Lawyers Covered - August 2026

It can be tough for busy lawyers to find enough time to service clients, make it safely through the regulation obstacle course, win new work and keep up-to-date with developments, but we've got you covered! Welcome to our Lawyers Liability & Regulatory Update, in which we highlight the last month's key developments affecting lawyers and the professional risks they face.

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SRA warning notice about AI misuse

The SRA issued a warning notice on 17 August 2026 about the misuse of generative artificial intelligence (AI) tools. The key issues raised in the warning notice are breaches of client confidentiality and data protection, as well as the risk of hallucinated citations (fictional case law).

The SRA has received a number of self-reports from solicitors who have relied on AI tools that have generated inaccurate or misleading content.  It says it has also been warned by senior members of the judiciary of potential breaches. The warning notice also points to case law such as Ayinde dealing with hallucinated citations. 

Similarly, the warning notice points to Munir in relation to confidentiality and the risk of waiving privilege by entering privileged information into a publicly-available chatbot (see our April edition for explanation of this case). While Munir is considered by some commentators to be wrong in law, it remains the only England & Wales authority on the point and the SRA warning notice does not acknowledge this; instead, treating Munir as good law, indicating the approach our regulator is likely to take to potential breaches. 

The warning notice highlights that solicitors and regulated individuals who use AI during the course of their work remain accountable for their work, including any output produced by genAI and work carried out by others under their supervision. Similarly, it draws firms' attention to the governance that should be in place before deploying generative AI.

All solicitors and law firm employees using generative AI in the course of their work should familiarise themselves with the warning notice.

Final LSB report on Mazur

The Legal Services Board (LSB) has issued its final report on Mazur, which dealt with the circumstances in which non-SRA-authorised individuals can conduct litigation under supervision. The LSB reviewed the approaches by regulators such as the SRA and CILEX in issuing guidance and ensuring compliance with the Legal Services Act 2007.

The report found inconsistency between regulators and lack of clarity in guidance issued to the profession prior to Mazur. In particular, there was a missed opportunity for resolving the SRA's and CILEX's different interpretations of the Act in 2022, when the issue could have been referred to the LSB. The report encourages regulators to cooperate prior to issuing any guidance on reserved legal activities to ensure consistency and confirms that the LSB itself will be focussing on overseeing this process.

If not already done, firms operating with high ratios of unqualified fee earners to qualified solicitors, particularly in personal injury, debt collection, and high-volume consumer claims, should review their operating models as a priority to ensure compliance with the Court of Appeal judgment and their regulator's guidance on supervision. For SRA-regulated firms, this will be its guidance note on 'Effective supervision' updated on 12 June 2026.

Proposals and concerns on the reform of the Solicitors Act 1974, Part III

In their 23 April 2026 Consultation Paper, the Civil Justice Council's Working Group (CJC) proposed a comprehensive overhaul of the regime that allows clients to challenge their solicitor's fees (Part III of the Solicitors Act 1974). The core proposals from the CJC were the introduction of a principles-based statutory code, supplemented by existing professional conduct rules, and for clients challenging modest bills (with a suggestion of under £50k) to proceed through the Legal Ombudsman (LeO) rather than Court. More specific recommendations included abolishing the contentious/non-contentious business distinction, introducing an objective and overarching "fair and reasonable" test to charges and contract terms and introducing a single one-year time limit from the date of receipt of a bill for initiating proceedings.

Several bodies have publicly commented on these proposals. The Law Society supported the removal of the distinction between contentious and non-contentious business and the general need of reform in their 26 June 2026 response. They highlighted however their concern of expanding the role of an already struggling LeO and the lack of data/evidence supporting the proposals.

The Legal Services Consumer Panel response on 20 July 2026 raised further concerns with the absence of consumer representation in the CJC and the reliance on SRA conduct rules given recent events. They strongly opposed the proposed "fair and reasonable test" reducing fees - they want to see agreements being made unenforceable instead where they were found to be not fair and reasonable.

A Final Report from the CJC is expected in early 2027.

Chancery would be a fine thing – the new Business and Property Division

Lady Chief Justice Carr, and then-Lord Chancellor David Lammy have announced plans to reform the structure of the High Court, creating a new Business and Property Division comprising the existing Chancery Division together with the Admiralty, Commercial, Circuit Commercial and Technology and Construction Courts, which currently sit within the King's Bench Division. This comes with a stated intention of simplifying court structures and governance, making the system work better for court users and staff alike; improving the efficiency of judicial deployment; and reinforcing the international reputation of the business and property courts.

The division is to be led by a President – set to be the current Chancellor of the High Court, Sir Colin Birss LJ. The transfer is to be effective from 1 October 2026, with the necessary legal changes set out in the Senior Courts (Transfer, Amendment and Consequential Provision) Order 2026 and the Civil Procedure (Amendment No. 2) Rules 2026.

In practice, the change is likely to be one more of form than function. Practitioners should nevertheless check the headings used on court documents from 1 October 2026 and ensure that precedents are updated accordingly. They should also continue to monitor the relevant court guides. It remains to be seen whether the initiative may also entail alignment of divergent procedures between the courts' guidance documents as they currently stand.

