Professional Conduct: Managing Risk

Question 1

What are the primary responsibilities of a Compliance Officer for Legal Practice (COLP)?

Answer 1

Ensure the firm complies with all terms of SRA authorisation and statutory obligations; record and report any compliance failures to the SRA as soon as practicable

Question 2

What are the primary responsibilities of a Compliance Officer for Finance and Administration (COFA)?

Answer 2

Ensure the firm complies with the SRA Accounts Rules 2019 and report any serious breaches to the SRA promptly

Question 3

What must a firm do before appointing someone as its COLP or COFA?

Answer 3

Confirm the individual is a manager or employee, consents to the designation, is not disqualified under section 99 LSA, and (for a COLP) is authorised to carry on reserved legal activities by an approved regulator

Question 4

Can the same person serve as both COLP and COFA?

Answer 4

Yes, provided they meet all eligibility criteria and have the necessary skills—typically only viable in sole practices or very small firms

Question 5

Who bears ultimate responsibility for regulatory compliance in a firm?

Answer 5

The owners and managers collectively bear ultimate responsibility; COLPs and COFAs facilitate systems but do not hold sole responsibility

Question 6

What are the key SRA risk categories identified in the Risk Outlook?

Answer 6

Anti-money laundering; safeguarding client money; promoting diversity; information and cyber security; integrity and ethics; meeting legal needs; maintaining service standards

Question 7

Under CCS, which rule requires you to keep client money safe?

Answer 7

CCS 4.2

Question 8

Which CCS rule prohibits a solicitor from taking unfair advantage of clients?

Answer 8

CCS 1.2

Question 9

What does CCS 3.1 require regarding client instructions?

Answer 9

Ensure you act only on instructions from the client or someone properly authorised by the client, confirming authenticity if you suspect instructions do not reflect the client’s wishes

Question 10

Which rules address equality, diversity, and inclusion in the profession?

Answer 10

CCS 1.1 and CCF 1.5 require you not to unfairly discriminate and to promote EDI throughout the firm

Question 11

What does CCS 8.2–8.5 require of firms?

Answer 11

Establish and maintain a complaints procedure, inform clients of their complaint rights, handle complaints properly and fairly, and notify clients of referral rights if unresolved after eight weeks

Question 12

Which CCS rules mandate clear information provision to clients?

Answer 12

CCS 8.6: provide information clients can understand; CCS 8.7: give clients detailed costs information at engagement and as the matter progresses

Question 13

Which CCS rule requires you to maintain competence and keep professional knowledge up to date?

Answer 13

CCS 3.3

Question 14

Which CCF rule requires firms to have systems and controls ensuring compliance with all SRA regulatory arrangements?

Answer 14

CCF 2.1

Question 15

What does CCF 2.2 require firms to do?

Answer 15

Keep and maintain records demonstrating compliance with all SRA regulatory obligations

Question 16

Under CCF 2.4, what must firms do when they become aware they will cease to operate?

Answer 16

Effect an orderly wind-down of activities to protect client interests and manage liabilities

Question 17

Under CCF 2.5, what must firms do regarding risk?

Answer 17

Identify, monitor, and manage all material risks to the business, including those arising from connected practices

Question 18

What is a Risk Management Policy (RMP) and why is it useful?

Answer 18

A documented framework detailing risk definitions, identification, evaluation, and responses; it assists firms in demonstrating compliance and guiding risk handling

Question 19

Name three categories of risk a firm might face.

Answer 19

Strategic risk (e.g., business direction changes), operational risk (e.g., system failures, supervision errors), regulatory risk (e.g., non-compliance with SRA rules)

Question 20

What role does an in-house lawyer play in managing risk?

Answer 20

Identify, assess, and manage risks within their organisation; balance legal cautions with business objectives to avoid obstructing legitimate initiatives

Question 21

Under FSMA s 19, what activity is prohibited without FCA authorisation?

Answer 21

Carrying out any regulated activity (e.g., dealing in investments, arranging deals, managing investments, advising on investments) in the UK

Question 22

Which two bodies regulate financial services in the UK?

