The death penalty and other law firm risk issues (May24)

Professional negligence claims against law firms rarely involve the death penalty. Frank Maher acted in the defence of one such case. He discusses this and other lessons and experience from the world of law firm risk and compliance in a podcast (episode 13) with Adam Spencer of AJ Fox.

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Solicitors Regulation Authority (SRA) (May24)

The following is relevant to law firms, even if it is primarily directed to in-house practice.

The SRA has published draft guidance inviting comment:

  • Guidance for employers;
  • Identifying your client when working in-house;
  • Reporting concerns about wrongdoing when working in-house; and
  • Running internal investigations.

The last of these is particularly relevant to the wider profession (but not only) in the context of investigations into MeToo allegations. It draws attention to conflicts, employment issues, independence, interviewing witnesses, the decision-making process, and notification to the SRA.

The Legal Services Board has published the terms of reference for its inquiry into the SRA following the collapse of the SSB Group. As with the investigation into the collapse of Axiom Ince, this will be conducted by Northern Ireland solicitors, Carson McDowell LLP.

Anti-money laundering (AML) and sanctions (May24)

There have been many publications since our last issue, including –

The SRA is continuing to impose fines on a wide range of firms for AML breaches, and many of the fines are more than an independent audit would have cost, even if some of the firms may not technically have required an audit under regulation 21 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

We are auditing many law firms, including large international practices, and Sue Mawdsley and Frank Maher will continue to do so from July at Keystone Law. Sue Mawdsley also provides expert evidence on substantial SRA investigations and disciplinary proceedings.

Cyber and data protection (May24)

Computing reports that a deepfake fraud has cost global engineering firm Arup £20m. An employee was tricked into participating in a video conference with a digitally recreated version of the firm’s CFO. This is an example worth sharing to raise awareness.

The Information Commissioner’s Office (ICO) has shared some insights in a paper, ‘Learning from mistakes of others’; however, as the authors note, ‘[t]here are no silver bullets for information security’, and the paper is not intended to constitute guidance. Despite developments in sophistication of hackers, the key defences including (but not limited to) segregation, patching, encryption, multifactor authentication, strong passwords, security of domain administrator accounts and staff training are largely unchanged.

The paper cites a report from Verizon stating that 74 per cent of all breaches include the human element.

The National Cyber Security Centre has published guidance, Responding to a cyber incident – a guide for CEOs.

Finally on this topic, the ICO has published Data Protection Fining Guidance.

Professional indemnity insurance (PII) (May24)

Our January issue reported that insurers had sought permission to appeal the decision in Axis Specialty Europe v Discovery Land Company LLC and others [2024] EWCA Civ 7 on the aggregation of claims under a policy under the SRA Minimum Terms and Conditions of professional indemnity insurance (MTC). The effect of aggregation clauses, broadly, is that multiple similar claims may be subject to a single limit of indemnity.

The Supreme Court refused permission to appeal on 2 May 2024 be-cause there was no arguable point of law.

We have advised many firms and acted in disputes on aggregation issues running to eye-watering amounts. It is an area on which practitioners generally should have greater awareness: they may assume that the firm has adequate insurance for the work they do, without considering whether claims from multiple different instructions might be subject to a single policy limit (which also includes claimants’ costs). It has been a particularly significant issue in relation to claims by investors in development schemes buying units in hotels, student lets or buy to let proper-ties but its impact is not limited to these.

The decision was helpful to claimants and law firms, but not for insurers, and we are aware of consideration being given to try and bolster the aggregation clause in order to reduce insurers’ exposure.

Conflicts of interest (May24)

The recent Court of Protection decision in Irwin Mitchell Trust Corporation v PW & Anor [2024] EWCOP 16 will interest those acting on property and affairs deputyships. The decision of the law firm’s trust corporation to engage a sister company to provide asset management services was held, after extensive factual analysis, to be an actual own interest conflict.

While the following is from the United States, the principles considered are of interest to a wider audience. American Bar Association Formal Opinion 510, Avoiding the Imputation of a Conflict of Interest When a Law Firm is Adverse to One of its Lawyer’s Prospective Clients addresses the issue of whether a law firm can act for a client when confidential information has been provided by another prospective client who does not proceed to instruct the firm.

And finally… (May24)

Thank you for subscribing to our newsletter. This is the last one from Legal Risk LLP. If you would like to receive its replacement from Keystone Law in due course please email [email protected].

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