Law Society: CQS and Lexcel provide assurance
Seven in 10 law firms fined for anti-money laundering breaches in recent months have Conveyancing Quality Scheme (CQS) accreditation, raising serious questions about how it is checked and enforced.
Research by Legal Futures also found that five of the 57 firms fined in the last six months or so have the Law Society’s Lexcel practice management accreditation as well.
The head of the Property Lawyers Alliance asked what the point of CQS is if the rules “are rarely enforced”.
The Law Society this week cited CQS in making the case against the need for widespread ethical reform.
In all, 40 of the last 57 firms (70%), fined by the Solicitors Regulation Authority (SRA) for not having basic AML controls in place, generally for several years, are members of CQS.
Also a CQS member is Tolhurst Fisher, the Southend firm fined £120,000 recently by the Solicitors Disciplinary Tribunal for similar AML breaches going back over 15 years, and Gordons Partnership, which was fined £77,784 this week by the SRA.
Obtaining CQS accreditation is a prerequisite for many lender panels and the scheme rules identify one of its three core values as risk management, including AML procedures.
Failure to comply with the rules “may result in the practice having its accreditation suspended or withdrawn”.
In response to a freedom of information request by Legal Futures, the Law Society said 888 firms have had their CQS accreditation removed since 2019 but it could not break this down between those firms who had voluntarily given it up, for whatever reason, and those where the society had actively withdrawn it.
To do so would take a disproportionate amount of work, it said.
There are currently 2,578 law firms with CQS accreditation, and 1,512 firms with Lexcel, where there are also explicit requirements for AML compliance. Since 2019, 394 firms have had their Lexcel accreditation removed.
The application fee to join CQS ranges from £167 to £1,942 + VAT, and membership fees from £227 to £1,133, depending on size, plus a charge of up to £1,100 to undertake mandatory training courses. The Lexcel application costs between £78 and £747
A Law Society spokeswoman said that, where a firm has been fined for AML non-compliance, “the accreditation team will seek verification that the firm has taken the appropriate remedial steps and has the appropriate processes in place to ensure ongoing compliance”.
Provided the firm met the CQS standards, it would retain the accreditation.
She added: “In some cases, firms may seek accreditation as a means of tightening up their processes following an adverse finding. In these circumstances, it signifies a positive step rather than a negative one. The Law Society maintains a very high standard in regard to accreditation.”
The Law Society refused to confirm how may assessors it has for these schemes, saying this was “likely to give valuable insight and a commercial advantage to potential competitors and to prejudice the society’s commercial interests”.
It went on: “However, we can confirm that for Lexcel we use a number of assessment bodies who sub-contract their own assessors, as required, to carry out the work.
“For the CQS scheme, the Law Society contracts directly with its own scheme assessors and we keep the number under review to ensure that it is commensurate with the number of firms being assessed.”
The response also said it would be disproportionate to go through its records to work out how many firms applying or renewing on each scheme had received onsite visits, rather than desk-based reviews.
“However, we would note that a physical visit is only one method of many which may be used to evaluate firms holding CQS or Lexcel accreditation.
“For CQS it is usually only undertaken as a final measure when other interventions have failed. In most cases, where our systems and processes identify potential issues with particular firms, the accreditation team at the Law Society and our assessors aim to work collaboratively with the firm to ensure that those issues are resolved to our requirements.
“For Lexcel, annual assessments may be carried out remotely instead of onsite where appropriate.”
Stephen Larcombe, chair of the Property Lawyers Alliance, said: “The CQS is perceived as expensive and provides a significant revenue stream for the Law Society. Moreover, the CQS compels its members to use protocol forms for which it has an exclusive license. Membership of lenders panels is dependent on CQS accreditation.
“However, what is the point of CQS if the rules of the scheme are rarely enforced? What is the point of CQS if its enforcement consists merely of occasional online desktop assessments? A cynical observer might conclude that CQS is just a money-making exercise for the Law Society.”
Rob Hailstone, founder of the Bold Legal Group – which has hundreds of conveyancing firms as members – said: “Unfortunately, it isn’t just AML that may not be being checked and enforced. Two other ongoing problems are enquiries that should not be being raised and contract clauses that should not be being included.
“In addition, many firms feel that reporting CQS breaches to the Law Society would fall on stony ground. This is a pity, because if CQS was being rigorously policed and enforced, several of the reasons why transaction take so long could be easily eliminated.”
Sarah Keegan, a former property solicitor and now a law firm consultant at The CS Partnership, commented: “In my experience of undertaking CQS gap analysis projects for practices and helping them write and bespoke their CQS manuals, about 70% of lawyers do not take compliance with the CQS requirements seriously.
“As one senior person told me recently ‘Nobody is interested in CQS anymore’.”
However, she stressed that the SRA, National Crime Agency, professional indemnity insurers and lenders were actually “very interested” in their compliance with it.
“If practices adopt CQS requirements properly – in their policies and procedures and behaviours on every matter – they are not just complying with the AML regulations but also dealing with operational repeat issues and fraud risks.”
Ms Keegan suggested that “the disconnect at the coal face is due to the lack of enforcement of the CQS requirements from the Law Society”.
But that was “short sighted”, she maintained.
“What concerns me is that at some point, a practice will be the ‘case’ that we all read and talk about for years to come as the horrible example for all CQS-accredited firms which could have avoided a claim on their insurance or being involved in fraud if they had actually been complying.”
Paul Bennett, a partner at Bennett Briegal, a law firm that provides legal and regulatory advice to other law firms, added: “CQS and Lexcel are useful starting points in the complex maze of regulation but they are not a complete solution or safeguard.
“To use a sporting analogy, having a goalkeeper does not stop a team from conceding goals. Accreditation similarly will not remove all risks.
“My experience is sometimes law firms overestimate the importance of accreditation, whilst also under estimating internal files reviews, the extensive supervision obligation and crucially that system checks are also required to minimise risk.”
He said firms “need to think beyond the accreditation schemes and supervise risk effectively on a file-by-file basis”.
The Law Society spokeswoman added: “CQS and Lexcel provide assurance that practices are being assessed annually and meet the standards set by the accreditations.
“While the Law Society is not a regulator, we do keep accreditation standards constantly under review and update them to reflect the risk environment.
“The accreditation standards are broader than AML. We provide advice and support to practices, ensuring that when issues such as AML breaches arise, they are investigated and corrected as soon as possible.
“As part of our accreditation, law firms must undertake training, which includes AML, every year.”
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