2020 will be a year that very few of us will ever forget, and for all of the wrong reasons in the main. Very few firms will have avoided the disruption of their offices having to be closed or needing to operate very differently to minimise contact with colleagues and clients, and fewer still will have been able to avoid altogether some degree of associated financial loss as a result of the pandemic.
A survey by Lexis Nexis, as reported in the Gazette of the 10th December, suggested that there had been a 7% hit on most of the standard practice areas of most firms. Within this average, however, there will be relative winners and losers, meaning that many will have suffered a good deal worse than that average figure. All of this will suggest that current profit levels will make gloomy reading for many, and those who have seen the year out in good form should be congratulated for the resilience in maintaining their operations in the light of the challenges that all have had to confront.
With Covid 19 still the scourge of the nation what changes can we expect going forward, especially as we see a number of vaccines now becoming available and an end, at some stage next year, to the pandemic? For those with a more optimistic outlook there are positives to consider. The recent Lexis Nexis Bellwether Report has reported that 8 out of 10 firms that they had surveyed were either “very” or “quite” confident in their outlook and, although working in complete isolation from colleagues has clearly been seen to be unattractive to most, it has emerged as being a much more viable option than most of us would have thought just 12 months ago. The same report found that the general level of uncertainty over Brexit, along with the continuing demands of compliance and industry changes, were seen by most to be higher priority threats than the difficulties caused by the pandemic. Although every firm is different in some way or another, video conferencing, along with online training, have emerged as real and acceptable alternatives to meeting face-to-face as a matter of course. Likewise, having to attend the office four or five days a week is increasingly questioned and we have learned much sooner than we would otherwise have done that electronic communication programmes such as Zoom make remote working a much more viable option than most would have considered just a year ago.
By contrast, the sooner we can return to some level of office life, the better, it would seem. Supervision has a personal element to it as well as the technical, and the Lexis Nexis report also provides evidence of the increasing isolation felt by many younger lawyers in particular, and the resulting motivational problems associated with a sense of abandonment. The importance of teamwork has been stressed by psychologists for many years, and this seems quite clearly to be the most pressing negative for lawyers in coping now and for the time being with their work pending the end of current restrictions.
Further evidence of a reduced office presence going forward can be seen in the changing property market, with the surge in house prices way beyond the south east showing that many more lawyers and other such office-based workers will no longer see the need to travel into the office as being an essential part of the working day. Just under a half of all solicitors work in the greater London area, and as many firms are already seeing more remote working patterns as a viable, and much less expensive, alternative to the office, so too it opens up the prospect of not being personally tied to the south east as many have felt themselves to be in recent years. This will, no doubt, become a major factor for many in planning for their office moves and lease renewals, and as a further incidental advantage of a post-Covid world has also been seen as offering real hope in relation to job and promotion opportunities for those with mobility-based disabilities.
With the SRA very much in all of our sights in the light of this year’s problems for practitioners there is likely to be even more interest than usual in the regulator’s recent Risk Outlook publication. This provides an insight to how the SRA sees the risks faced by law firms in general, and so should be seen as being relevant to all individual solicitors as well.
Perhaps the most eye-catching comments in the publications relate to Covid-19 and the now fast approaching reality of Brexit. On the pandemic the SRA warn of changes to consumer behaviour, the economic downturn and the need for new working practices, and job losses. In this regard we are pleased to say that over recent months we have assisted a number of lawyers who have parted company from their previous firms to set up for themselves in the light of all such pressures. The closely linked issue of Brexit follows hard on the heels of this first topic and highlights another SRA web resource “How Brexit might affect those we regulate”. This is well worth consulting as we count down to the new year: see SRA | Hot topic: Brexit | Solicitors Regulation Authority.
Other than these very obviously topical concerns the priority risks then have something of a more familiar theme to them, with safeguarding client money, cyber security and diversity in the profession all unsurprisingly highlighted as such. The other such factors of “meeting clients’ needs” and “standards of service” will also have quite a familiar ring to them for those familiar with similar warnings from the last few years.
