In continued partnership with Paragon, Weightmans’ Compli team – who provide bespoke risk management and compliance consultancy services – has produced a two-part paper discussing the importance of effective supervision, the SRA’s supervision guidance note and suggested top tips on implementing an effective supervision strategy. In part one, Michelle Garlick, Head of the Compli team at Weightmans, provides a case study on the importance of effective supervision.
A case study
Picture this scenario – you are a partner in a law firm. You supervise a trainee who has day-to-day conduct of residential conveyancing matters. You and the trainee speak several times each day to discuss and answer queries, with a file review being conducted by you before both exchange and completion. Approvals of payments out would be authorised by you. So far, so good as far as supervision is concerned, you might think?
Two instructions come in a month or so apart for sales of two properties by different sellers, both of them using the same estate agent. The trainee meets the sellers (and the estate agent who had accompanied them) in person and obtains their driving licence ID and a utility bill addressed to the client at the property.
In relation to property sale 1, the client is Chinese. The firm gives an undertaking to the buyer’s solicitors that they have taken reasonable steps to establish their client’s identity and connection to the property being sold. There is evidence that the seller can obtain gas and electricity certificates for the property, and the firm is also in possession of a letter from the local council confirming that, whilst being entitled to first refusal, they did not wish to proceed with purchasing the property. This letter is undated, unsigned and bears no reference. It is forwarded to the buyer’s solicitors at their request.
In relation to property sale 2, the buyer’s solicitors ask for a copy of a commercial lease relating to part of the premises, and the trainee is able to obtain this from the client and provide it to them. The initial asking price for this property was £63,000 but is reduced to £50,000 for a quick completion.
The day before completion of property sale 1, the client meets the trainee accompanied by a third party who is introduced as the client’s son. The client asks the firm to transfer the sale proceeds to her son’s bank account on completion, and a declaration is drafted and signed to that effect. Son is a white male, and a copy driving licence is obtained matching the name of the bank account with an address in a small town in Scotland (a different area to where the property being sold is located). It completes the following day, and you authorise the funds to be transferred to the client’s son’s bank account.
Two days before completion of the sale of property 2 (and approx. one month after property sale 1 has completed), client 2 explains to the trainee that he owes his ex-wife some money and asks the firm to transfer the sale proceeds on completion to a third party who he explains is his ex-wife’s new partner. Copy driving licence for this payee is obtained showing an address (albeit different) in the same small Scottish town as in property sale 1. On completion, you again authorise payment to this payee.
You might be able to guess where this is going. Spot any red flags/breaches in either or both of these property purchases, perhaps?
These are the facts of an SDT Agreed Outcome against a solicitor partner, which reinforces the importance of effective supervision and training. In the case of SRA v Gurpralad Landa Singh (a second partner was also sanctioned in the same proceedings for unrelated matters), Mr Singh agreed to accept a fine of £12,500 for breaches (under the SRA Handbook 2011) of Principles 6 and Outcomes 7.6 and 7.8 Code of Conduct and of 14.5 SRA Accounts Rules 2011 (banking facility).
The Agreed Outcome, whilst noting (para 71) that it was not known whether the two transactions were, in fact, property hijacks, found that in his capacity as supervisor, he failed to provide adequate training to be able to spot red flags in respect of the two transactions that bore the hallmarks of property hijacks and that he had failed to properly supervise a poorly trained trainee.
The trainee failed to spot the obvious hallmarks and to make enquiries about them. That indicated a lack of adequate training.
It made clear in finding a breach of P6 that the “public expects solicitors charged with the day-to-day conduct of a case to be in a position to identify obvious hallmarks of fraud and either to make further enquiries into this or cease to act. It would be alarmed by a solicitor who put a trainee into a position where they were not adequately prepared to carry out this basic task.”
In relation to the breach of O7.6, it added that “If a trainee was unable to spot these obvious hallmarks of a property hijack he should not have been given the degree of autonomy that he was.”
And in relation to the breach of O7.8 –”if the system allowed these obvious hallmarks of a property hijack to escape the net, the supervision system was inadequate.”
So what were the red flags that the SRA alleged were obvious hallmarks of property hijacks?
The judgment listed six (and you might want to use the case study for your own training purposes to see how many your own teams spot?!):
- The letter from the council was an obvious forgery.
- The Chinese client claimed to have a white son.
- Two sets of payments in apparently unconnected transactions were made to individuals with an address in the small town in Scotland.
- The request to transfer the sale proceeds to third parties instead of the vendors, who could then transfer the funds as they wished.
- The significant reduction in purchase price on property sale 2.
- The pressure to complete both sales quickly.
Whilst the respondent’s and trainee’s evidence was that they would speak several times each day with a file review pre-exchange and completion, it was held that these obvious hallmarks ought to have been picked up as part of that process and “the fact that they were not demonstrates that that supervision was inadequate“.
Why supervision is so important
In November 2022, the SRA published a detailed guidance note on effective supervision. The guidance and the Singh case are timely reminders of our obligations around supervision. In January 2023, the SRA made it very clear in its response to the LSB’s statement of policy on ongoing competence that it will start collecting firm data on first-tier complaints and Professional Indemnity Insurance (PII) claims, will do spot checks, and conduct audits and file reviews and as part of that, will expect to see evidence of supervision, quality checks and training records. In the same way, as it is difficult to defend PII claims if there is no evidence of what was said/done on the file, so it is for defending any action brought by the SRA for supervision failures.
Supervision covers a whole range of issues, including things like performance management, capacity and resource, training and knowledge sharing (very relevant in the aforementioned case study) and being alert to employees’ mental health and well-being (which is a topic for another day!).
It is incredibly important for a number of reasons, including:
- The SRA requires it.
- PII insurers expect it.
- It gives confidence in the quality of service to clients.
- It supports competency, learning and development.
- It is indicative of a supportive firm culture and, therefore, good for the recruitment/attraction of talent.
- It protects the firm’s reputation.
Lack of supervision is one of the highest causes of claims, and this was the case even before more people started working from home during and post-covid and which has brought additional considerations when supervising remotely or hybrid.
It’s clear that proper supervision will reduce the risk of things being missed, whether it be crucial advice within a report, a key date, the use of an old template/precedent (see the findings in SRA v David Carter Hughes) or as in the case study, the hallmarks of fraud. Insurers and the SRA will want to see a clear strategy and evidence of supervision taking place.
So what is expected of us from a regulatory perspective in relation to supervision? Find out in Part 2 of “The importance of effective supervision”
If you have any questions concerning the issues raised in this article, Paragon, Compli or the firm’s approach to risk management more generally, please get in touch using the details below:
CONTACT US
For more information on the changing market, your firm’s PII renewal or to organise a meeting, please contact:
Ryan Senior
T +44 (0)20 7280 8254
M +44 (0)7827 575 652
Piers Winton
T +44 (0)20 7280 8224
M +44 (0)7787 375378
This article is published without responsibility on the part of the author or publishers for any loss occasioned by any person acting or refraining from action as a result of any views expressed in the article. Specific risk management advice requires detailed knowledge and analysis of each firm and practice area facts relating to the risk. The information included in this article cannot and does not attempt to satisfy this requirement for any of its readers.