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Professional Conduct Regulation (including Financial Services) exam notes 2021/22
These are the exam notes I made for my PCR exam - I got 90% and my friend used them and got 100%
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PCRTable of Contents
Part 1 – Money Laundering and the Proceeds of Crime.......................................................4
Internal controls – officers responsible for PoCA and MLR compliance........................................4
Money Laundering........................................................................................................................4
Proceeds of Crime Act 2002..........................................................................................................4
Direct Involvement Offences (ss327-329)......................................................................................................4
Non-direct Involvement Offences..................................................................................................................5
Money Laundering Regulations 2017............................................................................................6
To whom do the MLR relate?.........................................................................................................................6
What steps do the MLR require you to take and when? (Regulation 27)......................................................8
When is a “business relationship” established?.............................................................................................9
When must CDD measures be carried out in respect of “an occasional transaction”?.................................9
When might you suspect money laundering or terrorist financing? What are the warning signs?..............9
Suspicious fact patterns to be aware of:......................................................................................................10
Are there any jurisdictions which have a heightened money laundering risk?...........................................10
Customer Due Diligence (‘CDD’).................................................................................................11
‘Standard’ Customer Due Diligence: Regulation 28.....................................................................................11
Timing of verification....................................................................................................................................12
‘Non-standard’ Customer Due Diligence: ‘simplified’ or ‘enhanced’ CDD...................................................12
Simplified due diligence (‘SDD’) – Regulations 37 & 38...............................................................................12
Enhanced due diligence (‘EDD’) – Regulations 33 to 35...............................................................................13
Regulation 35: EDD - politically exposed persons (‘PEPs’)...........................................................................16
CDD: Identifying the ‘beneficial owner’ (Regulation 28(4))..........................................................................16
CDD – Reliance and record-keeping, policies, procedures and training.......................................16
Record keeping.............................................................................................................................................17
Policies and procedures (Regulations 19 and 20).........................................................................................17
Training (Regulation 24)...............................................................................................................................18
Money laundering: offences under the MLR and defences.........................................................18
Part 2: The Code of Conduct.............................................................................................19
The SRA Principles......................................................................................................................20
The Codes...................................................................................................................................21
What does ‘you’ mean in CCS?.....................................................................................................................22
What does ‘you’ mean in CCF?.....................................................................................................................22
Who is the ‘client’ for the purposes of the Codes?......................................................................................23
Client Care and Service and Competence: CCS 3 and 8 and CCF 7.1(c).......................................................23
Client care.....................................................................................................................................................23
Client Care Letters: Compliance with the Code............................................................................................24
Client Information and Publicity...................................................................................................................25
Costs Standards re: client care letters..........................................................................................................25
Client money and assets...............................................................................................................................26
Complaints, Regulation: Standards re: client care letters............................................................................26
Ongoing obligations re: contents of client care letters................................................................................27
Repeat business and client care letters........................................................................................................27
Contents of a client care letter.....................................................................................................................27
The Codes 6.1 and 6.2 Conflict of Interests: paragraphs 6.1 and 6.2 of the Codes.......................28
Conflict of Interests – the general ‘rule’.......................................................................................................28
Conflicts of interests: the exceptions - when can you act?..........................................................................28
1
, Steps to take to avoid conflicts from happening..........................................................................................31
Confidentiality and Disclosure: paragraphs 6.3, 6.4 and 6.5 of the Codes...................................31
Duty of confidentiality: 6.3...........................................................................................................................31
Duty of disclosure: CCS and CCF 6.4.............................................................................................................32
What if the duty of confidentiality and the duty of disclosure conflict?......................................................33
Adverse interests and confidential information: CCS and CCF 6.5...............................................................33
Maintaining trust and acting fairly..............................................................................................34
Undertakings.................................................................................................................................................35
Practical Usage..............................................................................................................................................35
Form..............................................................................................................................................................35
Undertakings: relevant standards................................................................................................................36