Answer 22

The Prudential Regulation Authority (PRA) oversees prudential supervision of deposit takers, insurers, and significant investment firms; the Financial Conduct Authority (FCA) governs conduct, supervises firms, and regulates financial markets

Question 23

Why do most law firms refer clients to independent financial advisers rather than provide financial advice themselves?

Answer 23

Because providing regulated financial advice requires FCA authorisation, subjecting firms to extensive compliance obligations they typically avoid

Question 24

What are the core duties of individual lawyers under CCS when supervising others?

Answer 24

CCS 3.5: remain accountable for work done through those you supervise and effectively supervise their work; CCS 3.6: ensure supervisees are competent and maintain up-to-date professional knowledge, skills, and regulatory understanding

Question 25

Under CCF, what must firms have in place to supervise client matters?

Answer 25

An effective system for supervising clients’ matters (CCF 4.4) to ensure quality and compliance with SRA standards

Question 26

What are the main advantages of a traditional partnership structure?

Answer 26

Flexible internal arrangements via partnership agreements; partnership culture with shared decision-making; direct profit sharing; privacy of financial and ownership details

Question 27

What are key disadvantages of a traditional partnership?

Answer 27

Unlimited personal liability for partners; shared decision-making may hinder efficiency; limited external financing options; challenges expanding internationally due to lack of recognition

Question 28

What are the advantages of a Limited Liability Partnership (LLP) for law firms?

Answer 28

Limited liability for members; tax neutrality on conversion from partnership; ability to borrow and issue floating charges as a separate legal entity

Question 29

What are disadvantages of an LLP compared to a company?

Answer 29

Less tax efficient than a company; increased public filing responsibilities (accounts and partner details at Companies House); may still need to convert to a company to attract certain investors

Question 30

What are the advantages of an incorporated company structure for a law firm?

Answer 30

Limited liability for shareholders; potentially greater tax efficiency; clearer governance via a board of directors; easier access to financing through share issuance; easier foreign expansion

Question 31

What are disadvantages of a company structure for law firms?

Answer 31

Higher administrative burdens and mandatory filings; reduced flexibility in internal arrangements; public disclosure of financial and ownership information; potential National Insurance liabilities on director remuneration

Question 32

What is departmental expertise and why is it important?

Answer 32

Specialisation in particular areas of law (e.g., corporate, family, IP) or industry sectors (e.g., aviation, TMT) that allows a firm to tailor services and marketing strategies to specific client needs

Question 33

When must a business be authorised by the SRA to provide legal services?

Answer 33

When offering reserved legal activities, immigration services (unless OISC-regulated), claims management services (unless FCA-regulated), or regulated financial activities (unless FCA-regulated)

Question 34

What are reserved legal activities under the Legal Services Act 2007?

Answer 34

Rights of audience; conduct of litigation; reserved instrument activities; certain probate activities; notarial activities; administration of oaths

Question 35

What defines a sole practice under SRA rules?

Answer 35

A solicitor practising on their own account, providing services in their own name or trading name; can employ qualified solicitors who are not principals

Question 36

What is a legal services body according to SRA categorisation?

Answer 36

A recognised body in which all managers and interest holders are lawyers, structured as a partnership, LLP, or limited company

Question 37

What is a licensable body or ABS?

Answer 37

A licensed body in which managers and interest holders include both lawyers and non-lawyers, allowing external investment and non-lawyer management of reserved legal activities

Question 38

Are law centres and legal advice centres required to be authorised by the SRA?

Answer 38

They may not need SRA authorisation if they do not provide reserved legal activities; solicitors working there must still comply with CCS and carry adequate indemnity

Question 39

When working as an in-house lawyer, what standards must you follow?

Answer 39

You must comply with CCS standards, exercise judgment appropriate to your role, and balance business objectives with ethical and regulatory obligations

Question 40

What are the SRA Indemnity Insurance Rules’ core requirements?

Answer 40

Firms must take out and maintain adequate professional indemnity insurance covering current and past practice, and ensure clients benefit from required cover without exclusions below the minimum level