Solicitors Regulation Authority Imposes Historic £232,500 Fine On Mishcon De Reya for String Of Regulatory Breaches

What Has Happened?

On 5^th January 2022 the Solicitors Regulation Authority handed down a £232,500 fine to law firm Mishcon de Reya after it admitted committing a catalogue of regulatory breaches. The matter centred around four linked clients, two corporate entities and two individuals, involved in an acquisition.

What Does It Mean?

The ruling against Mishcon is historically significant. The fine is one of the most substantial to have been imposed on any firm. Mischon was given an unceremonious dressing down for three reasons. It admitted shortcomings in its due diligence procedures. The firm failed to disclose a hard copy of the file. Next when the regulator approached the firm for evidence of due diligence it was seemingly unable to produce any. In fact, the firm made the seemingly outrageous claim that this evidence had been, ‘misplaced’. Finally, Mishcon admitted to not keeping any electronic records.

The severity of the fine is reflective of this not being their first offence. In October 2021, the regulator imposed a £25,000 fine after the firm used their client account to pay third parties involved in football transfers. Furthermore, In 2017 and 2018 the Regulator investigated the firm’s activity, finding that it had seemingly ‘underdone’ its due diligence and uncovering evidence of inadequate record-keeping.

What Impact May It Have Could This Legal Sector?

Law firms should carefully consider this judgment. Decision-makers should be advised to mitigate against the risk of the SDT launching investigations into and imposing fines, suspensions and strike offs against liable parties. The phrase which helpfully comes to mind is ‘prevention is better than cure’. In this regard, firms could be doing a lot more preventative work, perhaps following a multi-pronged approach by:

• Ensuring they have rigorous due-diligence processes in place;
• Applying the basic steps such as opening a file, carrying out identity and conflict of interest checks;
• Firms should ideally be helping themselves by keeping detailed, legible and clear records;
• They need to be as helpful to the Regulator as they reasonably can be;
• Building a foundational anti-money laundering culture by implementing regular AML training;
• Providing staff with ongoing training on the Solicitors Accounts Rules. This will help staff differentiate between client money and office money and the rules governing both.

Following this strategy will prevent files becoming ‘misplaced’. This will reduce the risk of facing the professionally embarrassing situation of being unable to locate a file when reasonably requested to do so by the regulator. This increase their prospects of identifying potential protagonists involved in money launderingand educating clients, and staff on the procedures to follow if they witness signs of suspicious activity. Staff need to be aware of the risk of breaching the Solicitors Accounts Rules when failing to take instructions from the respective clients and not issuing bills of costs. Partners must also make sure that Rule 6 is followed. If they discover a rule breach, they must replace the money from their own resources and ensure that account records are stored and retained for 6 years.

Assessing Firms

##Debevoise&PlimptonLLP #DechertLLP #FreshfieldsBruckhausDeringerLLP #HerbertSmithFreehillsLLP #Simmons&Simmons #Slaughter&May #Allen&OveryLLP #Baker&McKenzie #CliffordChanceLLP #CMS #GreenbergTraurigLLP #HoganLovellsInternationalLLP #LinklatersLLP

This Article was Written Using the Following Sources

[1] John Hyde – Mischcon de Reya fined £232,500 over numerous AML failings – 5^th January 2022 - Mishcon de Reya fined £232,500 over numerous AML failings | News | Law Gazette

[2] Mawardi, Adam – Mishcon de Reya hit with £232,500 penalty after SRA probe – 5 January 2022 - Mishcon de Reya hit with £232,500 penalty after SRA probe (thelawyer.com)

[3] Booth, James – Mishcon de Reya hit with £232,500 fine over money laundering breaches – 6 January 2022 - Mishcon de Reya hit with £232,500 fine over money laundering breaches - Financial News (fnlondon.com)

[5] Sam Tobin – Mishcon fined £25,000 over football transfer payment – 29^th October 2021 - Mishcon fined £25,000 over football transfer payments | News | Law Gazette

[6] John Hyde – Top sports lawyer denies central role in football transfer payments – 16 September 2021 - Top sports lawyer denies central role in football transfer payments | News | Law Gazette

[7] Jemma Slingo – Mishcon partners vote for stock exchange listing – 9 September 2021 - Mishcon partners vote for stock exchange listing | News | Law Gazette

[8] Jemma Slingo – Mishcon sets up £150m litigation arm – 8 September 2021 - Mishcon sets up £150m litigation arm | News | Law Gazette

[9] Proceeds of Crime Act 2002

[10] Solicitors Code of Conduct

[11] Money Laundering Regulations

[12] Rule 3 Solicitors Accounts Rules

[13] Rule 4 Solicitors Accounts Rules

[14] Rule 5 Solicitors Accounts Rules

[15] Rule 6 Solicitors Accounts Rules

[16] Rule 13 Solicitors Accounts Rules