THE CLC’S PURPOSE
We deliver effective regulation of specialist conveyancing and probate lawyers that protects consumers and fosters competition and innovation in the provision of legal services.
We do so by setting entry standards and regulating providers to deliver high quality, accessible legal services.
THE CLC’S ORGANISATION
The CLC is governed by its Council, which has a majority of lay (non-lawyer) members and a lay chair alongside professional (lawyer) members and the Chief Executive of the CLC.
The Senior Management Team manages the work of the CLC and is accountable to the Council and its committees.
Regulation is delivered through the Licensing and Regulatory Supervision Teams with support from the Policy, Communications and Administration teams.
The CLC has established an independent Adjudication Panel to make disciplinary decisions on the basis of cases prepared by the CLC.
The CLC sets minimum standards for Professional Indemnity Insurance for CLC-regulated practices and operates a Compensation Fund, funded by the regulated community, to act as a fund of last resort for clients of CLC-regulated practices.
REGULATION BY THE CLC
We use the term ‘managed compliance’ to describe our philosophy and approach to regulation. It is focused on mitigating the risk to consumers which is inherent in conveyancing and probate. It is not an alternative to discipline or enforcement action, which can be triggered at any stage in the managed compliance cycle.
The managed compliance process is founded on the principle that in the event of a regulated practice becoming non-compliant with CLC codes, proactive regulation can secure a swift return to compliance before harm crystallises. This is a more effective way of safeguarding consumers and the public interest than reactive regulation which often sees action being taken only once consumers have already suffered loss or harm.
From the time that a practice comes into CLC regulation they are subject to a cycle of managed compliance. Using various tools, which are outlined below, CLC regulated practices are continuously assessed for compliance against the CLC codes and for the risk they present to the consumer and the wider public interest.
When non-compliance is identified, we notify the practice and all relevant individuals e.g. managers, Head of Legal Practice (HOLP), Head of Financial Administration (HOFA), Money Laundering Responsible (MLRO) Officer and provide them with a set of time bound actions to remedy the non-compliance. In parallel to this process the non-compliance is risk assessed to determine whether an individual and/or practice should be referred for further enforcement action.
The managed compliance cycle
The managed compliance cycle uses the following tools, and a diverse range of intelligence to supplement thorough, close and sustained monitoring to assess practice compliance:
- the use of intelligence from a wide range of sources (including complaints, referrals from other regulators, land registry data, data sharing networks with financial institutions etc);
- the review of annual accountants’ reports;
- the annual regulatory return (which gathers data from all regulated practices);
- an annual programme of comprehensive routine inspections;
- targeted inspections of selected practices;
- random and targeted review of client and office account reconciliations;
- monitoring compliance with the CLC’s PII requirements at insurance renewal;
- thematic reviews;
- providing advice and guidance to practices; and
- ongoing monitoring or each practice by a named member of the Regulatory Supervision team.
This process results in a continuous assessment of whether practices are operating in compliance with the CLC’s regulatory arrangements. On this basis, we can assess the risk of harm to consumers or the wider public interest (or indeed any of the Regulatory Objectives) and take proportionate action to ensure it is mitigated effectively.
For a high-level diagrammatic representation of the managed compliance cycle, see here.
Assessing suitability for regulation by the CLC
Practices that seek to be regulated by the CLC are expected to subscribe to the CLC’s regulatory approach from the moment they are licensed. In other words, our expectation of every CLC licensed practice is that they are fully compliant at the start of their licence and that they remain so for the duration of their licence.
Accordingly, the managed compliance cycle begins when a practice applies to be regulated by the CLC. Before an applicant can be granted a licence, the practice is risk assessed (against our assessment of sector wide risk, which is reviewed at least every quarter).
The practice’s ability to comply with CLC regulatory arrangements is assessed against a prescribed set of criteria which include inter alia:
- financing;
- ownership;
- operating model;
- experience and suitability of proposed CLC managers and key staff;
- trading and client profile (actual or planned); and
- ability to comply with requirements relating to Anti-money laundering, data protection, and the other regulatory requirements.
Only if a practice satisfactorily meets these pre-requisites and secures Professional Indemnity Insurance cover that is compliant with the CLC’s requirements, will a licence be granted. (The CLC’s participating insurers agreement and minimum terms and conditions set the standard for PI insurance, to mitigate the risk to consumers, this includes ensuring a maximum excess level and built-in run-off cover in all policies).
At the point that a licence is granted a named Regulatory Supervision Manager or Officer (RSM/RSO) is assigned to oversee the practice.
The first year of regulation
Once a licence is granted, a new practice undergoes an enhanced initial monitoring process which includes:
- providing client account reconciliations at intervals throughout their first 6 months of trading;
- a meeting with their assigned Regulatory Supervision Manager or Officer (RSM/RSO) within the first six months of operation.
- a full practice inspection on or around their first anniversary of being regulated by the CLC.
This process enables the early identification and resolution of issues, thereby mitigating any potential risk to consumers or the public interest.
Ongoing monitoring and assessment
The cycle of monitoring and assessment of information for each practice continues until the practice ceases to be regulated by the CLC. If, at any point in the managed compliance cycle, we identify areas of concern or non-compliance, our focus initially shifts to bringing practices back into compliance with CLC regulatory arrangements as this is in the best interest of clients.
Managed compliance does not preclude the CLC from taking Enforcement Action under the Administration of Justice Act 1985 (‘the 1985 Act’) and the Legal Services Act 2007 (‘the 2007 Act’) or engaging our Informal Enforcement tools. Whenever non-compliance is identified, in addition to setting actions to bring the practice back into compliance, the RSM/RSO considers whether the practice should be referred for enforcement.
