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Protecting your firm if you fall victim to a scam

Last updated: 20 December 2016

What is the issue?

  • the regulatory and legal requirements that apply when a firm's client account has fallen victim to scammers
  • overcoming problems which might otherwise lead to its failure and forced closure

Legal status

This practice note is the Law Society's view of good practice in this area. It is not legal advice.

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note, contact the Law Society's Practice Advice Service.

Professional conduct

The following sections of the SRA Handbook are relevant to this issue.

There are ten mandatory principles which apply to all those the Solicitors Regulation Authority (SRA) regulates and to all aspects of practice. Those relevant here are:

  • Principle 2 - 'act with integrity'
  • Principle 5 - 'acting in the best interests of each client'
  • Principle 6 - 'behave in a way that maintains the trust the public places in you and the provision of legal services'
  • Principle 7 - 'comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner'
  • Principle 8 - 'run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles'
  • Principle 10 - 'protect client money and assets'
  • Chapter 10 on 'You and your regulator' of the SRA Code

SRA Outcomes

  • (1.1) You treat your clients fairly.
  • (1.2) You provide services to your clients in a manner which protects their interests in their matter, subject to the proper administration of justice.
  • (1.12) Clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them.
  • (1.16) You inform current clients if you discover any act or omission which could give rise to a claim by them against you.
    (4.2) Any individual who is advising a client makes that client aware of all information material to that retainer of which the individual has personal knowledge.

Indicative behaviours (IB):

  • IB(10.1) - actively monitoring your achievement of the outcomes in order to improve standards and identify non-achievement of the outcomes.
  • IB(10.2) - actively monitoring your financial stability and viability in order to identify and mitigate any risks to the public.
  • IB(10.5) - notifying the SRA of any serious issues identified as a result of monitoring referred to in IB10.1 and IB10.2 above, and producing a plan for remedying issues that have been identified.

Rule 4 of the SRA Code of Conduct: Confidentiality and disclosure

SRA Outcomes

The following legislation also applies to this issue:

  • Fraud Act 2006
    • Section 3 sets out the circumstances in which it is an offence not to disclose information to others (such as the client)
    • Section 4 sets out that people (such as solicitors) who are in a position where they are expected to safeguard the financial interests of others commit an offence when they fail to do this
     

Terminology

Must - A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.

Should - Outside of a regulatory context, good practice for most situations in the Law Society's view. In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).

These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.

May - A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.

SRA Code - SRA Code of Conduct 2011

2007 Code - Solicitors' Code of Conduct 2007

OFR - Outcomes-focused regulation

SRA - Solicitors Regulation Authority

IB - Indicative behaviour

MTC - Minimum terms and conditions

SIIR - SRA Indemnity Insurance Rules 2011 (as amended from time to time)

PII - Professional indemnity insurance

The Law Society also provides a full glossary of other terms used throughout this practice note

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Practice Advice Service

The Practice Advice Service provides a dedicated support line for Law Society members and employees of law firms. Call us on 020 7320 5675.

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