The role of the Law Society Inspectorate team
The Inspectorate team assists with carrying out the Law Society’s regulatory functions by administering a scheme for the protection of money entrusted to law firms trust accounts known as the financial assurance scheme.
A team of 11 staff are involved in this work – the Inspectorate Manager, one administrator and nine inspectors located throughout New Zealand.
Their role is varied, but in summary, the inspectorate:
- conduct reviews of lawyers’ trust accounts;
- answer general inquiries about trust accounting related issues from the profession;
- ensure compliance by lawyers with ss 110-114 of the Lawyers and Conveyancers Act 2006 (LCA), related to the obligations of practitioners in respect of trust accounts and valuable property and with the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (Regulations);
- conduct investigations usually following appointment by lawyers standards committees;
- carry out duties as instructed when a standards committee determines that an intervention into a practice is warranted (see ss 162-170 of the LCA);
- assist with interviews of lawyers applying for approval for practice on own account;
- conduct a review when a trust account is being closed;
- administer the Financial Assurance Scheme; and
- assist in educating lawyers, law firms and their staff in matters relating to trust accounting.
The inspectors’ focus is on the approximately 1,400 law firms operating trust accounts and in ensuring that lawyers and employees of law firms understand their obligations when handling trust monies.
One of their key educative roles is assisting NZLS CLE Ltd with the delivery of the Trust Account Administrators, Trust Account Supervisors and Stepping Up courses and assessments.
Financial Assurance Scheme
The Law Society established the Financial Assurance Scheme in 1998. Since enactment of the LCA, the Law Society has continued the scheme as provided by regulation 36(1) of the Regulations.
The scheme has five objectives: protection, compliance, detection, deterrence and demonstration. These objectives are set out in regulation 36(3) and can be summarised as:
Protection: to protect clients’ monies held in lawyers’ trust accounts;
Compliance: to ensure that lawyers meet the requirements of the LCA and the Regulations in their handling of client funds;
Detection: to uncover situations where lawyers are not complying with the requirements, especially detection of the theft of client monies by lawyers or their employees and other behaviours that foreshadow the potential loss of client monies;
Deterrence: to discourage lawyers from handling clients’ monies improperly; and
Demonstration: to demonstrate to the legal profession and to clients, the public and their representatives, that there is an effective scheme in place.
The scheme applies to all lawyers except those who do not:
- receive or hold money or other valuable property in trust for any person; or
- invest money for any other person; or
- have a trust account; or
- receive fees or disbursements in advance of an invoice being issued.
Risk management framework
The framework used by the Inspectorate team to carry out their functions:
- is based on an international risk management standard (AS/NZS/ISO 31000 (2009);
- reflects current risk management practice;
- establishes a criteria for risk assessment; and
- provides a methodology for developing risk-based assurance trust account review processes.
The timing and frequency of trust account reviews is driven primarily by the level of identified risk.
Lisa Attrill is the New Zealand Law Society Inspectorate Manager.
Last updated on the 4th May 2018