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 client monies and interest, regular accounting and reconciliations, staff training and supervision, and the delivery of compliance certificates.

Our guidance gives an overview of the rules.

There are options to outsource your cashroom activities, depending on the type of business you plan to operate. 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 will carry out an inspection with you within the first nine months. Please contact us if you want to know more about inspections and how best to prepare.

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

See rule and guidance B6.

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. Contact fincomp@lawscot.org.uk.

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 as well as software available on the market.

Further to any meeting, within six months of setting up (once you have a better understanding of your practice and your clients), the Financial Compliance team will issue a questionnaire prior to an initial Financial Compliance Inspection.

The anti-money laundering (AML) landscape in the legal sector is coming into ever more focus, with an increased awareness of the multitude of ways in which the legitimate services provided by legal firms can be used for illegitimate purposes.

As legal practices continue to be targeted by money launderers, it is important to be aware of these threats and ensure compliance with the Money Laundering Regulations 2017 (the Regulations). To do so, you should ensure that your practice employs excellent controls, policies, and procedures and that these are implemented from the outset.

If you believe that your practice’s activities will fall under scope of the Regulations, you must complete the AML registration process which includes:

• Requirement for basic Disclosure Scotland certificates which are less than six months old for each beneficial owner, manager, or officer (BOOM)
  o More information is available on our website in the section: Notification of Beneficial Owner, Manager or Officer’s (BOOMs) for AML Purposes
• Completion of the New Practice AML Questionnaire
• Providing notification of your practices Money Laundering Reporting Officer (MLRO) to Member Registration - member.registration@lawscot.org.uk 

If you believe that your practice does not fall under the scope of the money laundering regulations, you must complete and return an AML exemption declaration form to aml@lawscot.org.uk:

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.

• See the Law Society’s Guide to GDPR.
  See the Information Commissioner’s Office for more details.

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.

• Incidental consumer credit business – more commonly, debt administration or debt collecting
• Incidental insurance distribution business – advice on or the sale of general insurance products
• Incidental investment business – for example, arranging the sale of shares in an executory
• 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.

See rule and guidance C2.

A list of all our forms is available at the end of this guide.

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 manager (if registering for civil legal aid)
• Insurance distribution officer (if required under the Insurance Distribution Directive).

Regulation is an ongoing process. Every year you will be asked to provide information about your firm depending on the work you carry out:

• Accounts certificate (twice per year)
• Anti-money laundering certificate
• Master Policy submission.