA defines a regulated activity as follows:
‘an activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and – relates to an investment of a specified kind’
161
Which ONE of the following IS a specified investment under Part III of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (‘RAO’)?
Rights under a contract of insurance
Freehold property
A loan to a company to purchase an office
Rights under a contract of insurance
Correct
Correct. Rights under a contract of insurance is a specified investment under article 75 RAO. A freehold property is not a financial product and is therefore not a specified investment under Part III RAO. A loan to a company to purchase an office does not fall within the definition of a regulated mortgage contract so is not a specified investment under Part III RAO.
162
Which ONE of the following statements is CORRECT?
Arranging the sale of a client’s shares in a company to their business partner would be a specified activity under article 53 RAO.
Advising a client to use the sale proceeds from their sale of shares in a company to purchase shares in British Gas plc would be a specified activity under article 53 RAO.
Giving a client advice on the legal rights attaching to two different classes of shares in a company would be a specified activity under article 53 RAO.
Advising a client to use the sale proceeds from their sale of shares in a company to purchase shares in British Gas plc would be a specified activity under article 53 RAO.
Correct. Advising a client to use the sale proceeds from their sale of shares in a company to purchase shares in British Gas plc would be a specified activity of advising on the merits of an investment under article 53 RAO because the advice would involve giving an opinion on the part of the solicitor and a recommendation as to a course of action.
Giving advice on the legal rights attaching to two different classes of shares in a company is generic advice, it does not require an element of opinion on the part of the solicitor and a recommendation as to a course of action, so it does not fall within advising on the merits of an investment under article 53.
Arranging the sale of a client’s shares in a company to their business partner would be a specified activity under article 25 (arranging deals in investments) but not under article 53 RAO.
163
Which ONE of the following statements is CORRECT?
Step 3 of the FSMA decision tree is to work out whether the solicitor is providing an exempt regulated activity.
Step 3 of the FSMA decision tree is to work out whether the specified activity is one of the excluded activities under the RAO.
Step 3 of the FSMA decision tree is to work out whether the activity is specified under Part II RAO.
Step 3 of the FSMA decision tree is to work out whether the specified activity is one of the excluded activities under the RAO.
Correct. Step 3 of the FSMA decision tree is to work out whether the specified activity is one of the excluded activities under the RAO.
Step 2 of the decision tree is to work out whether the activity is specified under Part II RAO.
Working out whether the solicitor is providing an exempt regulated activity forms part of step 4 of the FSMA decision tree.
164
Which ONE of the following statements is CORRECT?
A solicitor who advises their client to buy 10% of the shares in ABC Limited would not need to be authorised by the FCA because they fall within the exclusion in Article 70 RAO.
A solicitor who arranges for their client to buy 50% of the shares in a private company would NOT need to be authorised by the FCA because they fall within the exclusion in Article 70 RAO.
A solicitor who sells 50% of their client’s shares in a company as agent for their client would need to be authorised by the FCA because they would not fall within the exclusion in Article 70.
A solicitor who arranges for their client to buy 50% of the shares in a private company would NOT need to be authorised by the FCA because they fall within the exclusion in Article 70 RAO.
Correct
Correct. The exclusion in Article 70 applies to the specified activities of arranging deals, advising and dealing as agent (which includes selling), so it could potentially apply to all three options. One of the conditions for Article 70 to apply is that the shares consist of or include 50 per cent or more of the voting shares in the company.
Arranging for your client to buy 50% of the shares meets this condition, so the exclusion WOULD apply and the solicitor would NOT need to be authorised by the FCA.
Advising your client to buy 10% of the shares does not meet this condition, so the exclusion would NOT apply and the solicitor WOULD need to be authorised by the FCA.
Selling 50% of your clients shares as agent meets this condition, so the exclusion WOULD apply and the solicitor would NOT need to be authorised by the FCA.
165
Which ONE of the following statements is CORRECT?
A solicitor does not need to be authorised by the FCA to arrange for their client to buy shares in a company if the client is entering the transaction on advice given by a financial advisor who is authorised by the FCA.
A solicitor does not need to be authorised by the FCA to arrange for their client to buy shares in a company if the client is entering the transaction on advice given by an advisor who is authorised by the SRA.
A solicitor can only arrange for their client to buy shares in a company if the solicitor is authorised by the FCA or exempt.
A solicitor does not need to be authorised by the FCA to arrange for their client to buy shares in a company if the client is entering the transaction on advice given by a financial advisor who is authorised by the FCA.
Correct
Correct. Arranging for your client to buy shares in a company is a specified activity under Article 25(1) RAO. However if you read further, Article 29 RAO states that arrangements made by a person are excluded from Article 25(1) if they are entered on advice to the client by an authorised person. A financial advisor authorised by the FCA is an authorised person. Therefore under Article 25(1), the solicitor does not need to be authorised by the FCA to arrange for their client to buy the shares.
This conclusion is logical. If the client is acting on the advice of someone authorised by the FCA there is no additional need for the solicitor to be authorised by the FCA.
The financial advisor would need to be authorised by the FCA to advise under FSMA, not the SRA.
166
Which section of the Financial Services and Markets Act 2000 (‘FSMA’) sets out the exemption from the general prohibition that no one may carry out a regulated activity unless they are either authorised or exempt?
Section 327 FSMA
Section 19 FSMA
Section 325 FSMA
Section 327 FSMA
Correct. Section 327 sets out the conditions that must be satisfied for a person to meet the exemption from the general prohibition. The conditions include: the person must be (i) a member of a profession, (ii) must not receive payment or commission unless this is passed on to the client (or the client agrees otherwise), (iii) the activities must be incidental, and (iv) the person must comply with their relevant designated professional body’s rules. Section 19 FSMA contains the general prohibition. Section 325 relates to the FCA’s general duty.
167
Which ONE of the following statements CORRECTLY sets out step 4 of the FSMA decision tree?
Does the activity fulfil the basic conditions in s 327 of FSMA and the SRA Financial Services (Conduct of Business) Rules 2019?
Does the activity fulfil the basic conditions in s 327 of FSMA and the SRA Financial Services (Scope) Rules 2019?
Does the activity fulfil the basic conditions in s 19 of FSMA and the SRA Financial Services (Conduct of Business) Rules 2019?
Does the activity fulfil the basic conditions in s 327 of FSMA and the SRA Financial Services (Scope) Rules 2019?
Correct
Correct. This statement correctly summarises step 4 of the FSMA decision tree. If the activity does fulfil both these conditions, the solicitor will not need to be authorised by the FCA to carry out the regulated activity provided it complies with the rules set by the SRA.
168
A property solicitor has recently completed the sale of a property for a client. The client asks the solicitor for advice on whether she should use the sale proceeds from the property to invest in shares in British Telecom PLC.
Which ONE of the following statements is CORRECT?
The solicitor cannot give the advice without breaching the general prohibition under s 19 FSMA because giving the advice would not be incidental for the purposes of s 327 FSMA.
The solicitor cannot give the advice without breaching the general prohibition under s 19 FSMA because giving the advice would not arise out of or be complementary to the provision of a particular professional service to a particular client for the purposes of Rule 2 of the SRA Financial Services (Scope) Rules 2019.
Provided they comply with the rules set down by the SRA, the solicitor can give the advice without breaching the general prohibition under s 19 FSMA because the activity meets the conditions of s 327 FSMA and the SRA Financial Services (Scope) Rules 2019.
The solicitor cannot give the advice without breaching the general prohibition under s 19 FSMA because giving the advice would not arise out of or be complementary to the provision of a particular professional service to a particular client for the purposes of Rule 2 of the SRA Financial Services (Scope) Rules 2019.
Correct
Correct. Shares are a specified investment and the solicitor would be advising on the merits of investing in shares which is a specified activity. No exclusion applies. Giving the advice would fall within the condition of being incidental under s 327 FSMA because it would be a small part of the practice of the firm as a whole. However it would not be complementary for the purposes of Rule 2 of the SRA Financial Services (Scope) Rules 2019 because giving advice on whether to invest in shares in a particular company does not arise naturally out of the work the solicitor did in selling the property, it is a completely unrelated matter.
The solicitor should advise the client to take advice from a person authorised by the FCA, otherwise they would need to be authorised by the FCA to give the advice (which will require a lot of work on the part of the solicitor and their firm) or they will be in breach of s 19 FSMA which is a criminal offence.
169
Which ONE of the following statements is CORRECT
It is a criminal offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the SRA.
It is a civil offence to communicate a financial promotion unless you are authorised to do so by the SRA.
It is a criminal offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the relevant regulatory authority.
It is a civil offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the FCA.
It is a criminal offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the relevant regulatory authority.
Correct. Under s 85 FSMA it is a criminal offence to offer shares to the public without issuing a prospectus approved by the relevant regulatory authority. The relevant regulator in the UK is the FCA. In addition under s 21 FSMA it is a criminal offence to communicate a financial promotion unless you are authorised by the FCA or the financial promotion has been approved by a person authorised by the FCA.
170
Which ONE of the following statements is CORRECT?
An exemption to the prohibition on communicating a financial promotion without the contents being approved by an authorised person that can be useful in practice is the sale of a body corporate exemption.
The exemption to the prohibition on communicating a financial promotion without the contents being approved by an authorised person that can be useful in practice is the necessary part exemption.
The prohibition on issuing financial promotions unless an authorised person has approved its content is rarely a problem in practice as it is a simple and cheap procedure to get the financial promotion approved by an authorised person.
An exemption to the prohibition on communicating a financial promotion without the contents being approved by an authorised person that can be useful in practice is the sale of a body corporate exemption.
Correct. The sale of a body corporate exemption applies where the shares consist of 50% or more of the shares in the company or the buyer is buying day to day control of the company and certain conditions are met. This is can be a very useful exemption for solicitors acting on share sales. Necessary part is not an exemption to the prohibition on communicating a financial promotion without the contents being approved.
Getting a financial promotion approved by an authorised person can be time consuming and expensive for the client.
171
Which one of the following is a recommendation made in respect of client money in the SRA Risk Outlook?
If client money is lost or taken, you must report this breach to the compliance officer where you work within two working days, unless you have already replaced the money.
If client money is lost or taken, you must report this breach to the SRA promptly, even where the money has been replaced already.
If client money is lost or taken, you must report this breach to the Solicitors Disciplinary Tribunal within two working days, even where the money has been replaced already.
If client money is lost or taken, you report this breach to the SRA within seven working days, unless you have already replaced the money.
If client money is lost or taken, you must report this breach to the compliance officer where you work promptly, even where the money has been replaced already.
If client money is lost or taken, you must report this breach to the SRA promptly, even where the money has been replaced already.
Correct. The SRA recommend that if client money is lost or taken, then you/the firm must report this breach to them promptly. This is the case even where you/the firm have already replaced the money.
172
How long must an authorised body retain accounting records for?
At least ten years from the end of the relevant accounting period.
One year after the end of the relevant accounting period.
At least six years.
Five years.
At least six years.
Correct. This is the time period specified in Rule 13.1.
173
Which one of the following statements is correct with regard to accountants’ reports
If a firm’s balance of client money does not exceed an average of £10,000 and a maximum of £250,000 during an accounting period, it will not have to obtain an accountant’s report.
If a firm only holds client money which has been received during an accounting period from the Legal Aid Agency, it must obtain an accountant’s report.
No law firms are exempt from the requirement to obtain an accountant’s report.
If a firm’s balance of client money does not exceed an average of £10,000 and a maximum of £250,000 during an accounting period, it will not have to obtain an accountant’s report.
Correct. This is the exemption to Rule 12.1(a) set out in Rule 12.2(b).
174
Which one of the following statements is correct with regard to accountants’ reports?
It is entirely up to a firm to decide the matters which are incorporated into the terms on which an accountant is engaged.
An accountant discovering a minor breach of the SRA Accounts Rules arising from an administrative error at a law firm will not necessarily have to prepare a qualified report in relation to that law firm’s accounts.
All law firms are obliged to submit their accountant’s reports to the SRA within six months of the end of that law firm’s accounting period.
An accountant discovering a minor breach of the SRA Accounts Rules arising from an administrative error at a law firm will not necessarily have to prepare a qualified report in relation to that law firm’s accounts.
Correct. SRA Guidance: ‘Planning for and completing an accountant’s report’ states that the SRA only expect reports to be qualified where there has been a significant breach of the Accounts Rules, such that client money is at risk. It also says that breaches arising from administrative errors are not likely to be significant but could be if they are persistent, derive from a failure of controls and have put client money at risk. The guidance states that the SRA recognise minor breaches of the Accounts Rules do occur in many firms and they are not expecting all identified breaches to be notified to them in the form of a qualified report.
175
Which of the following Part 2 Rules from the SRA’s Accounts Rules apply when a solicitor/authorised body is operating a bank account jointly with a client, when acting in a client’s matter?
All of the Rules in Part 2 of the SRA Accounts Rules.
Rule 8.2 (bank statements), Rule 8.3 (reconciliations) and Rule 8.4 (bills of costs).
Rule 8.2 (bank statements) and Rule 8.4 (bills of costs).
All of Rule 8 (on client accounting systems and controls) but not Rules 2-7.
Rule 8.2 (bank statements) and Rule 8.4 (bills of costs).
Correct. Rule 9.1, on the operation of joint accounts, says that Part 2 of the SRA Accounts Rules does not apply to the joint account except for Rules 8.2 and 8.4.
176
What is a joint account in the context of Rule 9.1 of the SRA Accounts Rules?
A joint account in Rule 9.1 is an account which holds both client money and money belonging to the authorised body.
A joint account in Rule 9.1 is an account which is in the name of two clients.
A joint account in Rule 9.1 is an account which is in the names of the solicitor/authorised body and the client or a third party.
A joint account in Rule 9.1 is an account which is in the names of the solicitor/authorised body and the client or a third party.
Correct
Correct. See Rule 9.1.
177
Which one of the following is correct with regard to operating a client’s own account as signatory?
An accountant’s report must be obtained for a client’s own account where the solicitor/authorised body is signatory unless one of the Rule 12.2 exceptions apply.
Rule 10.1 on operation of a client’s own account applies whenever a solicitor/authorised body operates a client’s own account as signatory.
If, in the course of practice, a solicitor/authorised body operates a client’s own account as signatory, only Rule 8.2 (bank statements) and Rule 8.4 (bills of costs) from Part 2 of the SRA Accounts Rules apply.
An accountant’s report must be obtained for a client’s own account where the solicitor/authorised body is signatory unless one of the Rule 12.2 exceptions apply.
Correct. This is set out in Rule 12.1.
incorrect
Rule 10.1 on operation of a client’s own account applies whenever a solicitor/authorised body operates a client’s own account as signatory.
Incorrect. Rule 10.1 states that it applies if, in the course of practice, the solicitor/authorised body operates a client’s own account as signatory.
178
Which one of the following is a correct statement about Rule 11.1 of the SRA Accounts Rules regarding third party managed accounts?
Rule 11.1 provides that the fees for use of the third party managed account will be paid by the client.
Rule 11.1 only applies when the authorised body is delivering regulated services to the client.
Rule 11.1 allows an authorised body to receive and hold clients’ money in an account without Part 2 of the SRA Accounts Rules applying to the client money.
Rule 11.1 only applies when the authorised body is delivering regulated services to the client.
Correct
Correct. Rule 11.1 is clear that it covers use of a third party managed account for payments in respect of regulated services delivered by the authorised body to the client.
incorrect
Rule 11.1 allows an authorised body to receive and hold clients’ money in an account without Part 2 of the SRA Accounts Rules applying to the client money.
Incorrect. Rule 11.(a) expressly states that a third party managed account must not result in the authorised body receiving or holding the client’s money.
Rule 11.1 provides that the fees for use of the third party managed account will be paid by the client.
Incorrect. Rule 11.1(b)(i) states that the authorised body must take reasonable steps to ensure the client knows and understands the contractual arrangements around the use of the third party managed account, including who will pay any fees for using the third party managed account. The Rule does not set out who has to pay any fees, just that the client should be told and understand who will pay any fees.
179
Which one of the following is part of the definition of a third party managed account in the SRA Glossary?
The monies in the third party managed account must be owned beneficially by the client.
The third party managed account must be held at a bank or building society.
The third party is regulated by the SRA.
The third party managed account must be held at a bank or building society.
Correct
Correct.
incorrect
The third party is regulated by the SRA.
Incorrect. The definition of a third party managed account in the SRA Glossary includes that the third party must be regulated by the FCA (Financial Conduct Authority) not the SRA.
The monies in the third party managed account must be owned beneficially by the client.
Incorrect. The definition of a third party managed account in the SRA Glossary includes that the monies are owned beneficially by the third party (not the client).
180
Which one of the following statements about third party managed accounts is correct?
An authorised body does not have any obligations under the SRA Accounts Rules with regard to statements or records relating to any third party managed accounts.
Money held in a third party managed account is not client money (as defined in the SRA Accounts Rules).
An authorised body needs the SRA’s permission to use a third party managed account instead of/ as well as a client account.
Money held in a third party managed account is not client money (as defined in the SRA Accounts Rules).
Correct. The SRA Guidance ‘Third party managed accounts’ explains that money held in a third party managed account does not fall under the definition of client money in the SRA Accounts Rules because it is not received or held by the authorised body. That the client’s money is not received or held by the authorised body is a requirement of Rule 11.1(a) on third party managed accounts.
181
Which one of the following SRA Accounts Rules states that you must keep client money separate from money belonging to the authorised body?
Rule 4.2
Rule 4.1
Rule 3.1
Rule 3.2
Rule 4.1
Correct. Rule 4.1 states that you must keep client money separate from money belonging to the authorised body.
182
How quickly must client money be paid into a client account?
As soon as practicable.
Promptly
Within 2 working days
Within 7 days
Promptly
Correct. Rule 3.2 states that client money must be paid promptly into a client account.
183
Can client money be paid into the authorised body’s business account?
Yes, if it is part of a mixed payment and is then promptly moved out of the business account and into the client account.
No, the SRA Accounts Rules do not permit this.
Yes, provided it is moved out of the business account and into the client account within 5 days.
Yes, if it is part of a mixed payment and is then promptly moved out of the business account and into the client account.
Correct. This is the position implied by Rule 4.2 which states that you must promptly allocate funds from mixed payments you receive to the correct client account or business account.
184
Your client has £1500 in the client account. You have just completed work on their transaction which is now complete. Your costs (fees for your work on the matter) come to £995. You have drawn up a bill of costs ready to send to the client. Which one of the following best sets out your position?
You cannot transfer £995 from the client account to the business account to pay your costs until the bill of costs has been given to the client.
You can transfer £995 from the client account to the business account using the following entries:
Debit client ledger client account
Credit cash sheet client account.
You can transfer £995 from the client account to the business account using the following entries:
Debit client ledger client account
Credit client ledger business account
You can transfer £995 from the client account to the business account using the following entries:
Debit client ledger client account
Credit cash sheet client account
Credit client ledger business account
Debit cash sheet business account
You cannot transfer £995 from the client account to the business account to pay your costs until the bill of costs has been given to the client.
Correct. See Rule 4.3(a) and (b).
185
You have just discovered that a payment was made from the client account on behalf of a client who did not actually have any money in the client account. Which one of the following best sets out what you should do?
You should promptly replace the client money withdrawn by doing the following:
Debit client ledger business account
Credit cash sheet business account
Credit client ledger client account
Debit cash sheet client account.
You should within five working days replace the client money withdrawn by doing the following:
Debit client ledger client account
Credit cash sheet client account
Credit client ledger business account
Debit cash sheet business account.
You must report this breach to your authorised body’s accounts officer within five working days.
You should promptly replace the client money withdrawn by doing the following:
Debit client ledger client account
Credit cash sheet client account
Credit client ledger business account
Debit cash sheet business account.
You should promptly replace the client money withdrawn by doing the following:
Debit client ledger business account
Credit cash sheet business account
Credit client ledger client account
Debit cash sheet client account.
Correct
Correct. Under Rule 6.1, any breaches of the SRA Accounts Rules must be corrected promptly upon discovery. Money improperly withdrawn from a client account must be immediately replaced. These are the correct entries to transfer money from the business account and pay it into the client account to replace the money improperly withdrawn.
186
You act for a bank which is providing a mortgage to another of your clients who is buying a property. The bank has the amount of the mortgage money within the client account and all necessary authorities and authorisations have been obtained to now advance the mortgage money to the buyer.
Which one of the following sets of entries is the correct set to record this transfer of money?
If a law firm receives a cheque from a client which includes both client money and non-client money, the full amount must be paid in its entirety into the firm’s business account and the client money must then be promptly transferred to the firm’s client account.
If a law firm receives a cheque from a client which includes both client money and non-client money, it is possible for the law firm to instruct their bank to ‘split’ the cheque and pay part of the money into the firm’s client account and part of the money into their business account.
If a law firm receives a cheque from a client which includes both client money and non-client money, the full amount must be paid in its entirety into the firm’s client account and the non-client money must then be promptly transferred to the firm’s business account.
If a law firm receives a cheque from a client which includes both client money and non-client money, it is possible for the law firm to instruct their bank to ‘split’ the cheque and pay part of the money into the firm’s client account and part of the money into their business account.
Correct
Correct. Such a cheque would constitute a mixed payment. The accounting entries involved are:
Credit the client ledger client account of the client; and
Debit the cash sheet client account with the client money element of the payment and
Credit the client ledger business account of the client and debit the cash sheet business account with the non-client money element of the payment.
187
Which ONE of the following statements correctly completes the sentence below:
If you act for two clients and transfer money from one client to another, the following entries are made:
Debit the client ledger client account for the client who is transferring the money and credit the cash sheet client account.
Debit the client ledger client account for the client who is transferring the money and credit the cash sheet business account; and
Credit the client ledger client account for the client to whom the money is being transferred, and debit the cash sheet business account
Debit the client ledger client account of the client who is transferring the money and credit the client ledger client account of the client to whom the money is being transferred.
Debit the client ledger client account for the client who is transferring the money and credit the cash sheet client account; and
Credit the client ledger client account for the client to whom the money is being transferred, and debit the cash sheet client account
Debit the client ledger client account of the client who is transferring the money and credit the client ledger client account of the client to whom the money is being transferred.
Correct. If you act for two clients and a transfer of client money is being made from one client to the other, the client money being transferred is already in the firm’s client account. There is no need to take the money out of the client account and then pay it back into the same account. You can transfer money between two clients of the firm in one step.
188
You act for the executors on the administration of an estate and also for the sole beneficiary. The executors have the funds from winding up the estate within the client account, have made all necessary payments out of the estate and all necessary authorities and authorisations have been obtained to now pay the legacy to the beneficiary.
Which one of the following sets of entries is the correct set to record the transfer of money from the executors to the beneficiary?
Debit the client ledger client account for the executors and credit the cash sheet business account; and
Credit the client ledger client account for the beneficiary, and debit the cash sheet business account
Debit the client ledger client account for the executors and credit the cash sheet client account; and
Credit the client ledger client account for the beneficiary, and debit the cash sheet client account
Debit client ledger client account of the executors
Credit client ledger client account of the beneficiary.
Debit client ledger client account of the executors
Credit client ledger client account of the beneficiary.
Correct
Correct. As both the executors and the beneficiary are your clients and the money is already in the client account, only one step is required to record this and show that the money in the client account is now held for the beneficiary rather than the executors. There will not be an entry in the client account as there is no need to withdraw the money from the client account and then pay it back in.
189
You act for a bank which is providing a mortgage to another of your clients who is buying a property. The bank has the amount of the mortgage money within the client account and all necessary authorities and authorisations have been obtained to now advance the mortgage money to the buyer.
Which one of the following sets of entries is the correct set to record this transfer of money?
Debit client ledger client account of the buyer
Credit client ledger client account of the bank.
Debit client ledger client account of the bank
Credit client ledger client account of the buyer.
Debit client ledger client account of the bank
Credit cash sheet client account
Credit client ledger business account of the buyer
Debit cash sheet business account.
Debit client ledger client account of the bank
Credit client ledger client account of the buyer.
