More than 700 reports of bogus law firms were made to the Solicitors Regulation Authority (SRA) in 2014, an annual increase of over 25%, its latest risk update has revealed.
The SRA’s spring 2015 risk outlook, published yesterday, also warned that poor controls within firms were a factor in the misuse of money and assets, and highlighted the threat of cybercrime to law firms.
The SRA said the reported increase in the number of bogus firms mirrored a rise in rogue traders across the UK economy. It cited a KPMG report, which in January 2015 highlighted a significant increase in UK fraud cases in 2014.
The danger of bogus firms was not even identified as a risk in 2013 but the issue is now considered one of the top risks to watch. Identity theft of a law firm or solicitor, using means such as the cloning of a genuine firm’s website, is a particular problem.
Misuse of money or assets by law firms was occurring in part as a result of a failure to train and adequately supervise staff, the SRA warned. Poor internal controls over who could access office and client accounts were also a factor, plus poor accounting and records systems made irregularities harder to detect.
The risk of cybercrime to law firms was growing, and was a reflection of the threat in the wider economy. Almost seven out of 10 UK businesses had a “cyber security incident” in 2014, compared to six out of 10 globally. Law firms’ duty of confidentiality made the issue one of key importance to address, the update said.
Money laundering and improper use of client accounts as a banking facility were also continuing causes of concern, the SRA observed.
The risk outlook is published each July and updated twice a year. The last update was in November.
Paul Philip, the SRA’s chief executive, said the outlook “provides firms and the public with a clear view of the SRA’s assessment of significant trends in the legal services market”.