When the situation warrants it, such as for example when clients have been exposed to harm, the CLC will not hesitate to escalate to enforcement, and as outlined in the Managed Compliance Enforcement Process here. This could include Formal Enforcement Action or the use of Informal Enforcement Tools at the same time as requiring rapid correction of the underlying non-compliance through the managed compliance process. This means the implementation of a timebound action plan which secures a return to compliance and mitigates the risk of any further harm to consumers. In other words, managed compliance and enforcement can and frequently do take place concurrently.
The CLC will seek to remedy the underlying issues or root cause of any non-compliance in almost every situation, except when doing so is not possible or if the practice is not cooperating at all. An example is when the issues are so serious that the CLC makes the decision to intervene into a practice i.e. close the practice to stop it trading. In such a situation, managed compliance would not be possible given that the practice licence is suspended with immediate effect (by virtue of the intervention) and the CLC will take immediate possession of all the client files and client money.
As you will see from some of the information presented below, an intervention is the most serious enforcement tool the CLC has, and it will only be applied where no other tool or measure is judged to be adequate to address the issue.
Maintaining compliance
Where we become aware of any non-compliance, which might be through our inspection, enquiries, information received from different sources (such as complaints, thematic reviews, client account reconciliation reviews, Annual Regulatory Returns or submission of accountants’ reports), we require practices to take the necessary steps to return to compliance, and to do so within prescribed timeframes. This is unless, as noted above, remediation is not possible, or the issues are so serious they require immediate intervention to close a practice down to protect clients.
In relation to interventions, there are a wide range of triggers of interventions under the Administration of Justice Act 1985 (Schedule 5) or the Legal Services Act 2007 (Schedule 14) which can include, for example, where a Licensed Conveyancer has been incapacitated by illness for example. The CLC may also intervene post-closure to ensure that client interests are protected where the practice managers are failing to protect their client’s interests in the wind-up period and beyond.
By far the most common means by which we identify non-compliance is through the CLC’s inspection programme. This is comprised of onsite and remote inspections, both full scope inspections, which cover all the CLC codes, and targeted inspections which focus on particular areas of the CLC codes such as AML and Accounts.
The inspection report includes an action plan. This is a prescribed set of actions that the practice must implement within prescribed timeframes and which, if implemented, will ensure that the practice returns to full compliance, thereby mitigating risk to consumers and the public interest.
The CLC’s inspection process is the core of managed compliance. RSMs/RSOs robustly monitor implementation of action plans, ensuring that actions address the causes of non-compliance, that timescales are met, and that remedial actions are embedded in the future operation of the practice. Inspection reports are only closed and signed off once all the actions in the plan have been addressed successfully. This is a resource intensive approach however the CLC is firmly of the view that actions must be implemented to our satisfaction before we can allow the firm to continue without heightened monitoring.
The managed compliance process can include supporting practices through education regarding good practice and raising awareness of CLC requirements and standards, ensuring practices have a real understanding and appreciation of the root causes of non-compliance and what is required to address them, and signposting practices to the extensive CLC resources and toolkits available to them to assist in achieving compliance. In addition to the consumer and public safeguarding element, there are a range of other benefits of this close monitoring and engagement, including a greater degree of openness and transparency between regulated and regulator, firsthand insights about trends and issues in legal practice which inform our regulatory work and policy response, and a more collaborative regulated community that on the whole strives to meet regulatory requirements rather than seeks to resist regulation. This is in addition to the benefit to practices which include first and foremost returning to compliance, as well as improvement in practices’ levels of knowledge and understanding of CLC requirements and good practice.
Enforcement and Disciplinary Action
Non-statutory enforcement tools are what we refer to as informal enforcement tools and statutory enforcement tools are referred to as formal enforcement tools.
Managed compliance cycle works in tandem with the enforcement process which is triggered by the outcomes of the monitoring and compliance process. Each time the CLC identifies non-compliance at a practice, it assesses whether the non-compliance is sufficiently serious to warrant a referral for further enforcement.
The CLC licenses both Alternative Business Structures (ABSs) and Recognised Bodies (RBs). There are separate and distinct statutory enforcement processes for these two types of CLC bodies. We have the Adjudication Panel Process in relation to both RB and ABS, and in relation to ABSs we additionally have the option to issue Warning Notices.
What will happen in each case is dependent not only on the circumstances of each case and the seriousness of the allegations, but also the structure of the practice involved. The CLC must, however, work within the structures of the two statutory regimes. Nevertheless, the CLC strives to ensure consistency in the sanctions applied under either regime.
The list below reflects the CLC’s Informal Enforcement Tools (non-statutory)
- Notice letter
- Agreeing an undertaking
- Formal request (to provide information or take specific actions)
- Formal interview with CLC
Formal Enforcement Tools (statutory)
- Revocation of a licence or certificate
- Disqualification (permanent or for a specific period)
- Withdrawal of approval of Head of Legal Practice (HoLP)
- Withdrawal of approval of Head of Finance and Administration (HoFA)
- Suspension of a licence or certificate
- Addition of condition on a licence
- Order of the Adjudication Panel
- Payment of costs
- Termination of a licence on grounds of mental incapacity
- Imposition of a financial penalty
- Reprimand
- Divestiture of owner
- Intervention
THE ADJUDICATION PANEL
The independent Adjudication Panel (AP) was established to hear matters brought before it under the formal enforcement powers detailed in the table above. Details of the membership are published on the CLC website (Adjudication Panel) along with all decisions made by the panel which can be viewed here. The Chair of the Panel reports to Council annually on the Panel’s activity, those reports are published on the CLC website here.
Reports on enforcement and disciplinary action are available here.