Correct. As both the bank and the buyer are your clients and the money is already in the client account, only one step is required to record this and show that the money in the client account is now held for the buyer rather than the bank. There will not be an entry in the client account as there is no need to withdraw the money from the client account and then pay it back in.
190
Identify the double entries which record the transaction listed below:
Receipt of deposit monies by a seller’s solicitor to be held as agent
Payment of deposit held by a seller’s solicitor as stakeholder to the seller on completion
Receipt of deposit monies by a seller’s solicitor to be held as stakeholder
------
Debit stakeholder ledger
Credit client ledger client account for the seller client
Credit stakeholder ledger
Debit cash sheet client account
Credit client ledger client account for the seller client
Debit cash sheet client account
Receipt of deposit monies by a seller’s solicitor to be held as agent
- Credit client ledger client account for the seller client
- Debit cash sheet client account
Payment of deposit held by a seller’s solicitor as stakeholder to the seller on completion
- Debit stakeholder ledger
- Credit client ledger client account for the seller client
Receipt of deposit monies by a seller’s solicitor to be held as stakeholder
- Credit stakeholder ledger
- Debit cash sheet client account
191
A firm of solicitors is acting on behalf of a client who is selling his property. A deposit of £25,000 has been received in respect of the sale and is held as stakeholder.
Which one of the following pairs of double entries shows how the receipt of the deposit should be recorded?
Credit cash sheet business account
Debit stakeholder ledger
Credit cash sheet client account
Debit client ledger client account
Credit client ledger client account
Debit stakeholder ledger
Credit stakeholder ledger
Debit cash sheet client account
Credit cash sheet client account
Debit stakeholder ledger
Credit stakeholder ledger
Debit cash sheet client account
Correct. These are the accounting entries to record the receipt by the seller’s solicitor of a deposit, to be held as stakeholder.
192
A firm of solicitors is acting on behalf of a client who is buying a property. A deposit of £25,000 has been received from your client, in respect of the purchase, which will be held as stakeholder.
Which one of the following pairs of double entries shows how the receipt of the deposit should be recorded?
Debit client ledger client account
Credit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Credit stakeholder ledger
Debit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Correct
Correct. The accounting entries are simply the usual ones for client money received. The deposit is client money under Rule 2.1(a) and the fact the deposit will be held as stakeholder is only relevant to the seller’s solicitor. In this question we are the buyer’s solicitor and how the deposit will be held by the seller’s solicitor once it has been paid to them is irrelevant to our accounting entries.
incorrect
Debit client ledger client account
Credit cash sheet client account
Incorrect. These are the accounting entries for client money being paid out. Whilst the deposit money is client money under Rule 2.1(a), in this question it is being received in, not being paid out by the buyer’s solicitor. Do revisit your materials on accounting entries for deposits and in particular focus on which entry is a credit and which a debit.
Credit stakeholder ledger
Debit cash sheet client account
Incorrect
Incorrect. These are the accounting entries to record the receipt by the seller’s solicitor of a deposit, to be held as stakeholder. These entries will be made by the seller’s solicitor once they receive the deposit. However, in this question we are acting for the buyer and how the deposit will be held by the seller’s solicitor once it has been paid to them is irrelevant to our accounting entries. The deposit is client money under Rule 2.1(a) and the entries to record its receipt will simply be the usual ones for client money received.
193
Receipt of mortgage funds by a buyer’s solicitor from the lender where the buyer’s solicitor has a separate client ledger for the lender. The solicitor acts for the buyer and the lender.
Receipt of mortgage funds by a buyer’s solicitor from the lender where the buyer’s solicitor does not have a separate client ledger for the lender. The solicitor acts for the buyer and the lender.
Paying back a mortgage to the lender when the seller sells a property. The solicitor acts for the seller and the lender. The solicitor does not have a separate client ledger for the lender.
Paying back a mortgage to the lender when the seller sells a property. The solicitor acts for the seller and the lender. The solicitor has a separate client ledger for the lender.
Possible Answers
Debit client ledger client account for the (seller) client
Credit client ledger client account for the (lender) client
AND
Debit client ledger client account for the (lender) client
Credit cash sheet client account
Credit client ledger client account for the (buyer) client
Debit cash sheet client account
Debit client ledger client account for the (seller) client
Credit cash sheet client account
Credit client ledger client account for the (lender) client
Debit cash sheet client account
AND
Debit client ledger client account for the (lender) client
Credit client ledger client account for the (buyer) client
Receipt of mortgage funds by a buyer’s solicitor from the lender where the buyer’s solicitor has a separate client ledger for the lender. The solicitor acts for the buyer and the lender.
Credit client ledger client account for the (lender) client
Debit cash sheet client account
AND
Debit client ledger client account for the (lender) client
Credit client ledger client account for the (buyer) client
-----
Receipt of mortgage funds by a buyer’s solicitor from the lender where the buyer’s solicitor does not have a separate client ledger for the lender. The solicitor acts for the buyer and the lender.
Credit client ledger client account for the (buyer) client
Debit cash sheet client account
-----
Paying back a mortgage to the lender when the seller sells a property. The solicitor acts for the seller and the lender. The solicitor does not have a separate client ledger for the lender.
Debit client ledger client account for the (seller) client
Credit cash sheet client account
----
Paying back a mortgage to the lender when the seller sells a property. The solicitor acts for the seller and the lender. The solicitor has a separate client ledger for the lender.
Debit client ledger client account for the (seller) client
Credit client ledger client account for the (lender) client
AND
Debit client ledger client account for the (lender) client
Credit cash sheet client account
194
A firm of solicitors is acting on behalf of a client who is buying a property. The firm also acts for the lender who will be providing a mortgage to the buyer to fund the purchase. The firm does not have a separate client ledger for the lender.
Which one of the following pairs of double entries should the firm make to record the receipt of funds from the lender to purchase the property?
Credit client ledger client account for the (buyer) client
Debit cash sheet client account
Credit client ledger client account for the (lender) client
Debit cash sheet client account
Debit client ledger client account for the (lender) client
Credit client ledger client account for the (buyer) client
Credit client ledger client account for the (lender) client
Debit cash sheet client account
Debit client ledger client account for the (buyer) client
Credit cash sheet client account
Debit client ledger client account for the (lender) client
Credit client ledger client account for the (buyer) client
Credit client ledger client account for the (buyer) client
Debit cash sheet client account
Correct. In this case the firm does not have a separate client ledger for the lender so the entries will be the normal entries for the receipt of client money into the client account for the buyer. The details in the ledger would state that the mortgage funds have come from the lender.
195
A firm of solicitors is acting on behalf of a client who is selling his property. An outstanding mortgage on the property is paid off at completion of the sale using the completion monies received in the client account. The firm of solicitors acts for the seller’s lender and has a separate client ledger for the lender.
Which one of the following pairs of double entries will be included in those which record the redemption of the seller’s mortgage?
Debit client ledger client account lender
Credit cash sheet business account
Credit client ledger client account lender
Credit cash sheet client account
Debit client ledger client account seller
Credit client ledger client account lender
Debit client ledger client account seller
Credit client ledger client account lender
Correct
Correct. These are the entries showing the transfer of the redemption money (which is client money and already in the client account) between clients (from the seller to the lender). After this step, the redemption money will be paid out to the lender using the client money paid out entries.
196
Match the name of the account or ledger to its description:
Interest payable ledger
Client ledger separate designated client account
Cash sheet separate designated client account
Interest receivable ledger
Possible Answers
- The record of the interest received by the firm.
- The client ledger set up by a firm to record transactions affecting the separate designated client account opened by a firm to hold an individual client’s money.
- The record of money received into or paid out of the separate designated bank account opened by a firm to hold an individual client’s money.
- The record of the interest paid out by the firm
Interest payable ledger
The record of the interest paid out by the firm
Client ledger separate designated client account
The client ledger set up by a firm to record transactions affecting the separate designated client account opened by a firm to hold an individual client’s money.
Cash sheet separate designated client account
The record of money received into or paid out of the separate designated bank account opened by a firm to hold an individual client’s money.
Interest receivable ledger
The record of the interest received by the firm.
197
A firm of solicitors holds £50,000 in a separate designated client account for their client. The separate designated client account is closed and the £50,000 transferred back into the main client account.
Which one of the following shows the correct entries used to record the transfer?
Credit client ledger separate designated client account for the client
Debit client ledger client account for the client
Debit client ledger separate designated client account for the client
Credit cash sheet separate designated client account for the client
Credit client ledger client account for the client
Debit cash sheet client account
Debit client ledger client account for the client
Credit cash sheet client account
Credit client ledger separate designated client account for the client
Debit cash sheet separate designated client account for the client
Debit client ledger separate designated client account for the client
Credit client ledger client account for the client
Debit client ledger separate designated client account for the client
Credit cash sheet separate designated client account for the client
Credit client ledger client account for the client
Debit cash sheet client account
Correct. The transfer is from one bank account (the separate designated account) to another (the general/main client account) and so it involves two double entries ie four entries in total. One pair of entries to record taking the money out of the separate designated client account and the second pair of entries to record the paying in of the money to the general/main client account.
198
A firm of solicitors is acting on behalf of a client in a litigation matter. The claim by the client has now been settled and damages have been received by the firm. The firm retains the funds on client account for two weeks whilst the client has a holiday. The firm pays the client interest for the two weeks it has held the funds.
Which one of the following should be included in the entries that record the payment of the interest?
Credit cash sheet client account
Debit cash sheet business account
Debit interest payable ledger
Credit cash sheet business account
Credit interest payable ledger
Credit cash sheet client account
Credit interest payable ledger
Debit cash sheet business account
Debit interest payable ledger
Credit cash sheet business account
Correct
Correct. These entries record the withdrawing of the interest monies from the firm’s business account which is the first step in the transfer of the interest monies from the firm’s business account to their client account and happens prior to the second step which is the payment of the interest monies into the client account.
199
Can a firm of solicitors agree with a client that it will never pay interest on their client money whilst it is in the firm’s client account?
Which one of the following best answers this question?
Yes, provided that a written agreement is entered into with the client as to interest not being paid and provided that sufficient information has been provided to the client to enable them to give informed consent.
Yes, provided that the client agrees and sufficient information has been provided to the client to enable them to give their informed consent.
No, this is prohibited by the SRA Accounts Rules.
Yes, provided that a written agreement is entered into with the client as to interest not being paid and provided that sufficient information has been provided to the client to enable them to give informed consent.
Correct. Rule 7.1 provides that a fair sum of interest on client money held by the firm must be paid to the client. Rule 7.2 allows the firm and the client to come to a different arrangement as to the payment of interest but this must be by written agreement and the firm must provide sufficient information to enable the client to give informed consent.
200
Match the name of the account or ledger to the description of its role in issuing and paying bills:
Profit costs account
Client ledger business account
VAT account
Possible Answers
- The record of VAT charged by a law firm
- The business side of the client ledger account where the amount of money owed by the client to the firm is recorded.
- The record of bills of costs (or profit costs) issued by a law firm.
Profit costs account
The record of bills of costs (or profit costs) issued by a law firm.
Client ledger business account
The business side of the client ledger account where the amount of money owed by the client to the firm is recorded.
VAT account
The record of VAT charged by a law firm
201
Which one of the following statements regarding the SRA Accounts rules on bills and accounting entries for issuing a bill plus VAT is correct?
One of the accounting entries for issuing a bill plus VAT will be recorded in the cash sheet client account.
There is no obligation for an authorised body to keep a record of all bills or other written notifications of costs but it is advisable.
The VAT account [ledger] entry to record the VAT charged on the profit costs in the bill will be a credit.
One of the accounting entries for issuing a bill plus VAT will be recorded in the client ledger client account of the client being sent the bill.
The VAT account [ledger] entry to record the VAT charged on the profit costs in the bill will be a credit.
correct
202
A bill was sent to your client for profit costs of £1,000 plus VAT of £200. The client has now sent you a cheque for £1,200 in payment of the bill plus VAT. Which one of the following pairs of double entries shows how the payment should be recorded?
Debit client ledger business account
Credit cash sheet business account
Credit client ledger business account
Debit cash sheet business account
Credit client ledger business account
Debit profit costs account
Debit client ledger client account
Credit profit costs account
Credit client ledger business account
Debit cash sheet business account
Correct. These are the accounting entries for recording the receipt of non-client money (which the cheque in payment of the bill is).
203
Which one of the following statements about paying a disbursement plus VAT as principal/agent is correct?
When paying a disbursement plus VAT as principal, the payment must be made out of the client account.
When paying a disbursement plus VAT as agent, there are no separate VAT entries; the payment is for the total of the cost plus the VAT.
When paying a disbursement plus VAT as agent, the payment must be made out of the business account.
When paying a disbursement plus VAT as principal, there are no separate VAT entries; the payment is for the total of the cost plus the VAT.
When paying a disbursement plus VAT as agent, there are no separate VAT entries; the payment is for the total of the cost plus the VAT.
Correct.
204
A solicitor instructed an environmental search agency to conduct an environmental search on a property for a client. The client at that time had £1000 in the client account generally on account of costs. The search agency’s invoice for £600 plus VAT arrived, addressed to the solicitor. The solicitor paid the invoice.
Which one of the following statements about this scenario would be correct?
The solicitor recorded an entry for £720 in the client ledger business account when making the payment.
The solicitor paid the search agency’s invoice as agent of the client.
The solicitor paid £720 from the client account to pay the invoice.
The solicitor recorded an entry for £120 in the VAT account [ledger] when making the payment.
The solicitor recorded an entry for £120 in the VAT account [ledger] when making the payment.
Correct
Correct. The solicitor was paying the invoice using the principal method as the solicitor was acting as principal (the solicitor instructed the agency and the invoice was addressed to the solicitor). When paying as principal there are separate accounting entries for the cost and for the VAT. The VAT accounting entries involve recording the VAT in the VAT account [ledger] and in the cash sheet business account.
205
You are acting for a client on the purchase of a property. Your client has instructed a surveyor who sends an invoice for £2000 plus VAT to your firm. The invoice is addressed to your client. Your client has £5000 in your firm’s client account on account of costs generally. The client asks you to pay the invoice on her behalf.
Which one of the following options correctly sets out the accounting entries that record payment of the invoice?
Debit client ledger client account £2000
Credit cash sheet client account £2000
Debit client ledger client account £2000
Credit cash sheet business account £2000
Debit VAT account £400
Credit cash sheet business account £400
Debit client ledger business account £2400
Credit cash sheet business account £2400
Debit client ledger client account £2400
Credit cash sheet client account £2400
Debit client ledger business account £2000
Credit cash sheet business account £2000
Debit VAT account £400
Credit cash sheet business account £400
Debit client ledger client account £2400
Credit cash sheet client account £2400
Correct. The solicitor will be paying the invoice as agent because the client instructed the surveyor and the invoice was addressed to the client. The cost and the VAT are added together and there is no separate entry for the VAT element. The firm holds sufficient money on client account for the client (£5000) and therefore payment should be made out of the law firm’s client account. The payment will be recorded as a credit in the cash sheet client account and a debit in the client ledger client account (showing that the solicitor now holds less money for the client).
206
A solicitor instructs an accountant to prepare a report which the solicitor will use to advise their client. The accountant sends their invoice for £800 plus VAT addressed to the solicitor and the solicitor pays it.
Which one of the following options correctly sets out the accounting entries that record payment of the invoice?
Debit client ledger business account £800
Credit cash sheet business account £800
Debit VAT account £160
Credit cash sheet business account £160
Credit client ledger business account £960
Debit cash sheet business account £960
Credit VAT account £160
Debit cash sheet business account £160
Credit client ledger business account £800
Debit client ledger business account £800
Debit client ledger client account £960
Credit cash sheet client account £960
Debit client ledger client account £800
Credit cash sheet client account £800
Debit VAT account £160
Credit cash sheet client account £160
Debit client ledger business account £800
Credit cash sheet business account £800
Debit VAT account £160
Credit cash sheet business account £160
Correct
Correct. The solicitor is paying the invoice as principal. The VAT and the cost are kept separate and the payment is made from the business account.
207
A law firm is due to issue a bill to a lender client for £1000 plus £200 VAT for the firm’s costs associated with the purchase of a property. The firm has a separate client ledger for the lender.
Which one of the following options shows the entries the firm should make when it issues the bill?
Credit client ledger business account for the borrower £1200
Debit cash sheet business account £1200
Debit client ledger business account for the borrower £1200
Credit profit costs £1200
Debit client ledger business account for the lender £1000
Credit profit costs £1000
Debit client ledger business account for the lender £200
Credit VAT account £200
Debit client ledger business account for the borrower £1000
Credit profit costs £1000
Debit client ledger business account for the borrower £200
Credit VAT account £200
Debit client ledger business account for the lender £1000
Credit profit costs £1000
Debit client ledger business account for the lender £200
Credit VAT account £200
Correct. Because the firm has a separate client ledger for the ledger, the entries will be made in the client ledger business account for the lender, plus the profit costs and VAT accounts.
208
Which one of the following statements about the accounting entries to record the issuing and/or paying of a bill is correct?
If a borrower client has agreed to pay their lender’s costs (you also act for the lender and have opened a separate client ledger for them), the accounting entries involved in recording the transfer of the costs will include an entry being made in the cash sheet client account.
A bill is issued to a borrower client’s lender (for whom you also act) and you do not have a separate client ledger for the lender. The borrower client agrees to pay the lender’s costs by a transfer from the client account. There will be four (two pairs) accounting entries to record the transfer.
If a bill is issued to a borrower client’s lender (for whom you also act) and you do not have a separate client ledger for the lender, the accounting entries for the issue of the bill will include records being made in the borrower client’s client ledger client account.
A bill is issued to a borrower client’s lender (for whom you also act) and you do not have a separate client ledger for the lender. The borrower client agrees to pay the lender’s costs by a transfer from the client account. There will be four (two pairs) accounting entries to record the transfer.
Correct. The issue of the bill plus VAT will be recorded in the borrower client’s client ledger and the transfer from the client account to the business account to pay the debt will involve four entries (as it is a transfer from one bank account to another). The entries would be:
Debit client ledger client account
Credit cash sheet client account
Credit client ledger business account
Debit cash sheet business account
In each entry the amount transferred will be the total of the bill plus VAT (as one figure).
Incorrect
If a bill is issued to a borrower client’s lender (for whom you also act) and you do not have a separate client ledger for the lender, the accounting entries for the issue of the bill will include records being made in the borrower client’s client ledger client account.
Incorrect. The accounting entries would include records being made in the borrower client’s client ledger business account (which is where money owed by the client to the firm is recorded) not in the borrower client’s client ledger client account (which is where money owed by the firm to the client is recorded)
If a borrower client has agreed to pay their lender’s costs (you also act for the lender and have opened a separate client ledger for them), the accounting entries involved in recording the transfer of the costs will include an entry being made in the cash sheet client account.
Incorrect. For a transfer of costs (the debt owed) only the client ledger client accounts for each of the transfer parties are used. The client account is not involved as no money is moving (being paid in or taken out) – simply a debt is being reallocated to a different client’s client ledger business account.
209
Your firm acts for the lender and the borrower on the purchase of a property. Your firm sent a bill to the lender for profit costs of £5,000 plus VAT of £1000. The firm does not have a separate client ledger for the lender. The borrower client has £10,000 in their client account with the firm and has instructed you to pay the lender’s bill by transferring the money from their client account.
Which one of the following options shows the entries to record the transfer?
Debit client ledger client account for the borrower £6000
Credit cash sheet client account £6000
Credit client ledger business account for the borrower £6000
Debit cash sheet business account £6000
Credit client ledger business account for the borrower £5000
Debit profit costs £5000
Credit client ledger business account for the borrower £1000
Debit VAT account £1000
Credit client ledger business account for the borrower £6000
Debit profit costs account £6000
Debit client ledger client account for the lender £6000
Credit cash sheet client account £6000
Credit client ledger business account for the lender £6000
debit cash sheet business account £6000
Credit client ledger business account for the borrower £6000
Debit cash sheet business account £6000
Debit client ledger client account for the borrower £6000
Credit cash sheet client account £6000
Credit client ledger business account for the borrower £6000
Debit cash sheet business account £6000
Correct
Correct. As the firm does not have a separate client ledger for the lender, the issue of the bill plus VAT will have been recorded in the borrower client’s client ledger business account, because the profit costs is money due to the firm, not client money. Paying the bill by a transfer from the borrower’s client account involves two steps: (1) money needs to be transferred out of the borrower’s client account (debit client ledger client account, and credit cash sheet client account); and (2) the money needs to be paid into the firm’s business account (credit client ledger business account, and debit cash sheet business account).
In each entry the amount transferred will be the total of the bill plus VAT (as one figure).
210
You are a solicitor in a firm which acts for a client on tax matters. You sent a bill for fees of £1800 plus VAT to the client a week ago and after discussing the bill with the client the managing partner of your firm has agreed to reduce the fees by £300 plus VAT.
Which of the following pairs of double entries show how the abatement should be recorded?
Debit client ledger business account £360
Credit profit costs £360
Credit client ledger business account £360
Debit profit costs £360
Debit client ledger business account £300
Credit profit costs £300
Debit client ledger business account £60
Credit VAT account £60
Credit client ledger business account £300
Debit profit costs £300
Credit client ledger business account £60
Debit VAT account £60
Credit client ledger business account £300
Debit profit costs £300
Credit client ledger business account £60
Debit VAT account £60
Correct
Correct. These are the correct entries and figures.
211
You are a solicitor in a firm which acts for a retail client. A year ago you sent a bill of costs to the client for property work on their lease. The bill was for £2800 plus VAT. You have just learnt that the client has gone into liquidation and creditors are unlikely to recover their unpaid debts. Your firm decides to write off the debt as no client money is held for the client.
Which of the following pairs of double entries show how the writing off of the debt should be recorded?
Debit client ledger client account £3360
Credit bad and doubtful debts £2800
Credit VAT Account £560
Credit client ledger business account £2800
Debit bad and doubtful debts £2800
Credit client ledger business account £560
Debit VAT Account £560
Credit client ledger business account £3360
Debit bad and doubtful debts £2800
Debit VAT Account £560
Debit client ledger business account £2800
Credit bad and doubtful debts £2800
Debit client ledger business account £560
Debit VAT account £560
Credit client ledger business account £2800
Debit bad and doubtful debts £2800
Credit client ledger business account £560
Debit VAT Account £560
Correct. These are the correct entries for the correct figures. The VAT on the bill of £2800 is £560 (20%). The debt and VAT need to be written off separately in separate double entries.
212
Which one of the following best sets out the accounts/ledgers where records will be made to record the reduction of a bill for fees of £600 plus VAT that had previously been sent to a client?
Client ledger business account, profit costs and VAT account.
Client ledger client account, client ledger business account and profit costs.
Profit costs and VAT account.
Client ledger client account, profit costs and VAT account.
Client ledger client account and profit costs.
Client ledger business account, profit costs and VAT account.
Correct. Two entries are made in the client ledger business account and one each in profit costs and VAT account to record the reduction of the profit costs and VAT.
213
Which judges can sit in a summary trial?
Lay justices or District Judges
Lay justices, District Judges or Deputy District Judges
Lay justices
District Judges
Lay justices, District Judges or Deputy District Judges
Correct. Lay justices (also known as Justices of the Peace), District Judges (a salaried judge) or a Deputy District Judge (a solicitor or barrister with a part-time judicial post) can conduct trials in the magistrates’ court.
214
What is the function of a jury in a Crown Court trial?
Tribunal of fact
Tribunal of law
Sums up the case
Tribunal of fact
Correct. There are certain circumstances in which the judge may also act as a tribunal of fact such as when hearing a submission of no case to answer, a voir dire or a Newton hearing which will be considered in separate elements.
215
How are the roles of tribunal of fact and tribunal of law dealt with in the magistrates’ court?
The magistrates are the tribunal of fact and the legal advisor is the tribunal of law
The magistrates are the tribunal of fact and tribunal of law
The magistrates are the tribunal of law, there is no tribunal of fact
Correct. This is arguably an unsatisfactory position when the magistrates make a ruling of law that certain evidence is inadmissible but hear the evidence in order to make that decision. In contrast, in the Crown court it would be the judge that would make a ruling of law that certain evidence is inadmissible and the jury would never hear the evidence.