Cooperation and Accountability.................................................................................................36
Dispute resolution and proceedings before courts, tribunals and inquiries................................37
How might you mislead the court?..............................................................................................................37
Other important standards...........................................................................................................................38
Compliance with Business Systems.............................................................................................38
Part 3: Regulatory Requirements and Liabilities to Clients in relation to running a law firm
........................................................................................................................................39
When must a business be authorised?.......................................................................................39
Eligibility to be authorised............................................................................................................................39
COLPs and COFAs........................................................................................................................41
Supervision of the business of the firm as a whole.....................................................................43
Supervision of client matters......................................................................................................43
Claims against solicitors..............................................................................................................44
Negligence and breach of contract...............................................................................................................44
Solicitor’s negligence and the Code..............................................................................................................44
Insurance obligations of firms......................................................................................................................44
Disciplinary action against solicitors...........................................................................................45
Providing a Poor Service...............................................................................................................................45
Providing inadequate professional services.................................................................................................45
Professional misconduct...............................................................................................................................45
Conduct unbefitting a solicitor.....................................................................................................................46
To whom can a client complain?.................................................................................................46
First tier Complain to the firm.....................................................................................................................46
Second tier The Legal Ombudsman.............................................................................................................46
Solicitors Regulation Authority (‘SRA’).........................................................................................................47
The Solicitors’ Disciplinary Tribunal (‘SDT’)..................................................................................................48
Managing a law firm as a business..............................................................................................48
Supervision and management responsibilities.............................................................................................48
Referrals and introductions to and from third parties.................................................................................49
Advertising your services – CCS 8.8 (applicable also to Firms).....................................................................49
Managers and employees practising as solicitors........................................................................................50
Continuing Competence...............................................................................................................................50
Financial services.............................................................................................................51
The general prohibition under s19(1) FSMA...............................................................................52
How does a solicitor know when he/she requires authorisation for work the solicitor is carrying out?....52
2
, Financial Services Decision Tree (are we prohibited under s.19 to act?).....................................53
What financial services work is regulated?..................................................................................................54
Question 1: What are ‘specified investments’?...........................................................................54
Question 2: What are ‘specified’ activities’?...............................................................................55
Question 3: Exclusions from FSMA (under the RAO)...................................................................55
Acting as a trustee or personal representative (Article 66 RAO).................................................................55
Regulated activities that are a necessary part of other services carried on in the course of a profession or
non-investment business (Article 67 RAO)...................................................................................................56
Regulated activities in connection with the sale of a body corporate (Article 70 RAO)..............................56
Exclusions and ‘Insurance Distribution Activities’ or ‘Investment Services and Activities’..........................57
Authorised Persons.......................................................................................................................................57
Exclusions that will be asked in exam:........................................................................................58
If FSMA applies, what should a solicitor do?...............................................................................59
General exemption from direct authorisation (s. 327 FSMA)......................................................................59
What are exempt regulated activities?........................................................................................................60
When is the activity ‘incidental’?..................................................................................................................61
SRA Financial Services (Scope) Rules 2019...................................................................................................61
Basic conditions specified by Rule 2 of the Scope Rules..............................................................................62
Further restrictions under the Scope Rules.................................................................................62
SRA Standards and Regulations 2019 (the ‘Standards and Regulations’)....................................63
3
,Part 1 – Money Laundering and the Proceeds of Crime
- Money laundering involves financial transactions where proceeds from serious crime
are ‘cleaned’ so that its source is harder, if not impossible, to trace.
- Money laundering can also involve simply receiving or benefitting from the small
proceeds of relatively minor crime.
Internal controls – officers responsible for PoCA and MLR compliance
- If the work the firm is doing falls within the ambit of the MLR, someone in the law firm
has to be appointed to be the money laundering reporting officer
(‘MLRO’)/”Nominated Officer”
- Regulation 21(1) MLR firms must appoint a money laundering compliance principal
(‘MLCP’)
o must be on the board of directors or equivalent management body
o MLRO/Nominated Officer and the MLCP can be the same person.
