Kumar: Focus on prevention
The Council for Licensed Conveyancers (CLC) has warned firms about the importance of proper file storage and data retention, after a licensed conveyancer abandoned 15,000 archived files.
In its second annual risk agenda [1], published this week, the CLC also highlighted the risk of sudden closures, which could lead to funds being held “far beyond their closure date”.
The CLC said it was “encountering issues around file storage” when firms closed and owners who had “not considered this or budgeted for the ongoing cost of storage and/or data retention” or were not even aware it was their responsibility.
“In some cases, they store their files in an unsuitable location, or walk away from the problem without considering how they would manage their ongoing responsibilities for file retention.
“This passes the burden of managing the files to the CLC and the cost on to the regulated community. This is unacceptable. File storage is a key part of an orderly shutdown and the CLC lawyer must address it and plan for its ongoing management.”
The CLC said that in one recent case “a firm passed on all of its active files to another firm but abandoned 15,000 archived files at offices where the rent was not being paid, without any plan for how the data in those files could be secured or how clients could access those files should they want to”.
Having already warned the firm about the issue, the CLC “had no option but to intervene in the firm to secure these files”. The owner was disqualified for a year after an adjudication panel found his failures were serious misconduct.
The CLC said electronic file storage could lead to “different problem”. Case management systems (CMS) might lack the functionality that allowed them to export or back-up files.
“Maintaining access has a cost and creates a dependency on the CMS provider when there is a risk of the CMS malfunctioning or the provider ending support for it.
“Best practice is to ensure the files are scanned or exported to PDF and saved in an electronic database at the point of archiving. The CLC is considering whether to mandate that archive files are stored in this way.”
A further issue highlighted in the latest risk agenda was whether firms were prepared for sudden closures.
“This could be for a number of reasons, such as difficulties with renewing professional indemnity insurance or the owner being incapacitated (few owners, particularly sole practitioners, have thought in detail about how their firm would manage without them), as well as longer-term succession in the event of unplanned exits from the business.
“We have seen that businesses wholly owned by non-lawyers in particular can have a higher turnover of senior legal staff.”
The CLC said that, following rapid closures, it had come across examples of firms “holding funds far beyond their closure date”, not storing files properly and making them available to clients, and “undertaking work they should not”, all of which could lead to disciplinary action.
Among the other risks highlighted by the CLC were UK sanctions on Russia, an issue which would not “go away soon”, anti-money laundering – “always a high priority for the CLC and government alike” – and cyberattacks.
This is particularly in the minds of the CLC community in the wake of what happened to the Simplify group late last year.
The CLC said firms needed to understand “just how dangerous and disruptive” a cyberattack could be, not just the incident but the recovery could “heavily disrupt client work and suck up huge amounts of management time, money and energy”.
Sheila Kumar, chief executive of the CLC, said: “Our unique approach – working with practices to identify and address risks before they crystallise as harms – is what we hold to be the most proportionate and effective approach to regulation and is successful in resolving the vast majority of non-compliance that we find.”