216
How are the roles of tribunal of fact and tribunal of law dealt with in the magistrates’ court?
The magistrates are the tribunal of fact and the legal advisor is the tribunal of law
The magistrates are the tribunal of fact and tribunal of law
The magistrates are the tribunal of law, there is no tribunal of fact
Correct. This is arguably an unsatisfactory position when the magistrates make a ruling of law that certain evidence is inadmissible but hear the evidence in order to make that decision. In contrast, in the Crown court it would be the judge that would make a ruling of law that certain evidence is inadmissible and the jury would never hear the evidence.
217
How are the roles of tribunal of fact and tribunal of law dealt with in the magistrates’ court?
The magistrates are the tribunal of fact and the legal advisor is the tribunal of law
The magistrates are the tribunal of fact and tribunal of law
The magistrates are the tribunal of law, there is no tribunal of fact
Correct. This is arguably an unsatisfactory position when the magistrates make a ruling of law that certain evidence is inadmissible but hear the evidence in order to make that decision. In contrast, in the Crown court it would be the judge that would make a ruling of law that certain evidence is inadmissible and the jury would never hear the evidence.
218
How many Crown Courts are there in England and Wales?
10-19
More than 20
One
Less than 10cro
one
Correct. The Crown Court is regarded as a single court that sits in different places.
219
Which one of the following statements is incorrect?
The House of Lords’ powers are ultimately restricted to the review, proposed amendment and delay of legislation; an outright veto is not possible.
A bill may only be introduced into the House of Commons.
The Committee stage of a bill takes place after the second reading.
The second reading provides an opportunity for the relevant part of Parliament to discuss the amendments made to the bill by the other chamber.
The first reading is a mere formality where the bill's title is announced.
A bill may only be introduced into the House of Commons.
220
Which one of the following statements in relation to Royal Assent is correct?
Royal Assent is governed by the Royal Assent Act 1967. On the date of Royal Assent, a bill becomes an Act of Parliament and may not come into force until later.
Royal Assent is governed by the Royal Assent Act 1967. On the date of Royal Assent, a bill becomes an Act of Parliament and immediately comes into force.
Royal Assent is a formality governed by the Royal Assent Act 1967. A monarch can refuse to grant Royal Assent and refer a bill back to Parliament.
Royal Assent is a formality and on receiving Royal Assent a bill becomes an Act of Parliament and immediately comes into force.
Royal Assent is a formality and a bill does not become an Act of Parliament until in comes into force. This is not necessarily at the date of Royal Assent.
Royal Assent is governed by the Royal Assent Act 1967. On the date of Royal Assent, a bill becomes an Act of Parliament and may not come into force until later.
Correct
Correct
CONFUSED
Commencement
An Act of Parliament takes effect from the day it receives Royal Assent, unless there is a contrary provision in the statute.
Legislation does not always come into force on the same day it was enacted. It is more usual for an Act to include a commencement section detailing when the Act is to come into force.
Typically, the power is delegated to the Secretary of State with responsibility in the area with which the statute is concerned to issue a statutory instrument bringing the Act into force.
221
Which one of the following statements is incorrect?
The modern judiciary approaches the task of statutory interpretation with an open mind both to the ordinary meaning of words in legislation and to the wider and more contextual purpose of the Act in question.
The so-called ‘rules’ of statutory interpretation are essentially matters for academic debate and are not addressed or referred to as such in actual court judgments.
In addition to so-called ‘rules’ of statutory interpretation, the courts can apply certain ‘linguistic presumptions’ to aid them in the proper construction of legislation.
It is fair to say that some of the older terminology, notably the so-called ‘mischief rule’, has effectively become redundant in the modern age, and is only of historic significance.
Constitutional responsibility for interpreting statute rests jointly with Parliament and the judiciary.
Constitutional responsibility for interpreting statute rests jointly with Parliament and the judiciary.
Correct. This is not correct – once legislation has been passed by Parliament, it is the constitutional function of the courts to determine its meaning.
222
Which one of the following statements is correct?
The Latin phrase ejusdem generis refers to the situation in which the court will consider words in a particular provision in the context of the Act itself.
Where general words follow specific words, the presumption of ejusdem generis means that the general words are interpreted so as to restrict them to the same kind of matters or objects as the preceding specific words
The case of Inland Revenue Commissioners v Frere the court was able to interpret what other forms of payment were referred to in s. 169 of the relevant Act in relation to the phrase: “interest, annuities and other annual payments”.
The use by the courts of linguistic presumptions is very much a feature of cases approached in a purposive way
The Latin phrase expressio unius est exclusio alterius relates to the court considering open lists containing words of a similar kind or nature
Where general words follow specific words, the presumption of ejusdem generis means that the general words are interpreted so as to restrict them to the same kind of matters or objects as the preceding specific words
correct
223
Which one of the following statements isincorrect?
The modern purposive approach has partially been influenced by the culture of European jurisprudence and its generally teleological approach.
The four established rules of statutory interpretation have more or less equal relevance and applicability in modern cases.
The purposive approach to statutory interpretation is employed across the board nowadays and is equally applicable to all areas of societal regulation.
The old ‘mischief rule’, with its emphasis on the prior problem in the law that the relevant legislation was designed to solve, has to all intents and purposes been subsumed within the modern purposive approach.
In the case of Adler v George, it was the absurdity of a literal reading of the legislative provision that engaged the “golden rule” and persuaded the court to imply a more logical and sensible reading of s. 3 of the Official Secrets Act 1920.
The purposive approach to statutory interpretation is employed across the board nowadays and is equally applicable to all areas of societal regulation.
Correct. Though it is clear that this contextual approach is far more common in the modern era, the scope of its application will be varied by the courts, depending on the nature of the legal question before it.
224
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 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 giving this advice could reasonably be regarded as necessary to the other non-regulated work you are doing for him.
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 because the client is purchasing more that 25% of the shares in the company.
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.
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.
Incorrect. The specified activity is in this scenario is advising on the merits of investing in shares under article 53 RAO.
Incorrect. You have identified the wrong exclusion here. The necessary part exclusion under article 67 RAO does not apply because advising on the merits of buying shares in the son’s company is not a necessary part of advising the client on the sale of his business. However the sale of a body corporate exclusion under article 70 RAO does apply because the client is buying 50% or more of the shares in the son’s company.
Incorrect. The sale of a body corporate exclusion does apply, but it applies where the client is buying 50% or more of the shares, (not more than 25%).
Incorrect. Looking at step 4 of the FSMA decision tree, you are correct that advising the client on whether to invest the sale proceeds in shares in the son’s company is a separate piece of work to advising him on the sale of his business and is not complementary for the purposes of SRA Scope Rule 2. However giving the advice to the client is a small part of the overall work being offered by the firm and would therefore be incidental under s.327 FSMA. In any event you do not need to get as far as step 4 on the decision tree because the exclusion in art 70 – sale of a body corporate applies.
225
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.
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.
This question required you to understand the requirements on a solicitor to obtain rights of audience in the high court. This was covered in the element 'the civil court system’ in the topic ‘client care and professional conduct’ in the Civil Litigation and Disputes Resolution knowledge stream in Adapt as well as the DR Induction session.
Incorrect. Solicitors wishing to carry out advocacy in the High Courts must undertake training and pass assessments to obtain Higher Rights of Audience. A newly qualified solicitor is very unlikely to have done this.
Incorrect. Solicitors wishing to carry out advocacy in the High Courts must undertake training and pass assessments to obtain Higher Rights of Audience,they do not obatin rights of audience automatically after a set period of time.
Incorrect. Solicitors who have undertaken training and passed assessments to obtain Higher Rights of Audience do have rights to carry out advocacy in the Higher Courts which includes the High Court. However a newly qualified solicitor is very unlikely to have done this.
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.
Incorrect. Solicitors wishing to carry out advocacy in the High Courts must undertake training and pass assessments to obtain Higher Rights of Audience. A newly qualified solicitor is very unlikely to have done this.
226
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 should issue a new client care letter with a revised estimate.
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 write to the client giving them a revised cost estimate as soon as practicable.
You should give a revised cost estimate in a meeting with the client or over the telephone.
You do not need to inform the client if the client care letter set out an estimate with charge out rates.
You should write to the client giving them a revised cost estimate as soon as practicable.
This question related to private retainers and tested understanding of CCS 8.7 requiring solicitors to give clients the best possible information about fees. This was covered in the WAE induction session and the element ‘Client Care: Information Requirements’ in the topic ‘Managing Client Relationships: The 3 Cs’ in the Client Care and Professional Conduct knowledge stream of BPP Adapt.
Incorrect. You do not need to issue a new client care letter as only the information on costs will change in these circumstances.
Incorrect. This would not be desirable and may not be commercially viable for the law firm. The amount stated in the client care letter was an estimate, not a fixed fee.
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.
Incorrect. The revised estimate must be in writing (CCS 8.7)
Incorrect. Under CCS 8.7 you have an obligation to ensure clients have the best possible information on pricing. This is a continuing obligation and therefore you should advise the client in writing of your concerns about the initial estimate as soon as practicable.
227
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 should issue a new client care letter with a revised estimate.
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 write to the client giving them a revised cost estimate as soon as practicable.
You should give a revised cost estimate in a meeting with the client or over the telephone.
You do not need to inform the client if the client care letter set out an estimate with charge out rates.
You should write to the client giving them a revised cost estimate as soon as practicable.
This question related to private retainers and tested understanding of CCS 8.7 requiring solicitors to give clients the best possible information about fees. This was covered in the WAE induction session and the element ‘Client Care: Information Requirements’ in the topic ‘Managing Client Relationships: The 3 Cs’ in the Client Care and Professional Conduct knowledge stream of BPP Adapt.
Incorrect. You do not need to issue a new client care letter as only the information on costs will change in these circumstances.
Incorrect. This would not be desirable and may not be commercially viable for the law firm. The amount stated in the client care letter was an estimate, not a fixed fee.
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.
Incorrect. The revised estimate must be in writing (CCS 8.7)
Incorrect. Under CCS 8.7 you have an obligation to ensure clients have the best possible information on pricing. This is a continuing obligation and therefore you should advise the client in writing of your concerns about the initial estimate as soon as practicable.
228
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 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.
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 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.
This question tested the students understanding of the meaning of beneficial owner under the Money Laundering Regulations, and the need to carry out CDD on a company and it’s beneficial owner, as well as when you carry out ‘standard’ CDD, enhanced or simplified CDD and ongoing monitoring. These issues were covered in the BLP induction session and in the element ‘Money laundering: CDD’ in the topic ‘Good Business Practice: Managing Risk’ topic of Client Care and Professional Conduct in Adapt.
Incorrect. 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), so you need to check whether any individuals own more than 25% of the shares in A Limited.
Incorrect. 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. You should carry out standard CDD on A Limited and also check the beneficial owner(s) of A Limited and carry out standard CDD on them.
Incorrect. There is nothing to suggest a particularly high risk of money laundering on these facts so enhanced CDD is not required. Standard CDD is sufficient. You will also need to check who the beneficial owner of A Limited is and carry out CDD on them.
Incorrect. There is nothing on these facts 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. You should carry out standard CDD on the client. You will also need to check who the beneficial owner of A Limited is and carry out CDD on them.
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.
229
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 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 provided you comply with the SRA Financial Services (Conduct of Business) Rules 2019.
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 because the client is entering the transaction on the advice of an authorised person.
You can arrange for the client to purchase the bonds because bonds are not a specified investment.
You can arrange for the client to purchase the bonds because the client is entering the transaction on the advice of an authorised person.
This question tested understanding of bonds being a specified investment, and the exclusion of arranging deals through an authorised person (article 29 RAO). This 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.
Incorrect. 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 solicitor does not need to be authorised by the FCA.
Incorrect. 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. 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.
Incorrect. 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.
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.
Incorrect. Bonds are a specified investment, 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 solicitor does not need to be authorised by the FCA.
230
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 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 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 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.
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.
This question tested students knowledge of criminal legal aid, including public funding at the police station and the interests of justice and means test for representation orders in the magistrates’ court. This was covered in the element ‘Finding overview’ in the topic ‘preliminaries to prosecution’ in the Criminal Litigation knowledge stream in Adapt and also in the Criminal Litigation induction session.
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.
231
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.
Yes, it is client money.
This question tested your understanding of the definition of ‘client money’. This was introduced to the students in the PLP induction session and is covered in the element ‘what is client money? Rule 2.1’ in the topic ‘Solicitors Accounts’ in the Client Care and Professional Conduct section of BPP Adapt. Mortgage money received from a lender is given as an example of client money in the BPP Adapt element, ‘what 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).
Incorrect. As the money is held by the solicitor on behalf of a third party in relation to regulated services delivered by the solicitor it is client money under Rule 2.1(b). Mortgage money received from a lender is given as an example of client money in the BPP Adapt element, ‘what is client money?’. The money has been sent to the purchaser’s solicitor to enable completion of the purchase to take place.
232
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:
The cheque must be held on file pending payment of the court fees.
Although the court fees have not yet been paid, as they have been incurred, the money is non-client money.
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.
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.
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.
This question tested your understanding of the definition of ‘client money’. This was introduced to the students in the PLP induction session and is covered in the element ‘what is client money? Rule 2.1’ in the topic ‘Solicitors Accounts’ in the Client Care and Professional Conduct section of BPP Adapt.
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.
233
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 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 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 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.
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 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.
This question tested students’ application of the definition of reserved legal activities. This was covered in the recording ‘Introduction to the regulation of firms’ which is located in the ‘Knowledge Stream Information’ section of the Professional Conduct page of the hub.
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.
234
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. Continue to work on the file as usual, unless the Money Laundering Reporting Officer tells you to stop.
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.
Inform the police. Continue to work on the file as usual, unless the police tell you to stop.
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. Do not work on the file until they have carried out the relevant checks.
This question is about the procedure to follow under the Proceeds of Crime Act 2002 (PoCA) if you suspect money laundering. It is covered in the element ‘money laundering: offences under PoCA’ and the risk factors are covered in the element ‘ money laundering; warning signs’ both are in the topic ‘Good Business Practice: Managing Risk’ in the Client Care and Professional Conduct section of Adapt. It was also covered in the BLP induction session.
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.
235
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 must be issued in the County Court.
The claim can be issued in the High Court or the County Court.
The claim must be issued in the Chancery Division of the High Court.
The claim should be issued in the Queen’s Bench Division of the High Court.
The claim should be issued in a specialist division of the County Court.
The claim must be issued in the County Court.
This question required you to understand the court in which a personal injury claim with a value of less than £50,000 should be commenced. This was covered in the element, ‘the civil court system’ in the ‘Introduction to dispute resolution’ topic in the Civil Litigation and Disputes Resolution knowledge stream in Adapt. It was also covered in the Dispute Resolution induction session.
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.
236
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:
Decisions of the Supreme Court and the House of Lords.
Only decisions of the Supreme Court.
Decisions of the High Court, the Court of Appeal, the Supreme Court and the House of Lords.
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 Court of Appeal, the Supreme Court and the House of Lords.
This question required an understanding of court decision binding on the Court of Appeal. This was covered in the element 'Rules of Precedent’ in the topic (Client Care and Professional Conduct) in the Civil Litigation and Disputes Resolution knowledge stream in Adapt, and the DR induction session.
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.
237
13
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:
£75,000
£60,000
£30,000
£50,000
£80,000
£60,000
This question tested your knowledge of damages based agreements which was covered in the DR induction workshop and the element ‘funding’ in the topic ‘Client care and professional conduct’ in the Civil Litigation and Dispute Resolution knowledge stream in adapt. You considered a similar MCQ involving working out the amount the firm could invoice in relation to a conditional fee agreement in the DR induction session. The MCQ in in the induction session came from the Kaplan sample SQE questions.
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.
238
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 client ledger 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 business account.
Credit client ledger business account. Debit cash sheet business account.
Debit client ledger client account. Credit cash sheet client account.
This question requires students to recognise that the payment would be made out of client money and therefore the client account and correctly identify the ledger entries to do this. This was introduced in the PLP induction session. You also read the element ‘basic client ledger entries’ as prep for the WAE induction session and for this session. This is a useful element that you should revisit if you found this question difficult as it walks through examples of paying in and withdrawing client money and also withdrawing non-client money and shows the ledger entries.
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.
239
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.
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 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.
The firm will pay the court fees from the business account.
This question tests whether a payment should be made out of client account if the client has insufficient funds for the full payment on client account. Client money was introduced to the students in the PLP induction session and is covered in the element ‘what is client money? Rule 2.1’ in the topic ‘Solicitors Accounts’ in the Client Care and Professional Conduct section of BPP Adapt. Note that although you have not covered Rule 5.1 yet, but the question is included to see if you can work out the answer on the basis of common sense.
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.
240
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:
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 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.
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 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.
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.
This question is about the procedure to follow under the Proceeds of Crime Act 2002 (PoCA) if you suspect money laundering. It is covered in the element ‘money laundering: offences under PoCA’ and the risk factors are covered in the element ‘ money laundering; warning signs’ both are in the topic ‘Good Business Practice: Managing Risk’ in the Client Care and Professional Conduct section of Adapt. It was also covered in the BLP induction session.
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.
241
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:
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.
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.
Yes, because the provision of the advice is outside the scope of the Code of Conduct for Solicitors.
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.
This question tested your knowledge of the meaning of ‘advising on the merits’ and therefore whether the solicitor would be advising on investments which is a specified activity under RAO. This was covered in the 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. Pensions weren’t specifically stated as specified investments in the BLP induction session, but it is a matter of common sense that a pension is a financial product and therefore you would expect it to be regulated.
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.
242
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 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.
Tell the client that she has a good case, but you cannot act for her because you have no experience of advising blind clients.
You should take on the new client despite your concerns.
You should take on the new client despite your concerns.
This question tested your understanding of the requirement to make reasonable adjustments under the Equality Act 2010. It was covered in the WAE inductions session (where students attempted a similar MCQ from the Kaplan sample questions) and in the element ‘the Equality Act 2010’) in the topic Regulatory and Legal Environment in the Client Care and Professional Conduct section of Adapt.
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.
243
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 tried in the magistrates’ court and any appeal will be made to the Court of Appeal, Criminal Division.
Proceedings will be commenced and substantive hearings will take place in the magistrates’ court. Any appeal will be made to the Crown Court.
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 High Court.
Proceedings will be commenced in the magistrates’ court and the case will be sent to the Crown Court.
Proceedings will be commenced in the magistrates’ court and the case will be sent to the Crown Court.
This question tested your understanding of the court in which a murder charge will be heard. This was covered in the element 'Criminal Courts Structure’ in the topic ‘ Introduction’ in the Criminal Limitgation knowledge stream in Adapt and also in the Criminal Litigation Induction session.
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.
244
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 petty cash account.
Credit client ledger client account. Debit cash sheet client account.
Debit client ledger business account. Credit cash sheet business account.
Debit client ledger client account. Credit cash sheet client account.
Credit client ledger business account. Debit cash sheet business account.
Debit client ledger business account. Credit cash sheet business account.
This question requires students to recognise that the payment would be made out of non-client money and correctly identify the ledger entries to do this. This was introduced to the students in the PLP induction session. You also read the element ‘basic client ledger entries’ as prep for the WAE induction session and for this session. This is a useful element that you should revisit if you found this question difficult as it walks through examples of paying in and withdrawing client money and also withdrawing non-client money and shows the ledger entries.
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.
245
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:
£40,000
£20,000
£36,000
£16,000
£25,000
£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.
246
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 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 his case is strong enough.
Civil CLS funding may be available but only if he meets the means test.
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.
247
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, 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.
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 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).
248
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 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 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 must be authorised by the SRA because advising on debt claims is a regulated activity.
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’.
249
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 ongoing monitoring on Company A and the man because you have not acted for Company A before.
You should carry out standard CDD on 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 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).
250
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 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.
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.
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’.
251
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 exemption applies to professional firms which are supervised by the Solicitors Regulation Authority when they engage in corporate work.
No, because the client is seeking advice on the purchase of shares in a specific company and no exclusion or exemption applies.
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 involves at least 50% of the voting shares in the company.
Yes, because an exclusion applies if the transaction relates to the purchase of any number of shares in a private limited company.
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.
252
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 can be issued in the High Court or the County Court.
The claim must be issued in the High 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.
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.
253
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 because solicitors do not have Higher Rights of Audience.
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 unless he has completed the additional assessment requirements to obtain Higher Rights of Advocacy.
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 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.
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.
254
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 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.
You can provide advice to the client on both issues, provided you are competent to do so.
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.
255
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:
Failure to disclose your suspicions to your firm’s nominated officer; using or possessing criminal property; transferring 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.
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.
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.
256
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 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 are authorised to do so by the Money Laundering Reporting Officer.
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 as soon as the suspicious activity report has been made.
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’.
257
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 advise the client on both issues, provided you are competent to do so.
You can only advise the client about the pension plan, provided you are competent to do so.
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 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 can only advise the client about purchasing the holiday cottage, provided you are competent to do so.
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.
258
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:
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.
Yes, since the transaction here is the sale of a body corporate. No authorisation is therefore required to provide the advice.
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.
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.
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.
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.
259
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.
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
260
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 has breached the Code but the supervisor has not.
The junior solicitor and the supervisor have both breached the Code.
The Compliance Officer for Legal Practice has breached the Code, but the junior solicitor and the supervisor have not.
The partner 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 and the supervisor have both breached the Code.
This question concerns the obligations of competence on solicitors under the Code of Conduct for Solicitors (‘CCS’). CCS applies to all solicitors and lawyers authorised by the SRA to provide legal services. CCS 3.3 requires solicitors to maintain their competence and keep their professional knowledge and skills up to date. CCS 3.5 requires solicitors who supervise others to effectively supervise work being done for clients. CCS 3.6 requires lawyers to ensure the individuals they manage are competent to carry out their role. The junior solicitor has breached CCS 3.3, the supervisor has breached CCS 3.5. The partner may have breached CCS 3.6, but he has taken action to rectify the error. It is possible that the COLP has failed to ensure the firm complies with all its regulatory obligations here, but this is a breach of the Code of Conduct for Firms, not the Code of Conduct for Solicitors. These points were covered in the recording ‘Introduction to the regulation of law firms’.
261
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 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.
The law firm does not have to appoint the candidate to the post and 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 and must 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 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 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.
262
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 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 simplified customer due diligence because the client presents a low risk of money laundering as you have identified the source of the funding.
You should carry out enhanced customer due diligence because the client is not resident in the UK.
You should carry out enhanced due diligence because the client is funding half of the purchase in cash.
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 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.
263
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:
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.
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.
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.
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.
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.
264
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 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 now and invoice the client £200 next month.
She must invoice the client £500 and write off the additional £200.
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.
She should charge the client £700.
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.
265
You act for a food wholesaler in a breach of contract dispute with a food retailer. The court has ordered standard disclosure and both parties have carried out the requisite searches, prepared and served disclosure lists and carried out inspection. An email (the 'Email') then comes to the wholesaler's attention. The Email is adverse to the wholesaler’s position and falls within the scope of the wholesaler's disclosure obligations. Through no fault of the wholesaler, it was unaware of the Email at the time disclosure lists were served. The wholesaler indicates to you that in no circumstances will it notify the other party of the Email, disclose it or permit inspection.
Which of the following courses of action should you take if the wholesaler maintains this position regardless of your advice?
Select one alternative:
You should cease to act.
You should apply to court for permission to disclose the Email.
You should notify the retailer's solicitor of the Email.
You should notify the court of the Email.
You are not required to take any further action.
You should cease to act.
In failing to disclose the document, the wholesaler is failing to comply with a disclosure obligation and is also misleading the court and the opponent. Pursuant to Rule 1.4 of the Code of Conduct, you cannot be complicit in the actions of others that mislead the court. You will therefore need to cease to act. You cannot notify the court or the retailer of the email (whether by an application to court or otherwise) as this would be to breach the obligation of confidentiality owed to the wholesaler.
