Solicitors Regulatory and Practice Seminar 2012 .

1. Solicitors Regulatory and Practice Seminar 2012.

2. Jeremy Barnett Head of Regulatory www.stpaulschambers.comwww.jeremybarnett.co.uk jvb@stpaulschambers.com jd@stpaulschambers.com

3. Current SRA issues Hot Topics – coming to a cinema near you • Referral Fees • Alternative Business Structures • COLP COFA ( Brian) Current campaigns • Assigned Risks Pool • SDLT schemes

4. Referral Fees: Scope • Legal Aid Sentencing & Punishment of Offenders Act 2012 [LASPO] • Ban on referral fees in PI cases – concerns re cost of civil litigation, rising premiums, increasing no of claims • Sections 56 – 60 • Prohibits payment & receipt of referral fees by regulated persons (solicitors, barristers claims management companies and insurers) • Regulated person also in breach if arrange for another to provide services ( if paid) • A referral is provision of information that the person would need to make an offer to the client to provide legal services • Can be any form of consideration other than reasonable hospitality • Relates to legal services for damages for PI/death only ( for now) • Regulators can treat a payment as a RF unless he can show otherwise

5. Referral Fees: SRA • Outcomes Focussed approach • The 10 principles in particular; • Act with intergrity • Not allow independence to be compromised • Act in the best interest of each client • Public trust in the profession • We will ensure that appropriate action is taken against firms that do not comply with the letter and the spirit of the law • Will look at • Whether there is a referral • Whether there is a payment • Whether the payment is for the referral

6. Referral Fees: Is there a payment? • This is the key battleground • SRA anticipate payments will be for marketing or other claims management services. • Not intended to capture group marketing campaigns • S57 (9) a payment is to be treated as a RF if it exceeds the amount specified in regulations made by the Lord Chancellor. • Guidance is expected from the ministry of justice on what is a reasonable marketing fee.

7. Referral Fees: ABS • Can we form an ABS to beat the RF ban? • SRA have already thought of this one • ‘we believe that provided all the authorisation are met and the ABS complies with its regulatory obligations, we cannot seek to prevent such arrangements’ • We may however impose conditions on the licence or even refuse authorisation if we think this is a threat to the public interest or the regulatory objectives.

8. ABS issues • 30 ABS approvals, 100 applications in the pipeline • SRA will impose conditions on the licence of an ABS or refuse authorisation if the arrangements pose a threat to the public interest or regulatory objectives.

9. ABS: the ‘associate practice’ rule • Asolicitor may not actively participate in a separate business which conducts prohibited separate business activities. • The purpose of the rule is transparency. It is essential that a member of the public knows who is his/her lawyer. • It is important that clients are not misled or confused about the regulatory status of a permitted separate business. • i.e. does the other business conduct a regulated activity under the Legal Services Act?

10. ABS: Waivers • SRA has a general discretion under chapter 12 of the Code of Conduct to issue a waiver in exceptional circumstances, to waive in writing the provisions of these outcomes for a particular purpose or purposes expressed in such a waiver, to place conditions on and to revoke such a waiver. • No guidance on exercise of the waiver – Judical Review seems to be the only way to test the exercise of the discretion.

11. ARP: Sanction. • SRA decided in early 2012 this is serious. Issued guidance. • Followed by 8/9 decisions. Clear message non payment resulted in suspension until premium was paid in full – with a couple of exceptions.

12. ARP: the issues • Non payment of ARP and run off cover. • Rule 16.5 Solicitors Indemnity Insurance Rules creates a disciplinary offence for a principal of a firm to be in default after 2 months following the due date for repayment. • All partners are jointly and severally liable – the application form • Premium is huge: not based on risk but turnover • Liable for 12 months unless exit the scheme. Exit by payment or taken over by a ‘successor practice’

14. SRA v Williams and OthersAMS law Sheffield – Lupton Fawcett • SRA found exceptional mitigating factors • Firms problems were caused by other partners who had left – PI insurance claims • Had taken steps to reduce liability to ARP ‘block notification’ • Had Clients best interests at heart • Were honest and assisting Barclays and BDO. • No personal benefit – no personal guarantees • No one warned them of punative sanction • Believed could ‘pop into’ the ARP • Hadn’t taken legal advice. Failed to pay £1m ARP and £1m run off cover When Capita asked for proposals for repayment denied liability. No repayment at time of hearing

15. ARP: Waivers • Can apply for a Waiver under SIR 2010/11 • Exceptional cirumstances– harship must be exceptional. • Apply to internal SRA officer – appeal is to an internal committee at Leamington Spa. • Cowboy country. Hearing managed by those who operate the scheme. ‘Judge and Jury’ • Appeal is by way of Judicial Review. We have one pending as we suspect the test being exercised is not ‘are there exceptional circumstances’ but ‘what is the prospect of the ARP recovering its money in due course if we allow this waiver?’ • Worthwhile exercise. One case have achieved a reduction so far of 80%

16. SDLT: SRA warnings • SRA warning 16.2.12, updated issue 23 March 2012 • Take care not to get involved in any schemes which exploit perceived loopholes in tax laws to reduce, or negate, buyers' charge to paying stamp duty land tax at the risk of breaching the Code of Conduct and incurring HMRC penalties. • You should think twice before becoming involved in these schemes—the HMRC has warned it is actively challenging property sales transactions which have been structured to avoid paying the correct stamp duty. • Successful challenges could mean buyers would be liable to pay all of the stamp duty land tax, plus interest and a penalty, while solicitors could also face punishment for knowingly providing incorrect information. • Richard Collins, SRA Executive Director, said: "In view of the level of concern on the part of the HMRC and the fundamental importance of integrity in the provision of legal advice, we will look very closely at the conduct of any firm actively involved in these schemes. Buyers of property are free to use honest and proper tax planning to mitigate their tax liability but there are a number of risk and misconceptions surrounding SDLT schemes."

17. SDLT: HMRC position • Active challenge by • Linking up the payment of SDLT with land registry, compliance checks to follow • Examination of transactions where no SDLT paid • ‘discovery assessments’ outside the 9 month enquiry window • Full range of sanctions against SDLT promoters • Time limits from date of SDLT 1 submission, runs for 6 years. • Recent decision in Vardy Properties (2012) UKFFT 564. Refused claim of £7m on Stockton on Tees business park. (First case of a sub sale decided against HMRC)

18. SDLT: what could possibly go wrong? • Failing to act with Integrity H3 to H7 • Allowing independence to be compromised. • failure to act in the best interest of the clients • Acting in a way that would diminish public confidence in the profession. • Acting where there is a risk of a conflict. • Failure to obtain written consents from client where acting where there is a common interest • Failure to disclose material information to clients. • Failure to comply with regulatory requirements • Conducting legal activites through a separate business H5 • Improper transfer of mortgage funds • Failure to properly record dealings with client money. • Not a bad haul where there is no complaint and no client is out of pocket!