Compliance

All practice units, regardless of whether you will be handling clients’ money or not, must set up the required books, records and cashroom procedures in order to comply with the accounts rules before you start your practice. The rules cover the handling and accounting of client monies and interest, daily, monthly accounting procedures, staff training and the delivery of Accounts Certificates confirming compliance with the applicable rules.

Our guidance gives an overview of the rules (see Law Society rules and guidance B6).

We will contact you upon setting up to provide guidance on accounting records, and again, at three months of trading where will send you a questionnaire about the accounting systems and procedures you have in place, prior to an intial inpsection by our Financial Compliance team. 

Where an in-house cashroom is not in place, there are options to outsource your cashroom function. When selecting an outsourced provider, consideration should be given to the insurance cover provided. Third-party fraud by outsourced staff would not be covered by the Client Protection Fund. You should also ask your suppliers about their GDPR compliance, cybersecurity credentials and contingency planning regime in the event of a breach.

As part of our regulatory duties, we carry out financial compliance inspections with all law firms on an ongoing basis. To make sure that your new practice is on the right track, we aim to carry out a compliance inspection of your firm within the first year of trading. Please contact us if you want to know more about inspections and how best to prepare.

Our CPD team hosts regular seminars on this topic and also covers manual book-keeping to ensure that you remain fully updated on compliance and what is expected in advance of your first Law Society inspection. 

We recommend that you meet with a member of our Financial Compliance team to discuss the accounts rules requirements, the books and records that need to be held and software available on the market.

We will contact you upon setting up to provide guidance on accounting records, and again, at three months of trading we will send you a questionnaire about the accounting systems and procedures you have in place, prior to an intial inpsection by our Financial Compliance team.

Given the many ways in which the legitimate services provided by legal firms can be used for
illegitimate purposes, law firms continue to be a target for criminals looking to launder the proceeds of crime.

If your firm will be involved in any of the following activities, you will be subject to AML supervision by the Law Society. You will need to ensure compliance with both the Money Laundering Regulations and the relevant industry guidance such as the Legal Sector Affinity Group Guidance.

• the buying and selling of real property or business entities;
• the managing of client money, securities or other assets;
• the opening or management of bank, savings or securities accounts;
• the organisation of contributions necessary for the creation, operation or management of companies; or
• the creation, operation or management of trusts, companies, foundations or similar structures,*

*See Regulation 12(1) of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. 

An AML questionnaire is issued to all new practices to ascertain if the work to be undertaken falls into the scope of the regulations, and where it does, provides guidance as to the necessary actions required.

The AML section of the Law Society’s website provides guidance to support practice units with their ongoing anti-money laundering compliance, including template examples for Practice Wide Risk Assessments, AML Policies, Controls and Procedures and Client & Matter Risk Assessments.

The CPD team offer dedicated AML training and regular seminars on the topic of AML compliance and best practice.

If your firm is out of scope and therefore not subject to AML Supervision, you should still create and maintain policies and procedures to address both the Proceeds of Crime Act and the reporting of suspicious activities, as well as ensure a Money Laundering Reporting Officer (MLRO) is appointed.

In common with all organisations that process personal data, law firms must comply with GDPR. You can find out about data protection and GDPR from the perspective of a legal practice on our website. Remember, all new firms must register with the Information Commissioner’s Office. (ICO). The ICO regulates data protection.

For more information regarding GDPR, please see the Law Society of Scotland Guide to GDPR and the Information Commissioner’s Office.

If you carry out any of the following, you will have to apply for an incidental financial business licence (issued by us) or you will need that area of work to be regulated by the Financial Conduct Authority (FCA). Incidental financial business means financial work carried out as part of your other professional services. If you carry out any mainstream financial work, you must be regulated by the FCA (see Law Society rules and guidance C2)

• Incidental consumer credit business – more commonly, debt administration or debt collecting
• Incidental insurance distributionbusiness – advice on, or the sale of, general insurance products
• Incidental investment business – for example, arranging the sale of shares in an executry
• Incidental long-term care insurance business – advice on, or the sale of, long-term care insurance products
• Incidental mortgage business – the arrangement of a mortgage on the instructions of a client.

You will need to assign certain roles within the firm, and confirm who holds those roles when you submit your application:

• Client relations manager
• Money laundering reporting officer
• Cashroom manager
• Compliance manage (if registering for civil legal aid)
• Insurance distribution office (if required under the Insurance Distribution Directive).