266
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 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.
You can act for the client, but you must obtain the client’s permission to pay the Referral Fee to the other firm.
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 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.
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’.
267
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 can be issued in the High Court or the County Court.
The claim must be issued in the County Court.
The claim must be issued in the Technology and Construction Court.
The claim must be issued in the Circuit Commercial Court.
The claim must be issued in the High Court.
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.
268
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 must be authorised by the SRA because advising on debt claims is a regulated activity.
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 does not need to be authorised by the SRA unless the solicitor will be appearing before the court.
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’.
269
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 has breached the Code but the supervisor has not.
The supervisor has breached the Code but the junior solicitor has not.
The Compliance Officer for Legal Practice has breached the Code, but the junior solicitor and the supervisor have not.
The partner has breached the Code, but the junior solicitor and the supervisor have not.
The junior solicitor and the supervisor have both breached the Code.
The junior solicitor and the supervisor have both breached the Code.
This question concerns the obligations of competence on solicitors under the Code of Conduct for Solicitors (‘CCS’). CCS applies to all solicitors and lawyers authorised by the SRA to provide legal services. CCS 3.3 requires solicitors to maintain their competence and keep their professional knowledge and skills up to date. CCS 3.5 requires solicitors who supervise others to effectively supervise work being done for clients. CCS 3.6 requires lawyers to ensure the individuals they manage are competent to carry out their role. The junior solicitor has breached CCS 3.3, the supervisor has breached CCS 3.5. The partner may have breached CCS 3.6, but he has taken action to rectify the error. It is possible that the COLP has failed to ensure the firm complies with all its regulatory obligations here, but this is a breach of the Code of Conduct for Firms, not the Code of Conduct for Solicitors. These points were covered in the recording ‘Introduction to the regulation of law firms’.
270
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:
The law firm does not have to appoint the candidate to the post and does not have to provide 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.
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 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 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.
271
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 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.
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 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.
272
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.
Answered and correct
Civil CLS funding may be available but only if his case is strong enough.
Civil CLS funding may be available but only if he meets the means test.
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 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.
273
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
£36,000
£25,000
£20,000
£40,000
£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.
274
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 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.
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 provide advice to the client on both issues, provided you are competent to do so.
You can provide this advice to the client since he is a high net worth individual and is well known to the firm.
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 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.
275
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 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 advise the client on both issues, provided you are competent to do so.
You can only advise the client about purchasing the holiday cottage, 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 can only advise the client about the pension plan, provided you are competent to do so.
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.
276
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 should not provide advice on either issue, since to do so will breach the general prohibition under FSMA.
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 would be only able to review the articles of the company and advise about the rights attaching to the shares.
You can provide advice on both issues because the client is purchasing shares in a body corporate.
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 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).
277
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 only provide this advice if the client is a high net worth individual, since this constitutes an exception to the prohibition on financial promotions.
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 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.
Yes, since the transaction here is the sale of a body corporate. No authorisation is therefore required to provide the advice.
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.
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.
50 OR MORE
278
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:
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 exclusion applies if the transaction involves at least 50% of the voting shares in the company.
Yes, because an exemption applies to professional firms which are supervised by the Solicitors Regulation Authority when they engage in corporate work.
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 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 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.
279
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:
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.
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.
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.
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.
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.
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.
280
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 Money Laundering Reporting Officer.
You can proceed with the transaction as soon as the suspicious activity report has been made.
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 your firm is authorised to do by the NCA
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 your firm is authorised to do 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’.
281
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 standard CDD on Company A and identify and verify the man as he is the beneficial owner of Company A.
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 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.
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.
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).
282
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 customer due diligence because the client is not resident in the UK.
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.
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 standard customer due diligence because there is nothing to suggest the client presents a high risk of money laundering.
You should carry out enhanced due diligence because the client is funding half of the purchase in cash.
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.
283
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:
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.
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.
Answered and correct
Failure to disclose your suspicions to your firm’s nominated officer; using or possessing criminal property; transferring criminal property.
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.
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.
284
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 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.
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, 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
285
A solicitor specialising in criminal 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 because solicitors do not have Higher Rights of Audience.
The solicitor can represent the client at the hearing because he has been practising for five years.
The solicitor can represent the client because solicitors can carry out advocacy in all courts and tribunals.
The solicitor can represent the client at the hearing because solicitors can carry out advocacy in the County Court.
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 solicitors can carry out advocacy in the County Court.
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.
286
A private limited company with unamended Model Articles wishes to change its name. The company has four directors who are also the shareholders. All the shareholders have an equal share of the company’s issued share capital of 100 ordinary shares.
What is the procedure that must be followed in order to change the name of the company?
Select one alternative:
A special resolution is required to change the name of the company. Any three directors will have sufficient voting power to pass the resolution at a board meeting.
An ordinary resolution is required to change the name of the company. A majority of shareholders will have sufficient voting power to pass the resolution at a general meeting.
An ordinary resolution is required to change the name of the company. A majority of directors will have sufficient voting power to pass the board resolution at a board meeting.
A board resolution is required to change the name of the company. A majority of directors will have sufficient voting power to pass the board resolution at a board meeting.
A special resolution is required to change the name of the company. Any three shareholders will have sufficient voting power to pass the resolution at a general meeting
A special resolution is required to change the name of the company. Any three shareholders will have sufficient voting power to pass the resolution at a general meeting.
287
A solicitor acts for a residential buyer, and the transaction is nearing simultaneous exchange and completion.
The buyer sends to the solicitor a bank transfer comprising £800 solicitors’ costs and £3,000 estate agent’s commission (both sums inclusive of VAT). The solicitor’s invoice has been raised and delivered to the buyer, but the estate agent’s invoice has not yet been received.
How should the solicitor deal with the bank transfer sum when it arrives?
Select one alternative:
The solicitor should pay the whole of the sum into an account separate from both client account and business account, and then transfer £800 to business account and £3,000 to client account
The solicitor should pay the whole of the sum into client account and leave it there pending completion
The solicitor should pay the whole of the sum into business account and promptly transfer £3,000 to client account
The solicitor should pay the whole of the sum into business account and leave it there pending completion.
The solicitor should pay the whole of the sum into client account and promptly transfer £800 to business account
The solicitor should pay the whole of the sum into client account and promptly transfer £800 to business account
This is a PLP question, which assesses your understanding of the rules governing solicitors accounts. When there is a mixed payment of client money and non-client money, it must be paid into client account, and the non-client money transferred to business account.
Correct – when there is a mixed payment of client money and non-client money, it must be paid into client account, and the non-client money transferred to business account.
288
A firm of solicitors is acting on behalf of a client who is selling their flat and buying a new house. A deposit of £20,000 has been received by the solicitors in respect of the sale, the whole of which, under the Standard Conditions of Sale, will be used towards the deposit for the client’s purchase.
Which one of the following pairs of double entries shows how the receipt of the deposit should be recorded?
Select one alternative:
Credit stakeholder ledger and debit cash sheet client account
Credit client ledger client account and debit cash sheet client account
Credit cash sheet client account and debit client ledger client account
Credit cash sheet business account and debit client ledger client account
Credit client ledger client account and debit stakeholder ledger
Credit client ledger client account and debit cash sheet client account
This is a PLP question, which assesses your understanding of the rules governing solicitors accounts, specifically accounting entries for deposits in property transactions.
Correct. The deposit is being held by the seller’s solicitor as agent. The deposit is client money (Rule 2.1(b)) and will be paid into the seller’s solicitor’s client account and it will be credited to the seller’s client ledger (client side as it is client money). The stakeholder ledger is only used by the seller’s solicitor to record receipt of a deposit when they are holding the deposit as stakeholder (not the case on these facts).
---
Credit stakeholder ledger and debit cash sheet client account
- Please review your materials on the accounting entries for deposits in property transactions. The deposit is being held by the seller’s solicitor as agent. The stakeholder ledger is only used by the seller’s solicitor to record receipt of a deposit when they are holding the deposit as stakeholder (not the case on these facts).
289
You are about to have an initial meeting with a new client who is a first-time buyer of a house.
Why is it important that you discuss their means of funding the purchase?
Select one alternative:
If they are short of the full purchase price, you may be able to find issues with the property that would enable you to negotiate a reduction in price
If they are borrowing the money, you will need plenty of notice to negotiate the legal charge and certificate of title with the mortgage lender
To check for any problems with a shortfall or timing of the funds earlier rather than later, and to find out if they intend for you to act for their mortgage lender
As they will likely be paying in cash, to check that the funds have not derived from criminal proceeds
You may be able to help them find an alternative lender with a better rate of interest on their mortgage
To check for any problems with a shortfall or timing of the funds earlier rather than later, and to find out if they intend for you to act for their mortgage lender
This is a PLP question which assesses your understanding of a freehold transaction and the different issues that arise at the initial instructions stage. A solicitor should identify any issues with funding. For example, a client may not have considered Stamp Duty Land Tax or Land Transaction Tax. If the solicitor is to act for the mortgage lender then they will need to know this; for example, to check that they are on that lender’s panel. A solicitor will not generally be authorised to give financial advice in respect of interest rates. Finding issues with the property that would enable a reduction in the purchase price is not likely to happen in most cases and is not the main reason that a solicitor needs to discuss funding. It is also not accurate to say that a first-time buyer will be paying in cash. Finally, residential lenders will issue standard forms of legal charge and certificate of title, and there is no scope for these to be negotiated.
290
You are acting on the administration of the estate of a deceased client and you discover that a payment of £100 was made from the client account on behalf of the client when that client did not actually have any money in the client account.
Which one of the following best sets out what you should do?
Select one alternative:
You should promptly replace the client money withdrawn by doing the following: Debit client ledger client account £100. Credit cash sheet client account £100. Credit client ledger business account £100. Debit cash sheet business account £100.
You should promptly replace the client money wrongly withdrawn by doing the following: Debit client ledger business account £100. Credit cash sheet business account £100. Credit client ledger client account £100. Debit cash sheet client account £100.
You should promptly replace the client money wrongly withdrawn by doing the following: Debit stakeholder account £100. Credit cash sheet business account £100. Credit client ledger client account £100. Debit cash sheet client account £100.
You must report this breach to your firm’s Compliance Office for Finance and Administration within ten working days.
You should within five working days replace the client money withdrawn by doing the following: Debit profit costs £100. Credit cash sheet client account £100. Credit client ledger business account £100. Debit cash sheet business account £100.
You should promptly replace the client money wrongly withdrawn by doing the following: Debit client ledger business account £100. Credit cash sheet business account £100. Credit client ledger client account £100. Debit cash sheet client account £100.
This is a Solicitors Accounts question in the context of wills and estates. This question relates to the obligation to correct any breaches of the SRA Accounts Rules promptly. Here money had been withdrawn from the client account when there was no money for that client in the client account. This meant that another client’s money was being used. The firm must make a transfer of money from their business account to their client account and two steps are involved: 1. Withdraw money from the business account (debit the client ledger business account for the client, and credit the cash sheet business account), and 2. Pay the money into the client account (credit the client ledger client account for the client and debit the cash sheet client account).
291
You are a solicitor in a firm of solicitors. Your firm issued a bill of costs to a client for fees of £35,000 plus VAT. It subsequently reduces its fees by £2,000.
Which one of the following correctly sets out the double entry/entries needed to record this abatement in your firm’s accounts?
Select one alternative:
Debit profit costs £2,000. Credit client ledger business account £2,000. Debit VAT account £400. Credit client ledger business account £400.
Credit client ledger business account £2,400. Debit cash sheet business account £2,400.
Debit profit costs £2,400. Credit client ledger client account £2,400.
Debit client ledger business account £2,400. Credit profit costs £2,400.
Debit client ledger business account £2,000. Credit profit costs £2,000. Debit client ledger business account £400. Credit VAT account £400.
Debit profit costs £2,000. Credit client ledger business account £2,000. Debit VAT account £400. Credit client ledger business account £400.
This is a Solicitors Accounts question in the context of wills and estates. This question relates to the entries required to reduce a bill issued to a client. The bill was for £35,000 plus VAT and was reduced by £2,000. The accounting entries need to show that as well as the firm’s costs being reduced by £2,000 (for which you would debit profit costs and credit client ledger business account) you also separately need to record that the VAT charged on the bill will also be reduced. The VAT on £2,000 is £400 (VAT being charged at 20%). The entries for the reduction of VAT are debit VAT account and credit client ledger business account. This is covered in the element ‘Bad debts and the abatement of bills’ in the Solicitors Accounts topic.
292
You are an apprentice at Price Prior, and your friend is an apprentice at Mynett Ruby Solicitors. Both firms have 10 partners. You are having lunch with your friend before attending Price Prior’s Equality, Diversity and Inclusion Policy (‘EDIP’) training course in the afternoon. Your friend says she has never heard of an EDIP and is sure that Mynett Ruby does not have any such policy in place. In addition, she has certainly never had any training on the matter.
Which ONE of the following statements is CORRECT?
Your friend should make an enquiry when she returns to the office as to whether the firm has an equality, diversity and inclusion policy. She should ask her employers for training in this area because the Code of Conduct for Solicitors contains a requirement not to unfairly discriminate which binds not only the partners and managers of the firm, but also the rest of the staff, including apprentices.
You should tell your friend not to worry because it is the responsibility of the partners of the firm, not your friend, to ensure that everyone in the firm complies with the obligation not to unfairly discriminate.
The Codes requires that each firm must appoint an ‘Equality, Diversity and Inclusion Manager’ whose responsibility it is to ensure the firm’s equality, diversity and inclusion policy is written and implemented across the firm.
Given the fact that Mynett Ruby is a 10 partner firm, its failure to have an equality and diversity policy will, of itself, amount to a breach of the Code of Conduct for Solicitors and the Code of Conduct for Firms.
You should suggest that, in order to comply with the Codes, the partners of Mynett Ruby Solicitors should cut and paste a ‘standard’ equality, diversity and inclusion policy from the internet and e-mail all staff at the firm immediately with a copy of the policy.
Your friend should make an enquiry when she returns to the office as to whether the firm has an equality, diversity and inclusion policy. She should ask her employers for training in this area because the Code of Conduct for Solicitors contains a requirement not to unfairly discriminate which binds not only the partners and managers of the firm, but also the rest of the staff, including apprentices.
Correct. Whilst responsibility rests mainly with the partners and managers for ensuring that the firm has systems in place to comply with its regulatory and legal requirements (SRA Code of Conduct for Firms (‘CCF’) 2.1), individuals working for the firm, including apprentices, are still required not to discriminate unfairly under CCS 1.1. A responsible and prudent apprentice would and should raise the issue with the firm’s management.
293
You work at a large international firm and have been asked to go to the reception of your firm’s offices to meet Aarya, a prospective client. Aarya has never been to your firm before and your firm has never acted for her. You have been asked to bring her to a meeting room for a preliminary meeting with your supervisor.
Bearing in mind the different factual scenarios set out below, which ONE of the following statements is CORRECT?
When you get to reception you discover that Aarya is profoundly deaf. She is able to lip read but has asked your firm to record the meeting and have the meeting notes transcribed so she can review them before deciding whether or not to instruct your firm. Your firm does not usually transcribe meetings and will have to pay someone to transcribe the meeting notes. The firm can pass the cost of paying for the notes to be transcribed to Aarya.
In the meeting Aarya reveals she is transgender and she has been denied the right to compete as a female at her local archery club and she would like to challenge the decision. Your supervisor believes that women who are transgender should not be able to compete in such circumstances and refuses to act for her. It is likely your supervisor will be found to be in breach of the requirement not to unfairly discriminate in the Code of Conduct for Solicitors.
When you get to reception you discover that Aarya is in a wheel chair. The meeting room is on the first floor and your office does not have a lift. The best course of action for you to take is to apologise to Aarya and recommend that she seeks advice from another law firm.
When you get to reception you discover that Aarya’s first language is Bengali and her understanding of English appears to be limited. As your understanding of Bengali is non-existent, your best course of action is to recommend to Aarya that she seeks advice from another law firm.
When you get to reception to you discover that Aarya has come for advice on a prenuptial agreement in relation to her forthcoming marriage to her partner Sarah. You are strongly opposed to the idea of gay marriage hand have asked your supervisor if you can be excused from acting for Aarya as you do not feel you will be able to give her objective advice. Your supervisor permits your request and is right to do so on the ground that insisting you act for Aarya means you will not be able to comply with requirement to act in the best interests of your client under Principle 7.
In the meeting Aarya reveals she is transgender and she has been denied the right to compete as a female at her local archery club and she would like to challenge the decision. Your supervisor believes that women who are transgender should not be able to compete in such circumstances and refuses to act for her. It is likely your supervisor will be found to be in breach of the requirement not to unfairly discriminate in the Code of Conduct for Solicitors.
Correct. Under CCS 1.1 you must ensure that you do not unfairly discriminate by allowing your personal views to affect your professional relationships and the way in which you provide your services, the supervisor will have breached this provision if they refuse to act for Aarya even though Aarya is not yet a client of the firm.
Sexual orientation is a protected characteristic under the Equality Act (‘EA’). and refusing to act for Aarya on the grounds of her sexual orientation would be discriminatory and unlawful under EA. In addition the supervisor would be breaching CCS 1.1.
In relating to transcribing the notes for the meeting, you have an obligation under CCS 3.4 to take account of your client’s attributes, needs and circumstances. You will therefore need to transcribe the notes. You also have a duty to make reasonable adjustments to the service you provider under section 29 EA. Given you work at a large international firm, it is unlikely that the cost involved in transcribing meeting notes will be so great as to make the adjustment unreasonable. You will not be able to pass on the costs for these adjustments, see the Guidance on the SRA’s approach to equality, diversity and inclusion.
294
You work in the corporate department of a large national firm. Arshad wishes to instruct your firm in connection with the acquisition of a small abattoir business which processes and supplies Halal meat to butchers who serve the Islamic community. The purchase price for the business is to be £750,000 and the agreement will be governed by English law.
Which ONE of the following reasons would your supervisor be able to rely on to refuse to accept Arshad’s instructions?
Your supervisor will not be able to effectively communicate with Arshad as Arshad’s first language is Bengali and he only has a limited understanding of English.
Your supervisor considers that they do not have sufficient religious knowledge to be able to advise on the sale of the abattoir business.
It is your firm’s policy not to accept instructions in relation to corporate acquisitions where the purchase price is less than £1 million
Your supervisor will is vegetarian and will therefore not be able to act in the best interests of the client.
Your supervisor considers that they do not have enough time to be able to advise on the sale of the abattoir business.
It is your firm’s policy not to accept instructions in relation to corporate acquisitions where the purchase price is less than £1 million
Race and religion or belief are both protected characteristics under the Equality Act. Under section 29, a person concerned with the provision of a service to the public, or a section of the public must not discriminate against a person requiring the service by not providing the person with the service. It would be discriminatory to refuse to provide the service because of either of these protected characteristics.
In relation to the language issue, while there may be a communication problem, this can be resolved by making arrangements for a translator to assist in translation of documents and to attend meetings.
In relation to religious knowledge it is unlikely that religious knowledge is necessary to complete the legal work in purchasing the business. The client will be looking to the solicitor for legal advice, not advice on the religious aspects of slaughtering animals in an abattoir, and to the extent knowledge of Islamic practice is needed, the solicitor will need to obtain this from the client.
Not having enough time to complete the work might be a good reason in a small firm with a limited number of lawyers. However this is a large firm so the supervisor should be able to refer the work to a colleague if they themselves are too busy.
Turning down the instructions because the supervisor is vegetarian would amount to a breach of the obligation not to unfairly discriminate by allowing your personal views to affect your professional relationships and the way you provide your services under CCS 1.1.
The policy not to accept instructions where the purchase price is less than £1 million is not discriminatory and would apply regardless of the race or religion of the client.
295
Nisha appointed a law firm to administer the estate of her mother. A year after appointing the firm, the administration has not been completed and the Nisha has become increasingly frustrated at the length of time it takes the solicitor to respond to her questions and requests for action. Nisha follows the law firm’s complaints procedure but eight weeks after making the complaint, the issue has not been resolved to her satisfaction.
Which option best sets out the action Nisha should take next?
She should refer her complaint to the Law Society
She should refer her complaint to the Legal Services Board.
She should refer her complaint to the Solicitors Disciplinary Tribunal.
She should refer her complaint to the Legal Ombudsman
She should refer her complaint to the SRA
She should refer her complaint to the Legal Ombudsman
Correct. As the firm’s internal complaints procedure has been exhausted, Nisha, as an individual should refer the complaint to the Legal Ombudsman.
Clients can refer complaints concerning misconduct, dishonesty or breaches of the SRA’s rules to the SRA, but there is nothing on these facts to suggest misconduct or dishonesty or breach of the SRA’s rules. It is possible the firm has breached CCS 3.2 which requires solicitors to provide a service that is competent and delivered in a timely manner, but we do not know enough in this scenario to determine whether there is a breach of this provision or whether there is a reason for the perceived delay.
The SDT deals with serious breaches of the SRA’s rules.
The Law Society would not be the appropriate body as it represents solicitors in England and Wales and supports them in their careers.
The Legal Services Board is also not the appropriate body.
296
You are a solicitor in the litigation department in a large firm. You receive a telephone call from a new client who is seeking advice in relation to a medical negligence claim against a health authority. 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. 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 adjustments 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.
What should you do?
Tell the client that you cannot take on her case because your firm’s IT department is unable to install the software.
You should take on the new client despite your concerns
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.
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.
297
A solicitor is advising a client who wants to leave a considerable sum of money to a charity in his will.
The following day the solicitor sits next to a new acquaintance at a dinner party. The new acquaintance tells the solicitor that he is concerned that the charity he works for is bound for financial failure because the directors are being sued for misappropriation of the charity’s funds. The new acquaintance then tells the solicitor the name of the charity he works for. Much to the solicitor’s surprise it is, by coincidence, the charity the client is proposing to bequeath to.
Is the solicitor obliged to inform the client of the reported concerns about the prospects of the charity?
No, because the duty of confidentiality overrides the duty of disclosure.
Yes, because the duty of disclosure overrides the duty of confidentiality.
Yes, because the information is material to the client’s matter.
No, because information obtained from clients must be kept confidential unless disclosure is required or permitted by law or the client consents.
No, because the information was obtained in the course of the solicitor’s personal life and therefore does not impact on his professional obligations.
Yes, because the information is material to the client’s matter.
CORRECT: this is a situation where the solicitor has received information from the acquaintance which is material to the client’s matter. The solicitor must disclose it to the client under CCS 6.4 unless one of the exceptions applies. None of the exceptions apply.
298
You are acting for the claimant in a litigation matter. You are sitting behind your client’s counsel, Mary Davis (‘Mary’), in the High Court taking notes. During the lunch adjournment, your client shows you a document which was previously thought to have been lost, and which is prejudicial to your client’s case. Your client tells you not to tell anyone, not even Mary.
What should you do?
You should not tell Mary about the document. Mary would have to disclose the existence of the document to the court, but you have no obligation to do so.
You should tell Mary about the document in order to comply with Principle 1 (act in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice).
You should not tell Mary about the document as you should comply with Principle 7 (act in the best interests of each client).
You should tell Mary about the document, as in doing so you would be complying with Principle 7 (act in the best interests of each client).
You should not tell Mary about the document, as in doing so, you would lose the trust of your client.
You should tell Mary about the document in order to comply with Principle 1 (act in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice).
Correct. This is an example of where your duty under Principles 1 (and 2) come into conflict with your duty to your client under Principle 7. The introduction to the Principles makes it clear that in these circumstances the Principles which safeguard the wider public interest such as the rule of law take precedence over an individual client’s interest.
299
You are an apprentice solicitor in the litigation department. Peter is an apprentice solicitor at the firm which is acting for the other side in a litigation matter. Yesterday, you said the following to Peter in a telephone conversation:
“I promise to forward the witness statement of X to you by first class post today”.
On the basis Peter is acting reasonably in placing reliance on what you said, which ONE of the following statements is CORRECT?