On the effect of this year’s practising difficulties the SRA states that the Covid pandemic has “exacerbated some of the wider, day-to-day risks that already existed”. Within their areas of concern the topic that we have felt the need to feature more than any other this year – money laundering – the regulator has chosen to highlight the topic of vendor fraud, with a warning of the risk of infiltration of firms by collaborators who will enable fraudulent sales or other dealings in properties to succeed. As all such dealings are likely to be making use of forged or stolen documents, the importance of making rigorous checks on new staff and of client identities in all cases is stressed,. Another suggestion highlights the significance of the firmwide risk assessment as required by r.18 of the Money Laundering Regulations 2017, with the need to keep this under review and so be updated at least annually being stressed.
Another issue that we featured in this regard in the November Compliance Bulletin was the extension of the need to comply with the regulations in more firms and departments than before as a result of the changes made by the amended AML regulations which took effect in January this year. Here, see again the previous issue of our Compliance Bulletin, or alternatively the SRA’s own warning at “Tax Adviser Guidance (sra.org.uk)”. If you are a specialist Family law or Employment firm in particular then you are likely to be one of those affected by these changes, and if so please bear in mind that the SRA will expect you to have re-registered with them as a firm which is now subject to the MLR 2017 by no later than the 10th January 2021 – the first anniversary of the amended requirements coming into force.
The other priority risk which may be especially worthy of a mention is that dealing with “Information and cyber security”. The NCA has stated that:
“Cybercrime continues to rise in scale and complexity, affecting essential services, businesses and private individuals alike. Cybercrime costs the UK billions of pounds, causes untold damage, and threatens national security”.
In this regard the SRA reports that in the first half of this year alone nearly £2.5 was stolen from law firms by cybercriminals, representing over three times the equivalent losses for the like period in the previous year. Much of these losses may well have been covered by the profession’s insurers as stated, but insurers are commercial rather than charitable creatures and will, understandably, be unwilling to overlook losses without increasing premiums in future renewals to reclaim them.
An additional risk identified earlier in the year was how absence from the office left firms more susceptible to fraud attacks of one sort or another, and so highlighted the need to tighten security defences wherever this was the case. Other particular risks mentioned include the use of home Wi-Fi, which is likely to be less rigorous that than office standards, keeping client information confidential while working from home, and the added risk of cyber attacks through the firm’s partners and staff not having direct contact with colleagues and supervisors. The importance of regularly reviewing the firm’s risk profile also once again emerges as a recommendation in this part of the Risk Outlook.
The other striking consideration as we near the end of this most challenging of years will be the unfolding story of City lawyer Ryan Beckwith, whose successful appeal against the SDT findings and sanctions against him was reported in late November. Set against the financial challenges that most firms have faced this year news that this former Freshfields partner has succeeded in his appeal against the £35,000 fine and the finding of some £200,000 costs against him for his well-publicised night out with an anonymous female colleague from the same firm is remarkable by any standards. The judgment means that we are all out of pocket as a result of the actions that the SRA pursued so vigorously and expensively. Whatever the views of individual solicitors on the facts and outcomes of this case, it should at least be seen as a financial blessing that the SRA did not at least get the outcome that they had most hoped for at the outset – to have Beckwith struck off and so to have lost out on his lucrative potential earnings since as a top insolvency practitioner. Add to this the fact that there are apparently some 143 similar cases still pending at the disciplinary tribunal and the whole purpose and priorities of the regulatory controls over the profession will clearly need to be re-examined. As yet the SRA has still to announce what the successful appeal will have on their views on sexual impropriety within firms, and how the thrust of their enforcement policy when such incidents come to their attention will need to be responded to in future. We await further news on this front in the new year with interest.
The Legal Services Board
Also worthy of a mention this month is the recent report from the Legal Services Board – the quango to which all of the legal regulators report – and its reflections on its first ten years of its operations. With a return date of the 5th February 2021 it reflects on the continuing problem of the continuing “significant levels of unmet legal need”. In order to pursue its plans nine priority focus areas are set out, along with a proposed budget increase of 4.4% .