- Further, the firm has to have policies and procedures obliging anyone in the law firm
who knows or suspects money laundering to comply with the reporting obligations set
out in PoCA
- Each law firm will also have a nominated Compliance Officer for Legal Practice (called
the ‘COLP’) and a Compliance Officer for Finance and Administration (called the ‘COFA’)
- The COLP, COFA and the managers (i.e. the partners) of the firm are responsible for
ensuring the firm takes all steps required to comply with the MLR and PoCA
- Firms must also, where appropriate given the size and nature of the business, assess the
skills, knowledge, expertise, conduct and integrity of those employees who are involved
in identifying, mitigating, preventing or detecting money laundering and terrorist
financing in the course of business.
- Law firms must also appoint an independent audit function to assess the adequacy and
effectiveness of the firm’s AML policies, controls and procedures: Regulation 21(1)(c).
Money Laundering
- 4 key elements:
1. the criminal source of the funds is disguised;
2. the form of the funds will be converted (often from paper bills to money in a bank
account);
3. the trail by which such ‘conversion’ occurs will be disguised; and
4. the launderer will retain control of the funds (directly or indirectly).
Proceeds of Crime Act 2002
- The law applies to all solicitors in relation to all areas of practice.
- anticipates the reporting of suspicious transactions where someone benefits from the
proceeds of crime
Direct Involvement Offences (ss327-329)
1. s.327: concealing, disguising, converting or transferring criminal property or
removing criminal property from the UK;
4
, 2. s.328: entering into or becoming concerned in an arrangement which you know or
suspect facilitates (by whatever means) the acquisition, retention, use or control of
criminal property by or on behalf of another person;
3. s.329: acquiring, using or possessing criminal property.
- It is quite common for money laundering fact patterns to point to an offence under
more than one of the above section identify all the relevant offences
- Defences to ss327-329?
o all involve knowing what an “authorised disclosure” is. “Authorised disclosure” is
defined in s. 338 PoCA as “a disclosure to a constable, customs officer or a
nominated officer by the alleged offender that property is criminal property”
and at least one of s. 338(2), (2A) or (3) has to be satisfied.
o Section 338(2) disclosure must be before the alleged offender does the
prohibited act
o Section 338(2A) disclosure must be made during the prohibited act AND he
began to do the act at a time when, because he did not then know or suspect
that the property constituted or represented a person’s benefit from criminal
conduct, the act was not a prohibited act, AND the disclosure is made on his
own initiative and as soon as it is practicable for him to make it
o Section 338(3) disclosure must be made after the prohibited act AND there is
a good reason for the solicitor’s failure to make the disclosure before he did the
act AND the disclosure is made on his own initiative and as soon as it is
practicable to make it
o Section 338(5) “disclosure to a nominated officer” is a disclosure which:
is made to a person nominated by the alleged offender’s employer to
receive authorised disclosures, and
is made in the course of the alleged offender’s employment”. In law firms
this is the MLRO.
o defences under s.327(2), s.328(2) and s.329(2) are all the same and involve:
making a s.338 disclosure AND (if the s.338 disclosure was made before
the prohibited act) he has the appropriate consent; OR
not making a s.338 disclosure but having a reasonable excuse for not
doing so; OR
the prohibited act is in carrying out a function he has relating to the
enforcement
Non-direct Involvement Offences
- Failure to disclose to nominated officer in the ‘regulated sector’ (s.330). Offence if you
fail to make a disclosure to the firm’s MLRO or the National Crime Agency (‘NCA’) if:
a) you know or suspect, or have reasonable grounds to know or suspect, that someone
is laundering the proceeds of any criminal conduct;
b) you receive the information in the course of business in the regulated sector; and
c) you can identify the person who is laundering the proceeds of criminal conduct OR
the whereabouts of the laundered property OR that the information referred to in
b) above will or may assist in identifying the person referred to at a) above.
o Section 330(5) details what the disclosure must contain:
the identity of the person who you know / suspect is laundering the
proceeds of criminal conduct; AND
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