Your words cannot amount to an enforceable undertaking because Peter is not legally qualified.
Your words cannot amount to an enforceable undertaking because they were said in a telephone conversation, but they would have amounted to an enforceable undertaking if they had been put in writing.
Your words cannot amount to an enforceable undertaking because you are an apprentice solicitor.
Your words amount to an enforceable undertaking and you must therefore do what you have promised to do.
Your words cannot amount to an enforceable undertaking because you did not use either of the words ‘undertaking’ or ‘undertake’.
Your words amount to an enforceable undertaking and you must therefore do what you have promised to do.
Correct
Correct. Undertaking is defined in the SRA Glossary as “a statement, given orally or in writing, whether or not it includes the word “undertake” or “undertaking”, to someone who reasonably places reliance on it, that you or a third party will do something or cause something to be done, or refrain from doing something.”
An undertaking can be given by anyone provided the recipient reasonably places reliance on it. So it can be given by an apprentice or any other employee of the law firm. It can be given orally, and it does not have to contain the work “undertake’ or ‘undertaking’. Your words do therefore amount to an undertaking, and under CCS 1.3 you must ensure that you perform the undertaking within the time you specified.
As a legal professional, you will be deemed to comply with your word and do what you promise to do. You need to be careful that you do not give undertakings unwittingly.
300
Two years ago, at your previous firm, you acted for Andrew in connection with his claim for unfair dismissal. Andrew had been dismissed for turning up to work drunk and the Employment Tribunal found in favour of Andrew’s employer (‘Employment Tribunal Decision’).
You are now an employment lawyer at another firm. A new client of the firm, BCD Limited (‘BCD’) is seeking your advice in relation to a disciplinary hearing it is about to hold in relation to one of its employees. The employee in question is Andrew. BCD alleges that Andrew has repeatedly returned to work after his lunch break smelling of alcohol and appearing drunk.
Which ONE of the following statements is CORRECT?
You should not act for BCD on this matter because you have a conflict of interest.
You can act for BCD because your duty to disclose information does not apply to information you acquired at your previous law firm.
You should not act for BCD because you would be under a duty to disclose the Employment Tribunal Decision to them, which conflicts with your duty of confidentiality to Andrew.
You can act for BCD in this matter because your duty of confidentiality to Andrew terminated when you left your old firm.
You must disclose details of Andrew’s previous case to BCD because the information is material to the advice you have been instructed to give BCD.
You should not act for BCD because you would be under a duty to disclose the Employment Tribunal Decision to them, which conflicts with your duty of confidentiality to Andrew.
Correct.
You have a duty of confidentiality to Andrew under CCS 6.3. This duty applies to current and former clients unless disclosure is required by law or the client consents.
If you accepted the instructions from BCD you would have a duty to disclose information of which you have knowledge which is material to the matter under CCS 6.4. The information about the Employment Tribunal finding in favour of Andrew’s former employer in his unfair dismissal case is material to this matter. However CCS 6.5 applies here. You cannot act for a client (BCD) in a matter where that client has an interest adverse to a former client (Andrew) for whom you hold confidential information which is material to that matter. Andrew and BCD have adverse interests here and the information is material to BCD’s matter. Condition (a) is that effective measures have been taken which result in there being no real risk of disclosure of the confidential information – here you already know the information so it is not possible to put effective measures in place. Condition (b) is that the former client (Andrew) consents to you acting. It is very unlikely that Andrew would consent to you acting for his employer on this matter.
The issue here is confidentiality, not conflicts of interest.
301
You are representing a client as a solicitor-advocate. The trial of the client’s claim started yesterday.
Last night, you were reading through the law reports in a national newspaper when you realised that one of the reported cases appears to be highly prejudicial to your client’s claim. You believe that neither the court nor the defendant’s legal representatives are aware of this reported case (the ‘Case’).
Which ONE of the following statements is CORRECT?
You must not disclose the Case to the court because your duty of confidentiality to your client takes precedence over your duty to the court.
The Code of Conduct for Solicitors RELs and RFLs (‘CCS’) 6.4 imposes a duty on you to disclose to the court all material information relating to the Case.
Although the Case is prejudicial to your client’s claim, you should provide the court with details of it. You do not need your client’s prior consent to do this.
You may only give the court details of the Case if you have first obtained your client’s prior consent.
You are not obliged to disclose the Case to the court because if you do so, you will be in breach of Principle 7.
Although the Case is prejudicial to your client’s claim, you should provide the court with details of it. You do not need your client’s prior consent to do this.
302
Your law firm, based in Kent, has a referral agreement with another firm based in Southampton under which if one firm (the ‘Introducer’) refers a client to the other firm (the ‘Recipient’), the Recipient will pay the Introducer 7% of the net fees paid by the client in the matter (‘Referral Fee’).
In which ONE of the following circumstances would your firm be able to accept instructions from the client referred by the other firm and pay the Referral Fee?
A client seeking to defend a charge of assault alleged to have taken place in a pub.
A client seeking to bring a claim for damages for personal injury after being hit by a car.
A client seeking advice on an employment dispute, in circumstances where the solicitor introducing the client insists that the client should not be told of the Referral Fee.
A client seeking advice on a dispute against their former landlord.
A client seeking to defend a charge of theft from a petrol station.
A client seeking advice on a dispute against their former landlord.
Correct. Under CCS 5.1(d) you do not make payments to an introducer in repost of clients who are the subject of criminal proceedings. You cannot therefore accept the referral in relation to the client who has been charged with assault or with theft.
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 not therefore be able to accept the instructions in relation to the client seeking damages for personal injury and pay the Referral Fee to the other firm. Note that under CCS 5.2, your firm would have to show that the Referral Fee was not paid in breach of s. 56(1) LASPO.
There is nothing to stop your firm from accepting the instructions in relation to the dispute with the former landlord and paying the Referral Fee, provided you and your firm comply with CCS 5.1. CCS 5.1 (b) states that the client must be informed of any fee sharing that is relevant to their matter. Your firm therefore would not be able to accept the referral of the employment dispute where the solicitor introducing the client insists on the Referral Fee being kept confidential.
303
A law firm has just won a landmark settlement in a divorce case for a client which was reported in the legal press. The firm would like to refer to its involvement in the case in its marketing literature.
Which ONE of the following methods of marketing the firm’s involvement in the case is PROHIBITED under the Code of Conduct for Solicitors, RELs and FRLS (‘CCS’)?
Writing an article on your involvement in the case for a family law publication with the permission of your client and their former spouse.
Handing out leaflets referring to the case to individuals leaving the local family law court.
Emailing a copy of the article from the legal press to former family law clients of the firm.
With your client’s consent, referring to your involvement in the case, in an interview with a legal magazine.
Emailing a copy of the article from the legal press to existing clients of the firm.
Handing out leaflets referring to the case to individuals leaving the local family law court.
Correct.
CCS 8.9 states “you do not make unsolicited approaches to members of the public, with the exception of current or former clients, in order to advertise legal services provided by you or your business or employer”. Handing leaflets to recipients leaving the family law court would breach this provision.
As there is an exception under CCS 8.9 for current and former clients, emailing the article to current and former family law clients of the firm would not breach CCS.
Writing an article with the permission of the client and their former spouse would not breach CCS and neither would referring to your involvement in the case in an interview with a legal magazine, with your client’s consent.
304
A solicitor decides to sell a holiday cottage he owns in Yorkshire. One of the solicitor’s clients offers the full asking price for the cottage and the solicitor accepts his client’s offer.
In the full knowledge that the solicitor is the seller, the client instructs the same solicitor in writing to act as his solicitor in the transaction. The solicitor accepts the instruction and prepares all the documents. The transfer is completed without complications.
Were the solicitor’s actions in accordance with the SRA Standards and Regulations?
No, because a solicitor cannot act if there is an own interest conflict unless the solicitor and the client are competing for the same objective
Yes, because a solicitor can act where there is an own interest conflict if he is satisfied it is in his client’s best interests
No, because a solicitor cannot act if there is an own interest conflict or a significant risk of an own interest conflict.
Yes, because a solicitor can act where there is an own interest conflict if he has received written consent from the client
Yes, because a solicitor can act where there is an own interest conflict if the solicitor and the client have a substantially common interest.
No, because a solicitor cannot act if there is an own interest conflict or a significant risk of an own interest conflict.
Correct.
There is an outright prohibition on acting where there is an own interest conflict.The SCI and CSO exceptions only applies to conflicts of interest.Receiving written consent is one of the conditions that applies to an exception to the rule that you cannot act if there is a conflict of interest.
305
A client telephones a solicitor to instruct her to draft wills for himself and his brother. They both wish to leave their estates to each other.
Which of the following best explains what the solicitor should do?
The solicitor may draft wills for the client and the brother provided the solicitor has no reason to doubt the instructions reflect the brother’s wishes.
The solicitor may draft wills for the client and the brother if the brother has given written authorisation, in advance, of the client’s authority to give instructions on his behalf.
The solicitor can draft the wills for the client and the brother because they are related to each other and there is a low risk that the instructions do not represent the brother’s wishes.
The solicitor cannot draft the wills for the client and the brother because there is a conflict of interests between them.
The solicitor cannot draft the wills for the client and the brother unless the brother provides instructions to her directly.
The solicitor may draft wills for the client and the brother if the brother has given written authorisation, in advance, of the client’s authority to give instructions on his behalf.
CORRECT: this is the position under CCS 3.1: ‘You only act for clients on instructions from the client or from someone properly authorised to provide instructions on their behalf. If you have reason to suspect that the instructions to not represent your client’s instructions, you do not act unless you have satisfied yourself that they do.’
306
You are an apprentice solicitor in the corporate department of a firm. Your firm has been instructed to act for Kurtz Cars Limited (‘KCL’) which is interested in buying the shares in Bill’s Spares (‘BS’), a company which sells car parts. The shares in BS are being sold by way of auction. Neither you nor your supervisor has acted for KCL in the past.
Speedy Motors Ltd (‘SML’) has been reported in the press as being interested in acquiring the shares in BS and has contacted another partner in your firm with the intention to instruct him on their bid to buy the shares in BS. Your firm has never acted for SML.
Which ONE of the following statements is CORRECT?
Your firm may be able to act for SML because both SML and KCL are competing for the same objective. However in order to do so, you must obtain the written consent of KCL, SML and BS.
Your firm may be able to act for SML because both SML and KCL are competing for the same objective. However in order to do so, both KCL and SML must give informed consent to your firm acting; you must put in place effective safeguards to protect KCL and SML’s confidential information; and you must be satisfied it is reasonable for you to act for both KCL and SML.
There is no risk of a conflict of interest here. KCL and SML will not be on opposite sides of the transaction so there is no risk of their interests in the matter conflicting. Your firm will therefore be able to act for both KCL and SML.
This is a situation where if your firm accepted the instructions from SML, it would owe separate duties to act in the best interests of KCL and SML in relation to the same matter, and there is a risk that those interests may conflict. Neither of the exceptions apply and your firm should not accept the instructions from SML.
Your firm may be able to act for SML because both SML and KCL have a substantially common interest. However in order to do so, both KCL and SML must give informed consent to your firm acting; you must put in place effective safeguards to protect KCL and SML’s confidential information; and you must be satisfied it is reasonable for you to act for both KCL and SML.
Your firm may be able to act for SML because both SML and KCL are competing for the same objective. However in order to do so, both KCL and SML must give informed consent to your firm acting; you must put in place effective safeguards to protect KCL and SML’s confidential information; and you must be satisfied it is reasonable for you to act for both KCL and SML.
Correct.
There is a potential conflict of interests here. If your firm accepted the instructions from KCL and SML it would have separate duties to act in the best interests of KCL and SML in relation to their bids for the shares in BS and there is a risk that these duties may conflict.
Under CCS 6.2 your firm should not act for both KCL and SML unless one of the exceptions applies.
Substantially common interest means “a situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved”. There is no clear common purpose or strong consensus on how it is to be achieved here (KCL and SML will be competing against each other for BS, not working together to purchase it), so the exception in CCS 6.2(a) does not apply.
The exception under CCS 3.2(b) applies where the clients are competing for the same objective, defined in the SRA Glossary as:
“any situation in which two or more clients are competing for an objective which if attained by one client will make that objective unattainable to the other client and objective means an asset, contract or business opportunity which two or more clients are seeking to acquire or recover through a liquidation (or some other form of insolvency process) or by means of an auction or tender process or a bid or offer, but not a public takeover…”
Here the objective is buying the shares in BS at the auction. Both KCL and SML are competing for that objective, as they are bidding against each other in the auction. If one client wins the auction, the other will not be able to attain the objective.
The firm might therefore be able to act for both KCL and SML if it can comply with the conditions listed in CCS 6.2 (i) – (iii).
307
‘A solicitor is dealing with the administration of a deceased’s estate for a client. At the outset the solicitor gave a written estimate of the likely total costs of £10,000 including disbursements. A few weeks later the client instructs the solicitor to arrange for some shares in an overseas company to be sold. The solicitor decides the best way to do this is to instruct an agent to sell the shares. The agent’s fees will be an additional £1000.
Which of the following best explains what the solicitor should do next?
The solicitor does not need to do anything because the client was informed that it was only an estimate at the outset.
The solicitor does not need to do anything because the agent’s fees will be incurred outside England and Wales.
The solicitor should write to the client to inform him about the agent’s fees and ask for his instructions because the original estimate is no longer accurate.
The solicitor should write to the client to inform him about the agent’s fees and ask for his instructions because a solicitor must get prior approval for every item of expenditure.
The solicitor does not need to do anything because the agent will invoice the client directly.
The solicitor should write to the client to inform him about the agent’s fees and ask for his instructions because the original estimate is no longer accurate.
Correct. Under CCS 8.7 solicitors must ensure that clients receive the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter and any costs incurred. The solicitor therefore needs to update their estimate.
308
You are an apprentice in the litigation department. You have just attended a meeting with your supervisor and the directors of a new client of the firm. The client has just been served with proceedings in a multi-million pound action in relation to its alleged defective design of a new football stadium. The client has instructed your supervisor to defend those proceedings.
In the meeting, your supervisor explained that he could not give any accurate cost estimates, but he would explain the costs position in a client care letter which would follow later that day. You have been asked to draft that letter for review by your supervisor.
Which ONE of the following statements is the MOST APPROPRIATE form of wording to be included in the letter to the client about your firm's cost estimate?
* Assume that the figure will be inserted by your supervisor
'It is impossible to provide you with an accurate estimate as to costs at this stage for obvious reasons. Please be assured that, at all times, our costs will be fair and reasonable. We will charge our fees on a time basis, in accordance with our standard hourly rates. I suggest that we review the costs on a monthly basis and ensure that we do not incur more than [£*] plus VAT in costs and disbursements without your further approval.’
‘Whilst it is impossible at this stage, to give you an estimate as to what your total costs will be, please be assured that our costs will be fair and reasonable and you will be charged in accordance with our standard hourly rates (details attached).’
'At this stage, it is impossible to give you an estimate as to what your total costs will be in this matter, for obvious reasons. Only once we have reviewed the evidence, will we be able to provide you with any an accurate estimate in accordance with our standard hourly rates (details attached).’
‘Because of the uncertainty and complexity of this particular litigation, it is impossible to provide you with an accurate estimate as to costs at this stage. We will charge our fees on a time basis, in accordance with our standard hourly rates (attached). I suggest that we review the costs on a monthly basis. I will ensure that we do not incur more than [£*] plus VAT in costs and disbursements without your further approval.’
'Given the complexity of this particular litigation it is impossible at this stage, to give you an estimate as to what your total costs will be. You will be charged in accordance with our standard hourly rates (details attached).’
‘Because of the uncertainty and complexity of this particular litigation, it is impossible to provide you with an accurate estimate as to costs at this stage. We will charge our fees on a time basis, in accordance with our standard hourly rates (attached). I suggest that we review the costs on a monthly basis. I will ensure that we do not incur more than [£*] plus VAT in costs and disbursements without your further approval.’
Correct. This option most closely meets the requirements of CCS 8.7 which requires that clients receive the best possible information about how their matter will be priced, and both at the time of engagement and when appropriate as their matter progresses about the likely cost of the matter and any costs incurred. This option sets out the hourly rates of the firm and gives a commitment not to incur more than a specified amount in fees without the agreement of the client. It also explains why it is not possible for the firm to give an accurate estimate at this stage.
A commitment that the costs will be fair and reasonable does not give the client enough information about the likely overall cost of the matter. It is also not enough to refer to the firm’s standard hourly rates, the firm should set these out in the letter or in an attachment to the letter. Postponing giving a cost estimate until the firm has completed a review of the evidence also does not give a clear indication of the overall costs.
309
A man has been arrested on suspicion of common assault by battery. He is a professional football player earning £180,000 per year.
It is alleged that the man punched a photographer who was trying to take a picture of him whilst he was having a drink with a woman in a bar.
The man has never been in trouble with the police before.
Will the man be entitled to publicly funded legal representation in connection with the defence of his case?
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.
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 in the magistrates’ court provided 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, limited to telephone advice only.
The man will be eligible for publicly funded legal representation by the duty solicitor at the police station and at all hearings up to and including sentence.
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.
310
A claim for damages for professional negligence is settled on terms that the defendant surveyor must pay to the claimant damages of £60,000 together with the claimant’s legal costs, to be assessed on the standard basis. In 2018 the claimant had entered into a written conditional fee agreement with her solicitor which provided for a success fee of 90%. The solicitor has calculated his professional charges at £20,000 before addition of the success fee and VAT.
What sum may the solicitor charge the client for his professional fees, net of VAT?
£35,000
£18,000
£15,000
£30,000
£38,000
£38,000
Correct
Correct. The success fee is 90%. 90% of £20,000 is £18,000. This is on top of the 'normal' fee of £20,000. So the total charge is £38,000.
311
A claimant brings a professional negligence claim seeking £200,000. The claimant has a damages based agreement (‘DBA’) with his solicitor which provides for the solicitor to be paid 50% of the damages in the event the claim succeeds. The claimant is awarded £160,000 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 £45,000.
What sum may the solicitor charge the client for his professional fees, net of VAT?
£40,000
£45,000
£80,000
£100,000
£125,000
£80,000
Correct. The solicitor is entitled to 50% of the damages. 50% of £160,000 is £80,000. 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 £125,000 is wrong. £100,000 is 50% of the amount claimed by the claimant, not the amount of damages awarded by the court, and is therefore wrong. £40,000 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. £45,000 is the amount of the solicitor’s fees recoverable from the other side, but under the damages based agreement, the firm can recover 50% of the damages in the event the claim succeeds.
312
Your colleague is considering applying for the role of Compliance Officer for Legal Practice (‘COLP’) in your law firm. Which ONE of the following statements about the responsibilities of the COLP and the Compliance Officer for Finance and Administrations (‘COFA’) of a law firm is CORRECT?
The COLP must report any serious breach of the Code to the managing partner of a law firm, who in turn must report the breach to the SRA.
The COLP must take all reasonable steps to ensure compliance by the firm, its managers, employees or interest holders with the SRA’s regulatory arrangements which apply to them.
The COLP is responsible for ensuring that the law firm, its managers and employees comply with any obligations imposed on them under the SRA Accounts Rules.
The COLP and the COFA of a law firm are solely responsible for compliance within the firm. The managers of the firm pass responsibility for compliance to the COLP and the COFA.
The COLP is the only person in the firm responsible to ensuring that any matters that are capable of amounting to a serious breach of the SRA Codes of Conduct are reported to the SRA.
The COLP must take all reasonable steps to ensure compliance by the firm, its managers, employees or interest holders with the SRA’s regulatory arrangements which apply to them.
Correct
Correct. See CCF 9.1. The COLPs role is to take reasonable steps to ensure compliance, however ultimately, under CCF 8.1 the managers are jointly and severally responsible for compliance by the firm with CCF, not the COLP and COFA. Under CCF 9.1, the COLP must ensure the SRA is informed of any facts of matters that amount to a serious breach of the SRA’s regulatory arrangements. It is the role of the COFA to take all reasonable steps to ensure compliance with the SRA Accounts Rules.
Under CCS 7.7 all individual lawyers must report promptly to the SRA or other approved regulator any facts or matters they reasonably believe are capable of amounting to a serious breach of their regulatory arrangements (including the SRA Codes of Conduct).
313
You are an apprentice in a law firm. You work in a team comprising Rav, the partner who leads the team, Amy, who qualified as a solicitor three years ago, and Kirk a paralegal who has been in the team for four years.
Which ONE of the following statements is correct?
Amy can supervise your work on client files provided she has completed at least 12 hours of relevant training.
Kirk cannot supervise your work on client files because he is not legally qualified, but either Amy or Rav can.
Your work on client files can be supervised by Kirk provided Kirk has suitable experience, knowledge and competence to deal with any issue that may arise and he has clear guidance as to when and to whom matters outside his competence or authority should be referred.
Only a partner may supervise your work on client files.
Amy cannot supervise your work on client files because she does not have a minimum of five years post qualification experience.
Your work on client files can be supervised by Kirk provided Kirk has suitable experience, knowledge and competence to deal with any issue that may arise and he has clear guidance as to when and to whom matters outside his competence or authority should be referred.
Correct. Under CCF 4.4 a law firm is responsible for ensuring that it has an effective system for supervising client matters. This means that appropriate procedures need to be put in place for suitable persons to check regularly the work being carried out for clients. Although most people supervising client files will have a legal qualification, they do not necessarily have to be legally qualified. As long as they have suitable experience, knowledge and competence to deal with any issue that may arise and clear guidance as to when and to whom issues should be referred ‘upward’ they are permitted to supervise client files.
314
A colleague qualified into the property department of your law firm five years ago. He wishes to leave the firm and set up a business on his own as a self-employed solicitor advising clients on property transactions including selling and leasing land.
Which ONE of the following options is CORRECT?
The solicitor will not need to be authorised by the SRA because he will not be carrying out reserved legal activities under the Legal Services Act. He will however need to comply with the Code of Conduct for Solicitors and the SRA Accounts Rules.
The solicitor will need to be authorised by the SRA because he will be carrying out reserved legal activities under the Legal Services Act. He will also need to comply with the SRA’s rules including the Code of Conduct for Solicitors and the SRA Accounts Rules
The solicitor will need to be authorised by the SRA because he will be carrying out reserved legal activities under the Legal Services Act. However, provided he obtains authorisation from the SRA, he will not need to comply with the additional requirements contained in the Code of Conduct for Solicitors or the SRA Accounts Rules.
Provided the solicitor obtains professional indemnity insurance as required by the SRA, he will not need to be authorised by the SRA because he will not be carrying out reserved legal activities under the Legal Services Act.
The solicitor will need to be authorised by the SRA and comply with the SRA Code of Conduct for Solicitors because he will be carrying out 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 need to be authorised by the SRA because he will be carrying out reserved legal activities under the Legal Services Act. He will also need to comply with the SRA’s rules including the Code of Conduct for Solicitors and the SRA Accounts Rules
Correct. Advising on property transactions including selling and leasing land will involve preparing instruments of transfer relating to land and other instruments relating to real estate, which, as one of the reserved legal activities under the Legal Services Act 2007, 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 dealing with client money when purchasing land, he will need to comply with the SRA Accounts Rules.
315
Aron is a solicitor specialising in immigration law in a law firm. He volunteers one day a week in a law centre advising clients on immigration appeals and appearing before immigration tribunals.
Which one of the following statements is CORRECT?
The law centre must be authorised by the SRA because Aron will need higher rights of audience to appear before immigration tribunals.
The law centre does not need to be authorised by the SRA because Aron also works in a law firm which is authorised by the SRA.
The law centre must be authorised by the SRA because Aron is carrying out reserved legal activities.
The law centre does not need to be authorised by the SRA because Aron is not carrying out reserved legal activities.
The law centre does not need to be authorised by the SRA because Aron is working on a voluntary basis.
The law centre must be authorised by the SRA because Aron is carrying out reserved legal activities.
Correct. 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.Advising on immigration appeals falls within the conduct of litigation which is a reserved activity, in addition appearing before immigration tribunals involves rights of audience which is also a reserved legal activity.
316
You are a 7 year qualified solicitor in the property department of a busy law firm. You have been doing a lot of work selling flats for a large property developer client. Three months ago, when preparing bills for the client you noticed that regular payments had been made out of the client account to a partner who joined your department a year ago. You raised your concern with your firm’s Compliance Office for Finance and Administration ('COFA') at the time and have heard nothing further from him. He is also a busy partner in your department.
When preparing bills for the same client at the end of the month, you notice that the payments out of client account to the partner have continued. You can think of no explanation for the payments and suspect a breach of the SRA Accounts Rules.
Which ONE of the following options set out the most appropriate action you should take?
Report your concerns to the SRA.
Confront the partner in question and raise the matter again with the Compliance Officer for Finance and Administration.
Report your concerns to the Compliance Officer for Legal Practice.
Report your concerns to the firm's managing partner.
Report your concerns to your supervisor.
Report your concerns to the SRA.
Correct. A breach of the SRA Accounts Rules involving suspected misappropriation of client money would amount to a serious breach of the SRA’s rules. CCS 7.7 requires you to promptly report to the SRA any facts or matters that you reasonably believe are capable of amounting to a serious breach of their regulatory arrangements by any person regulated by them (in this case the partner). You have already raised the matter with the COFA and heard nothing further. Given the severity of the breach, it would be appropriate to report your concerns to the SRA.
317
A solicitor in a law firm has received a phone call from the managing director of a private limited company incorporated in the UK, which is a new client. The managing director wants to know why the solicitor’s firm is asking for documents to verify the identity of the company’s shareholder. The company’s shareholder lives in Russia and owns and holds the entire shareholding of the company.
Which of the following responses best explains the advice the solicitor should give to the managing director?
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives in Russia.
The structure of the company and the way the shares are held by the shareholder may raise issues about tax evasion.
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.
The solicitor is considering making a suspicious activity report to the firm’s nominated officer.
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives outside the UK.
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.
Correct: If your client is a company, you are required to identify and verify the identity of the ‘beneficial owner’ of the company, and beneficial owner is the person who ultimately owns or controls more than 25% of the shares or voting rights in the company.
318
Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for her.
Which of the following best explains the action you should take with regard to customer due diligence?
You should carry out simplified CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
You should carry out ongoing monitoring on the client because you have not acted for her before.
You should carry out enhanced CDD on the client because she presents a high risk of money laundering.
You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
You should carry out standard CDD on the client and identify and verify the beneficial owner of the high street bank.
You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
Correct. There is nothing on these facts to suggest that this client present a high risk of money laundering. The client is not from a high risk country, the transaction is not complex. She is funding 50% of the purchase through a mortgage and although 50% being funded in cash is quite a high amount, you have identified that she is funding this through the sale of some share, so there is no need to carry out 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. As this is a one-off transaction, it will be an occasional transaction and you should obtain standard CDD on the client before you start working for her.
319
A solicitor acts for a client in relation to the acquisition of a private limited company. Two days before the transaction is due to complete the solicitor suspects that his client will be using the transaction to launder money. The solicitor reports this to the nominated officer who makes a suspicious activity report to the relevant authority.
What action should the solicitor now take?
Explain to the client that a suspicious activity report has been made and then proceed with the transaction.
Explain to the client that he cannot act as a suspicious activity report is pending.
Proceed with the transaction as the solicitor has made the disclosure to the nominated officer.
Proceed with the transaction only after receiving authorisation from the relevant authority.
Proceed with the transaction after a period of three days if no response is received from the relevant authority.
Proceed with the transaction only after receiving authorisation from the relevant authority.
Correct. Once the solicitor has reported their suspicion to the nominated officer, they must wait for consent from the nominated officer or relevant authority before proceeding. If the solicitor receives no response within seven working days (not three), then the solicitor can proceed.
Note that acting on the acquisition of a private limited company falls within ‘participating in financial and real property transactions’, which falls within the definition of the ‘regulated sector’ and therefore the non-direct involvement offences apply here. If the solicitor told the client that they had made a suspicious activity report to the client they would be guilty of the offence of tipping off, s 333A PoCA.
320
Which of the following types of work would require your firm to carry out customer due diligence pursuant to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’).
Advising an insurance company on their defence of a claim for £40,000 for personal injury following a road traffic accident
Agreeing to act as the business address for a Bermuda-based corporate client which has customers in England and wants to have an English address in case its customers need to contact it.
Advising a UK-based client on their claim for £40,000 for personal injury following a road traffic accident
Advising a UK-based client being sued by a Greek company in relation to an intellectual property claim, which if the client loses, will cost the client a minimum of €10,000,000.
Arranging for the cash purchase of a work of art for €14,500 on behalf of a new client to the firm.
Agreeing to act as the business address for a Bermuda-based corporate client which has customers in England and wants to have an English address in case its customers need to contact it.
Correct. In this example the firm would be acting as a ‘trust or company service provider’ which is defined in Regulation 12(2) as including a firm ‘providing a registered office, business address, correspondence or administrative address for a company…’. A trust or company service provider falls within the definition of ‘relevant person’ under Regulation 8 and would be required to carry out customer due diligence under the MLR.
Arranging for the cash purchase of a work of art and conducting litigation work does not fall within the definition of independent legal professional or trust or company service provider in Regulation 12. While it might be good practice to carry out CDD, CDD is not required under MLR.
321
You are the only apprentice solicitor working in the property department of a law firm solely based in London.
Last week a new client, James, specifically asked to speak to you. James told you that he is currently living in Manchester and that his close friend, Raj, has offered to give him £750,000 in cash to help James buy his first property. This sum will cover the purchase price, together with all legal costs and disbursements.
James has now found a suitable property in Manchester and he would like you to act for him on the purchase. James told you Raj will send the £750,000 to your firm’s client account within seven days.
Earlier today you were contacted by your firm’s accounts department regarding the sum of £7,500,000 which had arrived from Raj. You have just received an email from James apologising that his friend has made an overpayment, requesting that the sum of £6,750,000 is transferred to Raj’s solicitors in Birmingham.
Which ONE of the following statements is CORRECT?
You need to report the matter immediately to the MLRO at your firm and instruct the accounts department to transfer all of the money (ie £7,500,000) to Raj so that you do not alert James to your suspicions.
You do not need to report that matter to the MLRO at your firm but you are required to notify Raj’s solicitors in Birmingham that he may be laundering money through their bank account.
You should forward the money in full (ie £7,500,000) to James to ensure that you are not involved in any money laundering offences.
You need to report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. You must ensure that you do not inadvertently alert James to your suspicions.
You need to report that matter immediately to the MLRO at your firm and instruct the accounts department to transfer £6,750,000 to Raj as soon as possible so that it is not considered the proceeds of crime.
You need to report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. You must ensure that you do not inadvertently alert James to your suspicions.
Correct. There are a number of factors here that indicate a risk of money laundering including, it is unusual for a client to instruct a firm in London for a transaction in Manchester and to instruct a junior lawyer directly. The friend was going to give the client an unusually large sum of money in cash and then transferred an exceptionally large sum of money “in error” to the firm and claimed it was a mistake. The best course of action to take is to report your suspicions to your firm’s 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’).
322
You receive instructions from a client, a Russian national living in London, to set up a trust for his grandchildren. The client informs you he will deposit £500,000 into your firm’s account for the trust. A day later your accounts department informs you that the client has deposited £600,000 into the firm’s account. The client sends you an email asking you to transfer the over-payment of £100,000 to his cousin at an account registered in Russia.
What is the most appropriate action you should take?
Send a suspicious activity report to the National Crime Agency. Undertake no further work on the matter until you hear back from them and ensure that you do not alert the client 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.
Instruct your accounts department to send the over-payment of £100,000 to the account nominated by the client, so as not to alert him to your suspicions, and report the matter to your firm’s Money Laundering Reporting Officer.
Send a suspicious activity report to the National Crime Agency. Continue to work on the matter so as not to alert the client to your suspicions.
Instruct your accounts department to send the over-payment of £100,000 to the account nominated by the client. You do not need to report your suspicions to your firm’s Money Laundering Reporting Officer or the National Crime Agency because you are not operating in the regulated sector.
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 the direct offences under sections 327, 328, 329 and 300 Proceeds of Crime Act 2002 (‘PoCA’) which apply whether or not you are operating in the regulated sector.
Tipping off (s333A) and failure to make a disclosure (s330) are non-direct involvement offence under PoCA and apply 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 and failure to make a disclosure if you did not report your concerns to your firm’s MLRO. 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.
323
A man instructs his solicitor to act for him in the purchase of the entire issued share capital of a private limited company from another company. The solicitor advises on the share purchase and helps to prepare and negotiate all the necessary documentation. Neither the solicitor nor his firm is 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.
Has the solicitor breached the general prohibition against carrying on a regulated activity?
No, because an exclusion applies if the transaction relates to the purchase of any number of shares in a private limited company.
No, because an exclusion applies if the transaction involves at least 50% of the voting shares in the company.
Yes, because the transaction involves the purchase of the entire issued share capital of the company and no exclusion or exemption applies.
No, because an exemption applies to professional firms which are supervised by the Solicitors Regulation Authority when they engage in corporate work.
Yes, because the solicitor has given advice on the purchase of shares in a specific company and no exclusion or exemption applies.
No, because an exclusion applies if the transaction involves at least 50% of the voting shares in the company.
Correct. The specified investment here is shares, article 76 RAO. The specified activity is arranging deals in shares. However the exclusion under article 70 RAO applies because the client will be buying 50% or more of the shares in the company.
324
A solicitor acts for a client who is raising finance secured against his home to fund his new business. The solicitor will be providing advice and preparing all the necessary documentation in connection with the mortgage. The client asks the solicitor to explain the key differences between a repayment mortgage and an endowment mortgage. Neither the solicitor nor his firm is authorised by the Financial Conduct Authority to carry on a regulated activity.
Can the solicitor give the explanation requested about the types of mortgages?
Yes, because such advice is a necessary part of the provision of his legal services.
Yes, because he is subject to the SRA Financial Services (Scope) Rules 2019 and therefore falls within an exemption from the Financial Services and Markets Act 2000.
No, because such advice does not fall within an exemption from the Financial Services and Market Acts 2000.
Yes, because the provision of generic advice is outside the scope of the Financial Services and Markets Act 2000.
No, because he is not authorised by the Financial Conduct Authority to give advice in respect of either type of mortgage.
Yes, because the provision of generic advice is outside the scope of the Financial Services and Markets Act 2000.
Correct. The specified investment here is a mortgage. Advising on the merits of investments is a specified activity under article 53 RAO. However giving generic advice 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. Giving generic advice on the difference between a repayment mortgage and an endowment mortgage is therefore outside the scope of the Financial Services and Markets Act 2000.
325
You are an apprentice solicitor in the property department at a law firm. Your supervisor has been advising Mr and Mrs Smith (‘the Smiths’) in relation to the purchase of a property. The property will be a new home for occupation by the Smiths which is to be secured by a first legal mortgage over it. The Smiths have obtained advice from a mortgage broker who is authorised by the Financial Conduct Authority (‘FCA’) and they have decided to take out a repayment mortgage with a high street bank (the ‘Bank’). The Smiths have asked your supervisor to liaise with their mortgage broker to make arrangements for them to enter into the mortgage with the Bank. Your supervisor is due to receive £250 commission from the Bank for making these arrangements on the Smiths’ behalf.
Your firm is not directly authorised by the FCA to carry out any regulated activities under the Financial Services and Markets Act 2000 (‘FSMA’). It does not advertise the carrying out of any regulated activities separately from the other professional services provided by the law firm and any regulated activities carried out form a small part of the overall work done by the law firm.
Which ONE of the following statements BEST states the CORRECT position?
Your supervisor cannot advise on the purchase of the property because the purchase does not involve a regulated mortgage contract.
Your supervisor could advise the Smiths in relation to the purchase of the property as long as he accounts to the client for the commission he is due to receive from the Bank.
Your supervisor can advise on the purchase of the property because property is not a specified investment.
Your supervisor could not advise the Smiths in relation to the purchase of the property as he will be giving advice as to the merits of entering into the mortgage under Article 53 RAO.
Your supervisor can advise on the purchase of the property because the Smiths are making their investment on the advice of their mortgage broker who is authorised by the FCA.
Your supervisor could advise the Smiths in relation to the purchase of the property as long as he accounts to the client for the commission he is due to receive from the Bank.
Correct. The specified investment here is a ‘regulated mortgage contract’, which is defined in article 61(3) RAO. The mortgage falls within this definition as the lender is providing credit to an individual, the mortgage is secured on land in the EEA and at least 40% of the land is to be used as a dwelling. The specified activity is making arrangements for another person to enter into a regulated mortgage contract, under article 25A RAO. Looking at the exclusions, the exclusion in article 29 applies because Mr and Mrs Smith are acting on the advice of their mortgage broker who is authorised by the FCA. However, the supervisor must comply with article 29 in full, which means under article 29(2)(b), they must account to the client for the commission.
326
You are a solicitor in the corporate department of Price Prior. Your client Ruth wishes to buy 50% of the shares in a company set up by her sister, Patricia, as an investment. Ruth will be buying the shares from Patricia and has instructed you to advise her on the acquisition (including on the merits).
Price Prior is not directly authorised by the Financial Conduct Authority (‘FCA’) to carry out any regulated activities. It does not hold itself out as carrying out regulated activities separate to other professional services it provides and only a small proportion of its work comprises regulated activities. However, some of the solicitors in the firm occasionally carry out exempt regulated activities.
Which ONE of the following statements is CORRECT?
You will not need to be authorised by the FCA to act for Ruth because your advice will be incidental to the provisions of professional services by Price Prior.
You will not need to be authorised by the FCA to act for Ruth because companies are not specified investments under the RAO.
You will not need to be authorised by the FCA to act for Ruth because acting for a client who is acquiring shares in a company is not a specified activity.
You will need to be authorised by the FCA to act for Ruth on the acquisition.
You will not need to be authorised by the FCA to act for Ruth because Ruth will be buying 50% or more of the shares in the company.
You will not need to be authorised by the FCA to act for Ruth because Ruth will be buying 50% or more of the shares in the company.
Correct
Correct. The specified investment here is shares, article 76 RAO. The specified activity is advising on the merits, article 53 RAO. However the exclusion under article 70 RAO applies because Ruth will be buying 50% or more of the shares in the company.
327
You are a solicitor in the corporate department of Price Prior. You recently acted for Herbert in connection with the sale of his personal training business and that sale has now concluded.
Today Herbert has come to see you. Herbert tells you that following the sale, he now has £50,000 cash and he would like some advice about how to invest this money.
He is considering using all the money to buy shares in Magwitch Enterprises PLC (‘MEP’). He would like your advice on whether shares are generally a good investment at the moment and, in particular, whether or not he should buy the shares in MEP.
Which ONE of the following statements is CORRECT in relation to the above scenario?
You would be able to give Herbert the advice without being authorised by the FCA because you would not be advising on the merits of Herbert buying the shares in MEP.
You would not be able to advise Herbert without being authorised by the FCA because the advice would not arise out of or be complementary to the provision of professional services to Herbert.
You would be able to give Herbert the advice without being authorised by the FCA, because buying shares is not a specified activity.
You would be able to give the advice to Herbert without being authorised by the FCA because giving this advice to Herbert could reasonably be regarded as necessary to the other non-regulated work you are doing for him.
You would not be able to give the advice to Herbert without being authorised by the FCA because the advice is not incidental to the provision of professional services to Herbert.
You would not be able to advise Herbert without being authorised by the FCA because the advice would not arise out of or be complementary to the provision of professional services to Herbert.
Correct. The specified investment here is shares, article 76 RAO. The specified activity is advising on the merits, article 53 RAO. Note however that advising on the merits involves giving an element of opinion and a recommendation as to a course of action. Advising on whether shares generally are a good investment at the moment and also whether Herbert should buy the shares in MEP involves giving an element of opinion and a recommendation as to a course of action, so does fall within the definition of advising on the merits of an investment.
There are no exclusions that apply here. Article 67 would apply if giving the advice on the merits of buying the shares in MEP could reasonably be regarded as a necessary part of advising Herbert on the sale of his personal training business. However, advising how to invest the proceeds of the sale of a business is not a necessary part of the job of a solicitor acting for the seller on the sale of that business.
Looking at step 4 of the FSMA decision tree, giving the advice to Herbert is a small part of the overall work being offered by the firm and would therefore be incidental under s.327 FSMA. However advising Herbert on whether to invest the sale proceeds in shares in MEP is a separate piece of work to advising him on the sale of his business and is not complementary for the purposes of SRA Scope Rule 2.
You would therefore need to be authorised by the FCA to give this advice.
328
A solicitor acts for a company that is selling all the shares in its wholly owned subsidiary by way of auction. The solicitor is preparing the information memorandum to send to potential buyers, some of whom are companies, some of whom are wealthy individuals.
Neither the solicitor nor the firm is authorised by the Financial Conduct Authority (‘FCA’).
Which one of the following statements is correct?
The solicitor can send the information memorandum to the potential buyers without getting it approved by an authorised person because the information memorandum is a necessary part of the auction process.
The solicitor can send the information memorandum to the potential buyers without getting it approved by an authorised person because the transaction is to sell 50% or more of the shares in the subsidiary.
The solicitor can send the information memorandum to the potential buyers because it is not a financial promotion.
The solicitor can only send the information memorandum to high net worth companies and high net worth individuals, otherwise she would have to get the document approved by an authorised person.
The solicitor cannot send the information memorandum to the potential buyers unless she gets the document approved by an authorised person.
The solicitor can send the information memorandum to the potential buyers without getting it approved by an authorised person because the transaction is to sell 50% or more of the shares in the subsidiary.
Correct. S 21 FSMA provides that it is a criminal offence for an unauthorised person to communicate a financial promotion unless an authorised person has approved its contents or a relevant exemption applies. The exemption that applies here is the sale of a body corporate exemption (article 62 FSMA 2000 (Financial Promotions) Order 2005) because the communication relates to a transaction to acquire 50% of more of the shares or day to day control of the company and the acquisition / disposal is between parties each of whom is a body corporate, partnership, single individual or group of connect individuals.
329
A firm of solicitors is acting on behalf of a client who is selling their property and purchasing a new property. A deposit of £35,000 has been received from the buyer’s solicitor in respect of the sale and is held as stakeholder. The firm of solicitors has not sent a bill of costs to the client yet.
Which one of the following best explains whether the £35,000 is client money?
Yes, it is client money.
No, it is not client money because it has been received by the firm of solicitors and not by the client.
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 is held as stakeholder and has not been released to the client.
No, it is not client money because a bill of costs has not yet been sent to the client.
Yes, it is client money.
Correct. It is client money under Rule 2.1(b).
330
A firm of solicitors holds £20,000 in their client account and £30,000 in their business account. A large proportion of the client money in the client account belongs to the firm’s client Adam, who the firm hold £15,000 for. Of the remaining £5,000, £4,500 was sent to the firm generally on account of costs by Vijaya, a client who is purchasing a property and £500 was sent to the firm generally on account of costs by Sandra, a client who the firm are defending in a litigation case.
The firm needs to pay £900 in court fees for Sandra.
Which one of the following best sets out the steps the firm will take to pay the court fees?
The firm will pay the court fees from the business account.
The firm will pay the court fees from the client account but the SRA’s prior written authorisation is required first.
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 must obtain Sandra’s instructions to pay the court fees first.
The firm will pay the court fees from the client account but the withdrawal must be appropriately authorised and supervised.
The firm will pay the court fees from the business account.
Correct. Sandra does not have sufficient money in the client account to make the payment. She has £500 and the court fees payment is £900. 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. To avoid breaching the SRA Accounts Rules, the firm must make the payment from their business account.
331
You work in a firm of solicitors which receives a cheque for £4,500. The cheque is made payable to the firm and is drawn on the client account of Elford & Partners (another firm of solicitors). The cheque arrives with a covering letter from Elford & Partners, stating that it represents payment of damages owed by one of their clients to one of your clients, Sonia Jones, who you represented in her claim for damages. The partner in your firm who has been dealing with the matter is away from the office for one week on holiday and cannot be contacted. Sonia Jones is out of the country on a business trip.
Which one of the following sets out the best course of action your firm should take?
Bank the cheque immediately in the firm’s business account until the partner dealing with the matter returns from holiday.
Bank the cheque immediately in the firm’s client account and notify Sonia Jones that the money has been received.
Send the cheque immediately to Sonia Jones by first class post.
Hold the cheque and try to contact Sonia Jones to find out what she would like your firm to do with the cheque.
Hold the cheque until the partner dealing with the matter returns from holiday.
Bank the cheque immediately in the firm’s client account and notify Sonia Jones that the money has been received.
Correct. The money is client money under Rule 2.1(a) as it is received by you and relates to regulated services delivered by you to a client (Sonia Jones). Client money must be paid promptly into a client account under rule 2.3 (none of the exceptions to rule 2.3 apply).
incorrect
Hold the cheque and try to contact Sonia Jones to find out what she would like your firm to do with the cheque.
Incorrect. Please revisit your materials on client money and payments into the client account. In particular, look at Rules 2.1 and 2.3. This is client money under Rule 2.1 and Rule 2.3 requires it to be paid promptly into the client account. Holding onto the cheque whilst you try and contact your client is unlikely to satisfy Rule 2.3 and so could breach the SRA Accounts Rules.
332
A firm of solicitors is acting on behalf of the executors of a will. The administration of the estate will be completed shortly and the executors have asked the firm to pay the legacies due under the will. As a separate matter the firm also acts for one of the beneficiaries of the will in connection with the beneficiary’s purchase of a property. The beneficiary is entitled to a legacy of £20,000 from the will. The beneficiary intends to use their £20,000 legacy to repay the £2,000 the firm has already incurred in surveyor’s fees and searches (for which the firm has billed the beneficiary) and intends the balance of £18,000 to be retained by the firm as part of the purchase price.
Which one of the following statements best explains the action the firm should take?
The firm can transfer £2,000 from the executors’ client account ledger to the firm’s business account but must send a cheque for £18,000 to the beneficiary.
The firm can transfer £20,000 from the executors’ client account ledger to the beneficiary’s client account ledger and then transfer £2,000 to the firm’s business account.
The firm cannot transfer the funds from the executors’ client account ledger to the beneficiary’s client account ledger. The firm must send a cheque to the beneficiary for £20,000.
The firm can transfer £2,000 from the executors’ client account ledger to the firm’s business account and then transfer £18,000 to the beneficiary’s stakeholder account ledger
The firm can transfer £20,000 from the executors’ client account ledger to the beneficiary’s client account ledger but cannot transfer £2,000 to the firm’s business account until the purchase of the property is completed.
The firm can transfer £20,000 from the executors’ client account ledger to the beneficiary’s client account ledger and then transfer £2,000 to the firm’s business account.
Correct. The legacy of £20,000 is client money. This is a transfer of client money between two clients of the firm (from the executors to the beneficiary). To record the transfer between the two clients only one set of double entries is needed because the money being transferred is already in your firm’s client account (there is no need to take it out of the client account and then pay it back into the client account again). The client ledger (client side as it is client money) of the person transferring the money (the executors) is debited and the client ledger (client side as it is client money) of the person receiving the transfer (the beneficiary) is credited.
NB You will see that, as you know from the adapt elements, terminology for the accounts/ledgers can be different and this question uses client account ledger instead of client ledger client account or client ledger client side.
Once the beneficiary has received the legacy of £20,000, they intend to use £2,000 to pay a disbursement which the firm has incurred and for which they have billed the beneficiary. This amount (£2,000) is therefore non-client money ie money belonging to the authorised body (the firm) under rule 2.1(d). As non-client money, this £2,000 will then be transferred from the firm’s client account to the firm’s business account.
incorrect
The firm cannot transfer the funds from the executors’ client account ledger to the beneficiary’s client account ledger. The firm must send a cheque to the beneficiary for £20,000.
Incorrect
Incorrect. Please review your materials on transfers between clients (both the executors and the beneficiary are clients of the firm here). This is a transfer of client money between two clients of the firm (from the executors to the beneficiary). To record the transfer between the two clients only one set of double entries is needed because the money being transferred is already in your firm’s client account (there is no need to take it out of the client account and then pay it back into the client account again). The client ledger (client side as it is client money) of the person transferring the money (the executors) is debited and the client ledger (client side as it is client money) of the person receiving the transfer (the beneficiary) is credited.
The firm can transfer £2,000 from the executors’ client account ledger to the firm’s business account but must send a cheque for £18,000 to the beneficiary.
Incorrect. Please review your materials on transfers between clients (both the executors and the beneficiary are clients of the firm here).
The £20,000 must be credited to the beneficiary’s client ledger client account before the firm can transfer the £2,000 owed by the beneficiary to the firm to their business account.
Before it is credited to the beneficiary, the £20,000 is client money belonging to the executors and they do not owe the firm any money and their client money cannot be transferred to the firm’s business account (this would breach Rule 4.1 – that client money must be kept separate from money belonging to the authorised body).
NB You will see that, as you know from the adapt elements, terminology for the accounts/ledgers can be different and this question uses client account ledger instead of client ledger client account or client ledger client side.
333
You are a trainee solicitor in the Real Estate team of a firm of solicitors. Your firm is acting for a long-standing and highly valued client. This morning the client has had an offer for the purchase of a leisure centre accepted on the basis that unconditional exchange of contracts takes place no later than close of business tomorrow. The client has promised to transfer to your firm the deposit for exchange plus an amount on account of costs, but this will not be received until tomorrow.
Your supervisor has instructed you to arrange the searches in connection with the purchase without delay. The cost of the searches is £680. You check the client’s ledger and there is no money on client account.
Which oneof the following best represents the action you should take?
You should pay the search fees immediately out of the firm’s business account.
You should contact the client and ask for authority to pay the search fees out of the firm’s business account.
You should contact the client and ask for authority to pay the search fees out of client account.
You should wait to pay the search fees until the money is received into client account.
As the client has promised to pay the money on account, you should immediately pay the search fees out of client account.
You should pay the search fees immediately out of the firm’s business account.
Correct. The money to pay the search fees cannot be withdrawn from the client account because the client does not have any money in the client account. If you used the client account to pay the search fees, another client’s money would be being used and SRA Accounts Rule 5.3 would be breached. As the searches are time critical in the context of the transaction, they should be undertaken immediately (rather than waiting for the money to arrive from the client) and therefore the firm’s business account must be used to pay for them.
334
A firm of solicitors during its most recent accounting period has held client money. 90% of that client money is from the Legal Aid Agency. During that accounting period the average balance on the firm’s client account has not exceeded £8,000 and the maximum balance was £45,000. The firm is ceasing to operate as an authorised body. They have asked you whether the SRA will require them to obtain an accountant’s report for their most recent accounting period.
Which one of the following is the best advice to your client?
They are not required to obtain an accountant’s report as an exemption applies because the firm is ceasing to operate as an authorised body.
They are not required to obtain an accountant’s report as an exemption applies because 90% of the client money is from the Legal Aid Agency.
They are not required to obtain an accountant’s report as an exemption applies because the amounts of client money held in the accounting period do not exceed the limits set out in the SRA Accounts Rules.
They are required to obtain an accountant’s report within six months of the end of the accounting period.
They are required to obtain an accountant’s report within 12 months of the end of the accounting period.
They are not required to obtain an accountant’s report as an exemption applies because the amounts of client money held in the accounting period do not exceed the limits set out in the SRA Accounts Rules.
Correct. Rule 12.2(b) sets out an exemption to the Rule 12.1(a) requirement to obtain an accountant’s report. These facts fall within the 12.2(b) exemption because the client money held during the accounting period does not exceed an average of £10,000 nor does it exceed a maximum of £250,000.
335
Your firm is acting in the administration of the estate of Arjun Patel (deceased). The deceased held an account with New Birmingham Building Society (‘NBBS’), which you closed. NBBS has sent your firm a cheque (made payable to your firm) in respect of the closing balance of that account.
Which pair of double entries shows how the receipt of the cheque from NBBS should be recorded in your firm’s accounts?
Credit client ledger client account: Arjun Patel (deceased)
Debit cash sheet client account
Credit client ledger business account: Arjun Patel (deceased)
Debit cash sheet business account
Debit client ledger business account: Arjun Patel (deceased)
Credit cash sheet business account
Credit client ledger client account: Arjun Patel (deceased)
Debit client ledger business account: Arjun Patel (deceased)
Debit client ledger client account: Arjun Patel (deceased)
Credit cash sheet client account
Credit client ledger client account: Arjun Patel (deceased)
Debit cash sheet client account
Correct. The cheque is client money under SRA Accounts Rule 2.1(a). It must be paid into the client bank account under Rule 2.3. The entries needed to record this are a credit in the client side of the client ledger and a debit in the cash sheet for the client account.
336
You are a solicitor at a firm of solicitors acting for the buyer of a property. The buyer has already sent you the deposit monies prior to exchange. At exchange of contracts, you send the deposit monies to the seller’s solicitor. The contract states that the deposit is to be held as stakeholder.
Which one of the following pairs of double entries shows how the payment of the deposit at exchange should be recorded by you?
Credit client ledger client account
Debit cash sheet client account
Credit cash sheet client account
Debit client ledger client account
Credit client ledger client account
Debit client ledger stakeholder
Credit cash sheet client account
Debit client ledger stakeholder
Credit client ledger stakeholder
Debit cash sheet client account
Credit cash sheet client account
Debit client ledger client account
Correct
Correct. Whether the deposit is to be held as stakeholder or agent is only relevant to the seller’s solicitor. As you are the buyer’s solicitor, the accounting entries needed to send the deposit monies to the seller’s solicitor are those recording the payment out of client money from the client account. The buyer has already sent you the money to pay the deposit and it is client money under Rule 2.1(a) and will be in your client account.
incorrect
Credit cash sheet client account
Debit client ledger stakeholder
Incorrect
Incorrect. Please review your materials on accounting entries for deposits in property transactions. Whether the deposit is to be held as stakeholder or agent is only relevant to the seller’s solicitor so it is the seller’s solicitor who will record the receipt of the deposit in their stakeholder ledger (as a credit not as a debit).
As you are the buyer’s solicitor, the accounting entries needed to send the deposit monies to the seller’s solicitor are those recording the payment out of client money from the client account.
337
You are a solicitor at a firm of solicitors and the firm’s bank has notified you that your general/main client account has earned interest. The interest has already been paid into the firm’s business account and the firm decides to pay £120 of it to one of their clients which is a fair sum of interest on the client money held by the firm for the client.
Which one of the following pairs of double entries should be included in the entries that record the payment of the fair sum of interest to the client?
Credit cash sheet client account
Debit client ledger client account
Credit client ledger client account
Debit cash sheet client account
Credit interest receivable ledger
Debit cash sheet client account
Credit cash sheet client account
Debit interest receivable ledger
Credit interest payable ledger
Debit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Correct. Payment of a sum of interest (earned by the general/main client account) to a client is a two step process once the interest earned (non-client money) has been recorded in the firm’s business account. The first step is to withdraw the interest amount from the firm’s business account and the second is to pay the interest amount into the client account and credit it to the relevant client.
These entries record the second step – the receipt of the fair sum of interest in the client’s client ledger and the client account.
incorrect
Credit interest receivable ledger
Debit cash sheet client account
Incorrect
Incorrect. Please review your materials on accounting entries for the payment of interest. The interest receivable ledger is used to record the payment of interest earned by the general/main client account into the authorised body’s business account. It is not used when interest is paid to a client.
Payment of a sum of interest (earned by the general/main client account) to a client is a two step process once the interest earned (non-client money) has been recorded in the firm’s business account. The first step is to withdraw the interest amount from the firm’s business account and the second is to pay the interest amount into the client account and credit it to the relevant client.
338
A firm of solicitors is acting on behalf of a client who are selling their property and purchasing a new property. A deposit of £14,000 has been received in respect of the sale and is held as agent.
Which one of the following pairs of double entries shows how the receipt of the deposit cheque should be recorded?
Credit stakeholder ledger
Debit cash sheet client account
Credit cash sheet business account
Debit client ledger client account
Credit cash sheet client account
Debit client ledger client account
Credit client ledger client account
Debit stakeholder ledger
Credit client ledger client account
Debit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Correct
Correct. The deposit is being held by the seller’s solicitor as agent. The deposit is client money (Rule 2.1(b)) and will be paid into the seller’s solicitor’s client account and it will be credited to the seller’s client ledger (client side as it is client money). The stakeholder ledger is only used by the seller’s solicitor to record receipt of a deposit when they are holding the deposit as stakeholder (not the case on these facts).
incorrect
Credit stakeholder ledger
Debit cash sheet client account
Incorrect. Please review your materials on the accounting entries for deposits in property transactions. The deposit is being held by the seller’s solicitor as agent. The stakeholder ledger is only used by the seller’s solicitor to record receipt of a deposit when they are holding the deposit as stakeholder (not the case on these facts).
339
You are a solicitor in a form of solicitors who act for Kent limited. Your firm has been holding the proceeds of sale of a property in Nottingham (the ‘Net Proceeds of Sale’) pending the purchase of alternative premises by Kent Limited. Your firm has been holding the Net Proceeds of Sale in the firm’s general client account. In relation to the Net Proceeds of Sale, how should any interest to be paid to the client, Kent Limited, be calculated?
As a proportion of the total amount of interest paid to your firm by the bank for money held on deposit in the general client account.
By reference to the most recent interest rate published by the Law Society.
At a reasonable rate of interest not exceeding the rate of interest payable on a separate designated client account at the bank where the money is held.
At the Bank of England’s base rate on client money held for every day the money is held.
As a fair sum of interest on any client money held on the client’s behalf.
As a fair sum of interest on any client money held on the client’s behalf.
Correct. This is stated in SRA Accounts Rule 7.1.
incorrect
As a proportion of the total amount of interest paid to your firm by the bank for money held on deposit in the general client account.
Incorrect. This is not the provision as set out in the SRA Accounts rules as to payment of interest on client money.
340
You are a solicitor in a firm of solicitors. Your firm issued a bill of costs to a client for fees of £20,000 plus VAT. It subsequently reduces its fees by £1,000.
Which one of the following correctly sets out the double entry/entries needed to record this abatement in your firm’s accounts?
Debit client ledger business account £1,200
Credit profit costs £1,200
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit VAT account £200
Credit client ledger business account £200
Debit profit costs £1,200
Credit client ledger business account £1,200
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit profit costs £200
Credit VAT account £200
Debit client ledger business account £1,000
Credit profit costs £1,000
Debit client ledger business account £200
Credit VAT account £200
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit VAT account £200
Credit client ledger business account £200
Correct
Correct. These are the entries required. The entries for abating a bill are made in the same records as the entries for issuing the bill plus VAT ie the profit costs [account] and the VAT account [ledger] (or however these accounts are known at your firm). As VAT was charged on the bill of costs at 20%, if the profit costs are reduced, there is a consequent reduction in VAT as well which also needs to be recorded. The debits and credits made when the bill plus VAT was issued are reversed to abate a bill plus VAT.
341
You are a solicitor in a firm of solicitors. Your firm submitted a bill of costs to a client 9 months ago for fees of £2,000 plus VAT of £400. The client has moved abroad without paying their bill and your firm has decided to write off the amount owed as a bad debt.
Which one of the following correctly sets out the double entry/ entries needed to record the write-off of the bad debt in your firm’s accounts?
Debit bad and doubtful debts account £2,000
Credit client ledger business account £2,000
Debit VAT account £400
Credit client ledger business account £400
Debit bad and doubtful debts account £2,400
Credit client ledger business account £2,400
Debit client ledger business account £2,000
Credit bad and doubtful debts account £2,000
Debit client ledger business account £400
Credit VAT account £400
Debit profit costs £2,400
Credit client ledger client account £2,400
Debit client ledger client account £2,000
Credit bad and doubtful debts account £2,000
Debit bad and doubtful debts account £2,000
Credit client ledger business account £2,000
Debit VAT account £400
Credit client ledger business account £400
Correct. These are the correct entries to record the writing off of the bad debt. When a firm writes off a bad debt, it can recover the VAT element of the debt if it is at least six months old (as it is here – it is nine months old). Therefore, two double entries are needed. One to reflect the write off of the net amount due to the firm (excluding VAT) and the other to reflect the write off of the VAT on the bad debt (at 20% on the written off amount, here that has been worked out for you and included in the question facts - it is £400).
342
You are a solicitor in a firm of solicitors. Your firm issued a bill of costs for £2,500 plus VAT to one of its clients. The client disputed the amount of costs and your firm agreed to an abatement of costs of £500 plus VAT.
Which one of the following should be included in the entries made to record this abatement in your firm’s accounts?
Credit client ledger business account £500
Debit profit costs £500
Credit profit costs £600
Debit client ledger business account £600
Debit client ledger business account £100
Credit profit costs £100
Debit client ledger business account £100
Credit VAT account £100
Debit client ledger business account £500
Credit bad and doubtful debts account £500
Credit client ledger business account £500
Debit profit costs £500
Correct. These are the pair of entries needed to record the reduction in the profit costs. There would also be another pair of entries (made in the client ledger business account and the VAT account) to record the consequent reduction (of £100) in VAT.
343
A client of a firm of solicitors (the ‘firm’) owes the firm £7,500 which represents an unpaid bill of costs for £6,250 plus VAT of £1,250 dating back over a year. The client is insolvent and the firm learns that it is unlikely they will receive any money from the liquidation of the company’s assets. The client has no client money in the client account. The firm therefore decides to write off the full amount of the debt as irrecoverable.
Which one of the following should be included in the entries made to record writing off the debt in the firm’s accounts?
Credit client ledger business account £7,500
Debit bad and doubtful debts account £7,500
Credit client ledger business account £6,250
Debit bad and doubtful debts account £6,250
Credit client ledger client account £6,250
Debit bad and doubtful debts account £6,250
Credit client ledger client account £7,500
Debit bad and doubtful debts account £7,500
Credit bad and doubtful debts account £7,500
Debit client ledger business account £7,500
Credit client ledger business account £6,250
Debit bad and doubtful debts account £6,250
Correct. These are the pair of entries needed to record the writing off of the net amount of the bad debt (excluding VAT). There would also be another pair of entries (made in the client ledger business account and the VAT account) to record the write off of the VAT on the bad debt (£1,250) which can be recovered as the debt is at least six months old.
344
A client of a firm of solicitors (the ‘firm’) has recently sold a flat for £350,000. The firm have received an invoice from the estate agent addressed to the client. The client has asked the firm to pay the estate agent’s fees out of the client account as the firm are holding sufficient client money for the client to cover this disbursement. The estate agent’s fees amount to £5,000 plus VAT of £1,000.
Which one of the following correctly shows how the payment of the estate agent’s fees should be recorded in the firm’s accounts?
Debit client ledger client account £6,000
Credit cash sheet client account £6,000
Debit client ledger client account £5,000
Credit cash sheet client account £5,000
Debit client ledger client account £1,000
Credit VAT account £1,000
Debit client ledger business account £6,000
Credit cash sheet business account £6,000
Debit client ledger client account £5,000
Credit cash sheet client account £5,000
Debit VAT account £1,000
Credit client ledger business account £1,000
Debit client ledger business account £5,000
Credit cash sheet business account £5,000
Debit client ledger business account £1,000
Credit VAT account £1,000
Debit client ledger client account £6,000
Credit cash sheet client account £6,000
Correct. Here the firm is acting as agent when paying the estate agent’s fees plus VAT. The estate agent made the supply of their services to the client (not to the firm) and the client has asked the firm to pay the estate agent on their behalf. When paying a disbursement plus VAT as agent, as here, the VAT element must not be separated from the estate agent’s fees and there are no separate VAT related accounting entries for the firm to make. On these facts, there is sufficient client money held in the client account for this client to make the payment of the total of the estate agent’s fees plus VAT ie £6,000. Therefore, the client ledger client account (which shows how much client money the firm holds for that client) is debited (because client money is being taken out of the client account to make the payment so the firm now holds less client money for the client) and the cash sheet client account is credited. Both of these entries are for the amount of the estate agent’s fees plus VAT as an inclusive figure.
incorrect
Debit client ledger client account £5,000
Credit cash sheet client account £5,000
Debit client ledger client account £1,000
Credit VAT account £1,000
Incorrect. Please review your materials on the accounting entries for paying a disbursement plus VAT, in particular the difference between paying as agent and paying as principal. When paying as agent, as here, there are no separate accounting entries for the VAT. The estate agent’s fees plus VAT should be paid as one total figure of £6,000. NB the VAT account is a business side account and cannot be used with the client ledger client account, only with the client ledger business account (used when non-client money is being used to make payments).
345
You are instructed on behalf of the claimant in a breach of contract claim which is legally and factually very complicated. The claim is worth approximately £150,000 and, amongst other issues, the court will be invited to interpret a particular term of the contract in order to decide the case. This particular term is a common term within the context of contracts of this nature and the outcome of the case will have important implications for a large number of other businesses which use contracts with the same term.
What is the best advice to give the claimant in relation to where to start proceedings?
The claimant could issue the claim in the High Court or County Court, but the County Court is more appropriate.
The claimant could issue the claim in the High Court or County Court, but the High Court is more appropriate.
The claimant must issue this claim in the High Court.
The claimant must issue this claim in the Magistrate's Court.
The claimant must issue this claim in the County Court.
The claimant could issue the claim in the High Court or County Court, but the High Court is more appropriate.
Correct. A claim over £100,000 (non-PI) can be issued in the High Court or the County Court, and should only be issued in the High Court where its value, complexity or importance to the public mean that it ought to be dealt with by a High Court Judge. These facts disclose complexity and importance to the public. The value is confidently over £100,000, although the value alone might not justify issuing in the High Court if the claim was straightforward and of no public importance.
346
In an appeal before the Court of Appeal, the appellant relies in argument on an earlier decision of the Judicial Committee of the Privy Council (JCPC) which indicates that the appeal should be allowed. The respondent relies in argument on an earlier decision of the Court of Appeal which indicates that the appeal should not be allowed. How should the Court of Appeal treat the two decisions to which it has been referred?
The court should consider itself bound by the earlier decision of the JCPC.
The court should treat both earlier decisions as having persuasive value only and must decide which of the two to follow.
The court should consider itself bound by both earlier decisions and must transfer the appeal to a higher court.
The court should treat both earlier decisions as without precedent value and should make its decision without regard to either.
The court should consider itself bound by the earlier decision of the Court of Appeal.
The court should consider itself bound by the earlier decision of the Court of Appeal.
Correct
Correct. Privy Council decisions are not binding on the courts of England and Wales.
The Court of Appeal binds itself.
347
A client of your firm has been found guilty of theft following a trial in the Magistrates’ Court. She wants to appeal her conviction, and the sentence of imprisonment which was imposed. Which one of the following statements is TRUE?
The client can appeal both her conviction and sentence to the Crown Court. However, if her appeal against conviction fails, she her appeal against automatically fails too.
The client can appeal her conviction and sentence in the Court of Appeal.
The client can appeal both her conviction and sentence to the Crown Court. If her appeal against conviction fails, she can still appeal the sentence passed by the Magistrates’ Court.
The client can only appeal her conviction to the Crown Court. She has no right of appeal against the sentence.
The client can appeal her conviction in the Crown Court, but can only appeal her sentence to the Court of Appeal.
The client can appeal both her conviction and sentence to the Crown Court. If her appeal against conviction fails, she can still appeal the sentence passed by the Magistrates’ Court.
Correct. A right of appeal against conviction and sentence lies from the Magistrates’ Court to the Crown Court. The defendant / appellant can choose whether to appeal the conviction and sentence, or just the sentence. Even if the appeal against conviction fails, the Crown Court may amend the sentence imposed by the Magistrates’ Court.
348
SRA principles
require individuals and law firms to act:
1 -- in a way that upholds the constitutional principle of the rule of law and the proper administration of justice
2 -- in a way that upholds public trust and confidence in the solicitor's profession and in legal services provided by authorised persons
3 -- with independence
4 -- with honesty
5 -- with integrity
6 -- in a way that encourages equality, diversity and inclusion
7 -- in the best interest of each client
349
SRA principles conflict
those which safeguards the wider public interest (rule of law and confidence in profession take precedence over client interest)
350
Equality Act 2010
protects, prohibits, requires
protects
- from discrimination against a PROTECTED CHARACTERISTICS x9
-- age
-- disability
-- gender reassignment
-- marriage and civil partnership
-- pregnancy and maternity
-- race, religion or belief
-- sex
-- sexual orientation
prohibits:
- discrimination and unlawful conduct including:
-- direct discrimination
-- indirect discrimination
-- harassment
-- victimisation
requires
- anyone providing goods, facilities or services to the public or a section of the public including employers
- to make REASONABLE ADJUSTMENTS
- to make sure that a disabled person is not placed at a SUBSTANTIAL DISADVANTAGE (ie can use a service as close as it is reasonably possible to get the standard usually offered to non-disabled people)
351
principle 2: uphold public trust and confidence in the solicitor's profession
individual requirement x3
1 -- non-discrimination
-- you do not UNFAIRLY DISCRIMATE by allowing your personal views to affect your professional relationships
-- eg solicitor with strong political or religious view should not allow their views to stop them acting in the best interest of the client
2 -- unfair advantage
-- you do not abuse your position by taking UNFAIR ADVANTAGE of clients or others
-- eg acting opposite a party with no legal representation on a dispute
3 -- misleading others
-- you do MISLEAD or attempt to mislead your CLIENTS, the COURT or OTHERS either by your own acts or omission or allowing or being complicit in the acts of omissions of others
-- eg telling a client they have a strong case when they don't
-- not disclosing a case which goes against your argument in court
-- making false statement to third parties
352
undertakings
definition: a STATEMENT give ORALLY or in WRITING, whether or not it includes the word undertake to somebody who reasonably places reliance on it, that YOU or a THIRD PARTY will do something or cause something to be done
-- test: did the recipient rely on it?
CCS 1.3: you perform all undertakings given by you, and do so, within an agreed timescale, or if no timescale has been agreed, within a reasonable amount of time
-- failure to perform an undertaking is a serious disciplinary offence
-- undertakings can be given by any individual in a law firm: partner, solicitor, apprentice, secretary etc
-- oral statement included
-- the word undertake does not have to be included
-- NEVER promise to do something which is outside your control
353
misleading the court
a solicitor is an officer of the court and have an overriding duty to the court
you might mislead the court if you:
--draft documents or construct facts supporting your client's case which are not properly arguable
-- make any allegation of crime, misconduct or fraud unless it is material to your client's case and you have reasonable grounds for doing so
-- call a witness whose evidence you know is untrue
if you become aware that
-- you have inadvertently misled the court, you must, with YOUR CLIENT'S CONSET, immediately inform the court, if the client does not consent, you must stop acting for that client
-- a client that has committed perjury or misled the court, you must CEASE TO ACT unless the client agrees to disclose the truth to the court
354
dealing with the court
CCS 2.3 -- you do not provide or offer to provide any benefit to witnesses dependent upon the nature of their evidence or the outcome of the case
CCS 2.7 -- you draw the court's attention to relevant cases and statutory provisions, or procedural irregularities of which you are aware, and which are likely to have a material effect on the outcome of the proceedings
-- even if to do so runs counter to your client's argument!
355
principle 7: solicitors must act in the best interest of their clients -- duty of confidentiality
duty + applies to + exceptions
duty: 'you keep the affairs of current and former clients confidential unless disclosure is required or permitted by law or the client consents (CCS 6.3)
applies to
-- current and former clients
-- clients of a firm you used to work for
-- clients that used to instruct you but not instruct another firm
-- continue to apply after a client's death
exceptions
-- where disclosure is permitted by law: certain govt bodies eg HMRC can require disclosure of documents; money laundering
-- client consents
356
principle 7: solicitors must act in the best interest of their clients -- duty of disclosure
duty + applies to + exceptions
duty: "where you are acting for a client on a matter, you make the client aware of all information MATERIAL to the matter of which you have knowledge (CCS 6.4)
applies to
-- information MATERIAL to the client's matter
-- duty on INDIVIDUAL solicitor acting for the client to disclose information material to the matter of which they have PERSONAL knowledge
-- not extend to information of which others in the firm might be aware
exceptions
-- NATIONAL SECURITY or prevention of crime
-- client gives INFORMED CONSENT in writing to information not being disclosed to them
-- serious PHYSICAL or MENTAL INJURY will be caused to client or another if information is disclosed
-- PRIVILEGED DOCUMENT
357
adverse interests
You do not act for a client in a matter where that client (A) has an interest adverse to the interest of another current or former client (B) of you or your business or employer, for whom you or your business or employer holds confidential information which is material to that matter
unless (rare)
1- -- effective measures have been taken which result in there being no real risk of disclosure of the confidential information
-- eg information barriers, password protected documents, different teams
or
-- cannot put information barriers into your own head!
2 -- the current or former client, B, whose information you or your business or employer holds has given informed consent, given or evidenced in writing, to you acting, including to any measures taken to protect their information
CCS and CCF 6.5
358
referrals vs introductions
thank you for the introduction
you welcome for the referral
"Introduction"
-- a relationship you/ a law firm has with a third party where the third party introduces or refers business TO YOU/THE LAW FIRM
-- a firm of estate agents agrees to refer property sellers and buyers to Price Prior and PP agrees to pay the estate agent X plus VAT in respect of each introduction
"Referral"
-- an arrangement you/a law firm might have with a third party TO WHOM you may refer or introduce clients
-- PP has an arrangement with a surveyor's firm whereby the surveyor pays PP X for each client PP introduces to the surveyor
359
referrals & introductions regulation
prohibited for PI claims
no payment for criminal proceedings
CCS 5.1
A -- clients are INFORMED OR ANY FINANCIAL OR OTHER INTEREST which you or your business or employer or the introducer has
B -- clients are INFORMED of ANY FEE SHARING arrangement that is relevant to their matter
C -- the fee sharing agreement is in WRITING
D --you do not receive payment relating to a referral or make payments to an introducer in respect to clients who are the subject of CRIMINAL PROCEEDINGS
3 -- any client referred by an introducer has NOT BEEN ACQUIRED IN A WAY WHICH WOULD BREACH THE SRA's REGULATORY ARRANGEMENT if the person acquiring the client were regulated by the SRA
360
new instruction =
3 Cs
customer due diligence
conflict check
client care letter
361
customer due diligence
you do no start acting until the correct checks have been carried out
what
-- identify the client
-- verify their entity
when
-- establish a business relationship (element of duration)
-- carrying out an occasional transaction
-- suspect money laundering or terrorist financing
-- doubt the veracity or adequacy of identification documents
how
-- identify: name and address
-- verify: evidence
---- original documents
eg ---- passport, electronic verification, information from other regulated persons (eg solicitors/banks)
362
conflict check
CCS: prohibits you from acting where there is an own interest conflict of (subject to limited exceptions), a conflict of interests
CCF: law firm must have systems in place to ensure there are no conflict in place at the outset of an instruction
-- check whether the work conflicts with any work your firm is doing for another client or if it conflicts with your own interests
-- national or international law firm: does the work conflict with work your firm is doing for an existing client in another office in this country or overseas?
-- carry out a conflict check when you take on a new instruction from both new and existing clients
363
two types of conflicts
own interest conflict + conflict of interest
own interest conflict
-- eg buying a property from a client and acting as their solicitor on the sale
-- risk is of it is enough
-- no exceptions
-- but rare
conflict of interest
-- eg instructed to act for both parties in a dispute or seller and buyer
-- exceptions x2
1 -- substantially common interest
-- clear common purpose between clients
-- strong consensus on how it is to be achieved
eg -- buying a house (common)
eg -- setting up a business together where key terms are agreed: how business is owned (rare)
2 -- competing for same objective: which if obtained by one client makes it unattainable to others +3
--- all clients have given informed consent evidenced in writing
-- effective safeguards where appropriate
-- satisfied it is reasonable for you to act for the clients
eg -- insolvency process
eg -- auction process
rare: usually applies only to sophisticated clients
364
client care letter
CCS 8 requires you to give certain information to clients usually provided in client care letter
general information
+
costs
+
complaints
general information
-- in a way that they can understand
-- client in a position where they can make an informed decision
-- who will handle case and how they will update them
-- how services are regulated
-- regulatory protections for them
costs
-- how their matter will be priced
-- at time of engagement and as matter progresses
-- publicity is accurate and not misleading
complaints
-- procedure for handling complaints
-- at time of engagement
---- their right to complain
---- how to complain
---- any right to complain to legal ombudsman
365
competent and legal service
only act on instructions from client or from someone properly authorised
if you have reason to suspect, do not act until satisfied
competent and timely service
keep professional knowledge and skills up to date
consider client attributes, needs, and circumstances
366
types of fundig
private: hourly (default) v fixed charge (commercial+ predictable: will/conveyancing)
professional
- trade union
- professional organisation
- eg civil or criminal litigation eg professional negligence
before the event insurance
- before need of legal work arises
- household insurance might include BTE for neighbour dispute
community legal service
- aka legal aid
- strict constraints
- civil: rare
-- individuals (not companies)
-- family, domestic abuse, homelessness
-- means: income and/or capital too high
-- merits
- criminal
-- all have access at police station
-- means: under 18 + welfare benefits (mags vs crown: contribution)
-- merit: interest of justice test x10
--- automatic for indictable offence: only or either way to crown court
CFA: conditional fee arrangement
- civil litigation
- no win, no fee
- if successful: normal fee + success fee
- cannot be claimed from opponent success fee comes out of claimants damages
- PI: success fee cannot exceed 25% of damages excluding damages for future care and loss
-lawful if certain conditions are met
DBA: damage based agreement
- no win no fee
- success: solicitor will be paid proportion of damages
- PI: success fee cannot exceed 25% of damages excluding damages for future care and loss
- 35% employment
- 50% in all other cases
after the event insurance
- civil litigation
- often with DBA and CFA
- DBA/CFA: solicitor costs
- AEI:
third party funding
- civil litigation
- banks, PE, hedge funds
- success: money back + uplift
- limited to commercial cases of high value
367
interest of justice test
x10
eg i will lose my liberty
automatic for indictable offence
368
what does the SRA do?
authorises organisations to provide legal services
standards: set and enforce
sanctions: disciplinary matters
369
organisations need to be authorised to provide
reserved legal activities (unless exempt)
immigration services (unless regulated by OISC)
claims management services (unless regulated by FCA)
regulated financial activities (unless regulated by FCA)
370
SRA: disciplinary matters
issue warning to the firm
impose a disciplinary sanction eg a fine
reprimand the solicitor for professional misconduct
order the solicitor to repay or refund the whole or party of the costs to the client
impose restrictions on a lawyer's ability to practise
institute disciplinary proceedings before the solicitor's disciplinary tribunal
revoke recognition of a firm
close down a firm
371
reserved legal activites
can only be provided by someone authorised by an approved regulator to do so
-- rights of audience: right to appear/address a court including the right to call/examine witnesses
-- conduct of litigation
-- reserved instrument activities: any transfer/charge re land or real/personal estate in E+W
-- notarial activities
-- probate activities
-- administration of oaths
businesses that only carry out non-reserved do not need to be authorised but can choose to be (reassurance eg indemnity insurance)
372
professional indemnity insurance
required by SRA
insurance should provide adequate and appropriate cover
firm should notify of claim immediately
373
SRA categorises legal service providers in 3 types
sole practice
legal services body
licensable body
374
sole practice
a solicitor practices on their own account, providing services in their own name
can employ qualified solicitors provided they are not also principals (eg partners or co-owners)
an individual practising through a limited company is not a sole practice
375
legal services body
managers/interest holder are lawyers
partnerships, limited company or LLP
once authorised by SRA = "recognised body"
376
licensable body
managers/interest holders includes lawyer and non-lawyers
must have at least 1 non-lawyer manager/interest holder
ABS: alternative business structure
non-lawyers can manage and control businesses providing reserved legal activities
once authorised by SRA -- "licensed body"
377
other legal service providers
solicitors may provide legal services on behalf of organisations not authorised by SRA
Law Centres (LC) and Legal Advice Centres (LAC)
In-house
Multi-national law firm
378
Law Centres (LC) and Legal Advice Centres (LAC)
LC gives legal advice to public and undertakes casework
LAC gives legal advice but no casework
Free or contribution from legal aid
may not be authorised by SRA if they do not provide reserved legal activities
solicitors MUST comply with CCS even in unpaid
pro bono work must be covered by indemnity reasonably equivalent to that required under SRA indemnity insurance Rules
379
in-house
solicitors can work for non-legal businesses as in-house lawyers
solicitors must comply with CCS
380
multi-national law firm
comprised of solicitors and registered foreign lawyers
operate in E+W
solicitors and registered foreign lawyers must comply with CCS and other SRA regulations
381
SRA: risk based regulation
risk-based approach: SRA sets out the regulatory framework firms and solicitors must comply with
they don't set prescriptive rules
encourages firms to set and own their own standards
more thought and consideration
risk analysis
Risk Outlook published each year to ID key risks facing legal profession and what can be done to manage those risks
382
key documents
SRA principles
CCS: code of conduct for solicitors, european lawyers and registered foreign lawyers
CCF: code of conduct for firms
SRA account rules: regulate how law firms hold and manage clients' money
383
complying with SRA regulations
responsibility for compliance is on EVERYONE: you + firm
firm: managers + COLP + COFA + MLRO
MLRO: ensure compliance with anti-money launderers
384
complying with SRA regulations: YOU
individual lawyers are responsible for complying with the SRA Principles and CCS
clients + third parties + colleagues + SRA
clients x4
-- competent service
-- keep client money safe
-- not take unfair advantage
-- provide information client can understand
third parties x4
-- do not mislead the court or others (duty to public generally)
-- duty to court
-- undertakings (not just lawyers!)
-- not take unfair advantage
colleagues x5
-- maintain competence, keep knowledge and skills up to date
-- when supervising others
1 -- accountable for their work
2 -- effectively supervise their work being done for clients
-- ensure individuals you manage are competent
SRA
-- justify your actions to demonstrate compliance with SRA's regulatory obligations
-- cooperate with SRA and other regulations
-- respond promptly any matters you believe amount to serious breaches
385
complying with SRA regulations: FIRMS
CCF requires firms to have systems in place to ensure compliance and manage risk
(SRA does not prescribe what systems)
keep and maintain records to demonstrate compliance
actively monitor financial stability and business visibility - once aware cease to operate, orderly wind down of activities
identify, monitor and manage all risks to business
effective system for supervising clients' matters
386
who is responsible for compliance with CCF ?
MANAGERS
sole principal in a recognised sole practice
member of a LLP
director of a company
partner in a partnership
any other body: member of its governing body
387
COLP and COFA
SRA requires law firms to have
-- an individual who is designated as its COLP and
-- an individual who is designated as its COFA and
-- whose designations the SRA has approved
COLP: legal practice
COFA: finance and administration
one person can do both!
whilst it is COLP/COFA job to ensure compliance and report breaches, RESPONSIBILITY for breaches rests with the managers/partners not individual COLP/COFA
COLP ensures x4
-- firm complies with all terms and conditions of authorisation by the SRA
-- firm complies with its regulatory obligations
-- record any failure to comply and make records available to the SRA
-- report any material failure to the SRA as soon as practicable
COFA ensures x3
-- firm complies with SRA account rules 2019
-- reports any serious breaches to the SRA promptly
-- informs SRA of facts which should be brought to SRA's attention to investigate whether a serious breach of regulatory obligations has occured
388
how a solicitor can be at risk of money laundering
clients deposits cash in the firms account solely for onward transmission to a third party
acquiring property, investing or buying an asset using cash which is the proceeds of crime
setting up legal or transaction structures which are intended to be used for money laundering, and hid the source of funds
a client using a firm's client account to mix clean and dirty cash to disguise the audit trail
389
money laundering warning signs
suspicious fact patter:
a seller and a buyer with a similar names or with the same address
a seller and a buyer both from a jurisdiction outside the UK
'mistakes' regarding an overpayment to your client account
monies arriving from a third party who is not your client
client asking you to send monies to an unknown third party
documents showing seller and a buyer with similar signatures
clients attempting to pay large sums in cash
offshore vehicles being made parties to a deal
money coming from or to be sent to offshore tax havens
390
high risk jurisdictions
north korea
iran
yemen
iraq
syria
afghanistan
391
money laundering requires
customer due diligence
(what, when, how: standard CDD)
ongoing monitoring
- ongoing relationship with client
- keep ID and CDD documents up to date
- scrutinise clients transactions: are they consistent with the firm's knowledge of the client?
392
CDD: companies (standard CDD)
identify and verify (companies house)
-- name of company
-- company number
-- registered office
-- law to which it is subject
-- constitutional documents
-- names of directors and senior management
beneficial owner
-- identify and verify the 'beneficial owner' ie the person who owns or controls the company
for a company: the person who ultimately owns or controls more than 25% of the shares
if beneficial owner is legal person (eg trust, company): understand ownership and control of that person
393
enhanced CDD
indicators
-- high risk country
-- politically exposed person
-- false ID
-- transaction is complex, unusually large or transactions with no apparent legal or economic purpose
actions includes
-- background and purpose of transaction
-- additional information on client, source of funds, beneficial owner of the client
-- increase degree and nature of monitoring
-- obtain additional verification
-- take further steps to be satisfied the transaction is consistent with the purpose and intended nature of the relationship
394
simplified CDD
if there is a low risk of money laundering
customer is a
-- public administration (eg local authority)
-- publicly owned enterprise
-- financial or credit institution
-- a company listed on a regulated market (eg london stock exchange)
action
-- adjust the extent, timing or type of CDD measures; and
-- carry out sufficient monitoring to enable it to detect any unusual or suspicious transactions
395
offences under Proceeds of Crime Act (PoCA)
both are criminal offences: direct and indirect involvement
direct involvement offences
-- apply to everyone, lawyers and otherwise
non-direct involvement offences:
apply to people in the 'regulated sector' which includes people 'participating in financial and real property transactions' concerning:
-- buying and selling real property or business entities
-- managing of client money, securities or other assets
-- opening or management of bank, savings or securities accounts
-- creating operating or managing companies
-- creating, operating or managing trusts, companies or similar
Advising on litigation (unless you deal with a lot of money) does not = indirect offence!
396
PoCA -- direct involvement offences
3 offences (one event could give rise to more than one offence)
1 -- CONCEALING, DISGUISING, CONVERTING or TRANSFERRING criminal property or removing criminal property from the UK
2 -- entering into or becoming concerned in as ARRANGEMENT which you know or suspect facilitates the acquisition, retention, use or control of criminal property
3 -- ACQUIRING, USING OR POSSESSING criminal property
main DEFENCES
-- make an AUTHORISED DISCLOSURE to a nominated officer (eg MLRO)
---- best defence
---- should wait for MLRO consent unless threatened but disclose asap
-- conduct occurred outside the UK, was not unlawful in that jurisdiction
397
PoCA: non-direct involvement offences: failure to disclose
offences to fail to make a disclosure to the firm's MLRO or the National Crime Agency (NRA) if:
-- you know or suspect that someone is laundering the proceeds or any criminal conduct; and
-- you receive the information in the course of business in the REGULATED SECTOR; and
-- you can identify the person who is laundering the proceeds or criminal conduct OR whereabouts of the laundered property
how long do you wait?
if the MLRO makes a suspicious activity report (SAR) to NCA, neither the MLRO nor the fee earner should undertake any further work unless
-- authorised by the NCA; or
-- 7 WORKING DAYS (notice period) have passed from the SAR to NCA during which time N CA has not refused to proceed; or
-- THE NCA refused to consent during the notice period and the moratorium period (31 DAYS starting with the day firm received notice that consent was refused) has expired
398
PoCA: non-direct involvement offences:
x2
failure to disclose
tip off
399
PoCA: non-direct involvement offences: tip off
1 -- offence to tip off clients about any REPORT made of information that came to you in the course of business in the REGULATED SECTOR (ie if you know or suspect that an internal or external report has been made and you tell your client or a third party, thereby prejudicing any investigation-
2 -- offence to disclose that an INVESTIGATION is being contemplated or carried out if the disclosure is likely to prejudice the investigation
400
investments include
x7
shares
pensions
endowment policies
bonds
bank deposits
unit trusts
insurance policies
401
financial services include
x4
ADVISING on the merits of investments
DEALING in investments
ARRANGING DEALS in investments
MANAGING investments
402
why are financial services regulated?
to ensure that those providing financial services are approved and authorised
+
to protect consumers from negligent advisers
403
how are financial services regulated in the UK?
regulators x2
-- PRA: prudent regulation authority (supervision of deposit takers, insurers)
-- FCA: financial conduct authority (conduct of business)
legislation x5
-- FSMA: financial services and markets act 2000
-- RAO: // (Regulated Activities) Order 2001
-- SRA Financial Services (Conduct of Business) Rules 2019
-- Financial Services and Markets Act 2000 (Financial Promotions) Order 2005
404
general prohibitions -- s19 FSMA
breach of s19 is a criminal offence
s19 FSMA: no person may carry on a regulated activity in the UK unless he is --
(a) an authorised person; or
(b) an exempt person
regulated activity: an ACTIVITY of a SPECIFIED kind which is carried on by way of business and
(a) relates to an INVESTMENT OF A SPECIFIED kind...
regulated activity = specific investment + specific activity
405
FSMA Decision Tree -- steps
1 -- is there a specific investment? if yes
2 -- is there a specific activity? if yes
3 -- if there an exclusion available? if yes
4 -- can both s327 FSMA and SRA Scope Rule 2 be satisfied?
if yes: exempt regulated activity
-- law firm must comply with SRA Scope Rules +
-- be authorised by SRA in relation to this activity AND must comply with SRA Financial Services (Conduct of Business Rules 2019)
if no:
-- the firm must be authorised by the FAC or PRA and must comply with the FCA or PRA Handbook in relation to this activity
-- OR refuse to carry out the activity
-- if the firm is not FCA/PRA authorised, and carries out the activity, the person carrying out the activity is likely to have breach s19.1 FMSA which is a CRIMINAL OFFENCE
406
FSMA Decision Tree: step 1
1 -- is there a specific investment? x5
shares
registered mortgages contracts
contracts of insurance
bonds
pensions
407
FSMA Decision Tree: step 2
2 -- is there a specific activity? if yes
x4
ADVISING on the merits of investments (N/A generic advice)
DEALING in investments
ARRANGING DEALS in investments
MANAGING investments
408
FSMA Decision Tree: step 3
specific exclusions?
general exclusions? x3
1 -- necessary part
2 -- sale of a body corporate
3 -- authorised person
409
FSMA Decision Tree: step 3
authorised person
exclusion applies to x2 (DAr)
-- dealing in investments as agent
-- arranging deals in investments
conditions x2
-- transaction is entered into on the advice of the AUTHORISED PERSON
OR
-- the client is not seeking advice from the solicitor as to the merits of entering the transaction
Does not apply x2
-- solicitor receives COMMISSION for which does not account to client
-- CONTRACT OF INSURANCE
410
FSMA Decision Tree: step 3
necessary part exclusion
exclusion applies to x3 (DAAr)
-- dealing in investments as agent
-- arranging in investments
-- advising on the merits
conditions
-- activity may reasonably be regarded as a necessary part of other services other services provided in the course or profession or business
does not apply x3
- CONTRACTS OF INSURANCE
- certain investment firms or credit institutions, or
- the activity is remunerated separately from other services
411
FSMA Decision Tree: step 3
sale of a body corporate
exclusion applies to
- dealing as agent
- dealing as principal
- arranging deals
- advising [on the merits]
x2
the transaction is to acquire or dispose of shares in a body corporate
+
1
i) the share consist of 50% or MORE of the voting shares in the body corporate; OR
ii) the shares together with those already held by the purchaser consist of at least 50% of such shares; AND
iii) the acquisition or disposal is between parties each of whom is a body corporate, partnership, single individual or group of connected individuals (NB the buyer and seller do not need to be the same type of entity)
OR
2
i) the object of the transaction is to acquire DAY TO DAY CONTROL of the company; AND
iii) the acquisition or disposal is between parties each of whom is a body corporate, partnership, single individual or group of connected individuals (NB the buyer and seller do not need to be the same type of entity)
412
FSMA Decision Tree: step 4
s327 FSMA
x4
1) must be a member of a PROFESSION
-- will be met if the person carrying out the activity is a solicitor
2) must not receive COMMISSION from a third party in respect of the regulated activities, unless he accounts to his client
-- easy to meet: if solicitor receives they should give it to client
3) the specific activity must be provided in a way that is INCIDENTAL to the provision professional services; and
-- if the activity is a small part of the work being carried out by the firm (which in most cases it will be) then this condition is met
4) must only carry out regulated activities which he is permitted to carry out as a result of s323 (ie must comply with rules set by SRA, namely the SRA Scope Rules)
-- this is the next step: does the solicitor meet the requirements of the SRA Scope Rule 2?
413
FSMA Decision Tree: step 4
SRA Scope Rule 2
SRA Scope Rule 2 sets out the basic conditions solicitors must satisfy
rule 2:
the activities ARISE OUT OF
or
are COMPLEMENTARY to the provision of a particular professional service to a particular client
Test: does the specified activity ARISE NATURALLY out of the work the solicitor is doing for the client?
-- if it does not, the work is not complimentary
complimentary: a property solicitor gives legal advice, drafts documents and undertakes a conveyancing transaction involving a regulated mortgage
not complementary: a company solicitor is acting on the sale of a company for a client. the client asks the solicitor to advice on whether to invest the sale proceeds in a personal pension
414
restriction on financial promotions
s21 FSMA
1) A person (A) must not in the course of business, communicate an invitation or inducement to engage in investment activity
2) but subsection (1) does not apply if A is an AUTHORISED PERSON or the content of the communication is APPROVED BY AN AUTHORISED PERSON
solicitors advising sellers on shares might produce documents that constitute an invitation to engage in investment activity -- eg an information memorandum if the shares are being sold at an auction
getting the content of the document approved by a person authorised by the FCA can be time consuming and expensive for the client
EXEMPTIONS x3
-- sale of a body corporate: 50 % or more of voting shares
-- investment professionals (eg person authorised by FCA)
-- high net worth companies or individuals
415
requirement for an approved prospectus
s85 FSMA
it is unlawful for transferable securities [ie shares] to be offered to the public in the UK unless an approved prospectus has been made available to the public before the offer is made
getting a prospectus approved by the FCA can be time consuming and expensive for the client
exemptions x2
-- the offer is made to or directed at FEWER THAN 150 PERSONS
-- the offer is sent only to QUALIFIED INVESTORS (eg banks, investment institutions, national and regional governments)
416
417
Which one of the following statements is incorrect?
Acts of Parliament are divided up into different ‘parts’, each of which will have a larger number of ‘sections’ and often ‘sub-sections’.
If passed by Parliament, government bills and private members’ bills ultimately enjoy the same legal status. However, the prospects of the former being enacted are far higher than the latter, as they represent official government policy and (as long as the ruling party has a majority) have the weight of the government party’s voting block behind them.
A Private Act of Parliament means that it has been drafted by an individual MP on either side of the House without official government sponsorship.
The usual way in which legislation comes into operation is through a commencement provision in the relevant Act, giving the relevant Secretary of State the power to name a commencement date by issuing a statutory instrument (‘S.I.’)
The front ‘page’ of an Act of Parliament contains both a short and a long (explanatory) title as well as the date of the royal assent.
A Private Act of Parliament means that it has been drafted by an individual MP on either side of the House without official government sponsorship.
Correct. This confuses a Private Act with a successful private member’s bill. A Private Act should instead be contrasted with a Public Act, the latter relating to a matter of general public policy and the former to a specific, often local need for statutory approval, such as a large infrastructure project.