FCA to impose 'fit and proper' test on solicitors as part of AML regulation

In its post-consultation report, HM Treasury has provided details of the regulatory regime which will apply to solicitors when the FCA becomes the sole regulator for anti-money laundering (AML) and counter-terrorism financing for professional services firms, including solicitors.

The report confirms that its existing regime for trust and company service providers (TCSPs) will be extended to apply to law firms. This includes registration and application of the section 58 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 'fit and proper' test, and assessment of their competence and history of compliance.

Some have expressed concern about duplication between existing SRA regulation and the proposed new FCA regime, as the SRA authorisation rules already involve an assessment of character and suitability. The worry is that the additional compliance burden will disproportionately impact smaller firms. However, the Government has pledged that the FCA will not adopt a "one size fits all" approach, recognising differences in firm size, sector and jurisdiction. Similarly, it has committed to safeguards for legal professional privilege. This is a hot topic at the moment with a decision awaited in the Carter-Ruck High Court case and commentators arguing over whether the SRA is entitled to see privileged material in response to s44B notices requesting information.

The FCA will also have new supervisory tools including the power to appoint skilled persons and issue directions to firms; it will also be able to use its existing enforcement powers, including civil sanctions and criminal proceedings. The FCA's supervisory activities will be funded through fees charged on a cost-recovery basis, with a further consultation on fee structure to follow.

High Court dismisses SDT appeal after four‑month delay in filing grounds: a lesson in procedural discipline

A solicitor’s appeal against a Solicitors Disciplinary Tribunal (SDT) decision has been dismissed by the High Court after failure to provide any grounds of appeal for more than four months following the filing of her notice.

Alan Bates, as deputy High Court judge, sharply criticised the conduct of the proceedings by Sadaf Ijaz of Safaz Legal, describing a “high degree of failure to comply with procedural requirements” and expressing concern that a practising solicitor had been unable to ensure her own litigation was conducted competently.

Last year, Ms Ijaz appealed against a rebuke imposed by the Solicitors Regulatory Authority (SRA) for failing to comply with two costs orders. This appeal was rejected by the SDT.

Ms Ijaz filed her appeal notice on 12 November 2025 but did not serve grounds until 31 March 2026, only 16 days before the hearing on 16 April 2026. A 5-page document titled 'Speaking Note' was received by the court on the morning of the hearing but no-one attended the hearing itself. The judge also refused two adjournment applications.

The court held she was not "free to take as long as she wished to provide her grounds for appeal", permission was required to belatedly rely on grounds, and late service was unfairly prejudicial to the SRA. In any event, the judge said all three proposed grounds lacked merit. 

It was held that the SDT was entitled to uphold the rebuke.

This case serves as a reminder of procedural discipline in regulatory proceedings.

As the court summed up: "absent some truly extraordinary circumstance…there can be no reasonable excuse for…failure to file any grounds of appeal for over 4 months after filing the appeal".

Insights from the SRA Compensation Fund annual report and LeO's annual complaints data

The SRA Compensation Fund is a discretionary fund of last resort for clients who suffer financial loss due to the dishonesty or failure to account of a solicitor. The Fund's annual report reveals that it dealt with 2,116 claims in the year to 31 October 2025 (compared to 2,859 in 2024), leaving a deficit of £3.3 million, whereas in 2024 the Fund had a surplus of almost £20 million. Grants paid totalled £46.4 million in 2025; significantly more than the previous year of £27.9 million and this was attributed to the interventions in Metamorph Group and Axiom Ince.

The report highlights the SRA's concern that it may be required to intervene into a firm "of an exceptional scale" and reveals that the Fund has secured a £10 million overdraft facility. Although the Fund has been certified as able to continue as a going concern for at least 12 months by its auditors.

Meanwhile, the Legal Ombudsman's (LeO) annual complaints data reveals that it received 37% more complaints in 2025/26. This could be driven by the availability of AI -the Scottish employment tribunals recently also reported a 39% increase in claims, driven by AI use by litigants-in-person. The increase reflects a trend of increasing complaints over the past 2 years.

Residential conveyancing accounted for 73% of the increase in LeO complaints. The data also revealed that a quarter of consumers had not received a response to their complaint from their legal representative, with an 84% increase in complaints about unreasonable complaints handling by law firms. Communication and delay remained the most common issues raised, together accounting for 46% of complaint types.

AI hallucinations risk and Law Society Advisory (Singapore)

With hallucinated citations becoming a known risk of lawyers' use of generative artificial intelligence (genAI) in a number of jurisdictions, the Singapore Law Society has released an Advisory on the use of publicly available AI tools. The Advisory focuses on the use of technology products not designed for business or enterprise use and highlights the relevant regulatory obligations, such as rule 6 of the Legal Profession (Professional Conduct) Rules 2015 (PCR), which requires solicitors to maintain confidentiality.

The Advisory is likely triggered by the growing body of case law in which litigants or their representatives have used genAI to locate relevant case law and placed this before the court without verifying that the case law actually exists and is relevant. These so-called hallucinations cannot be completely eradicated as genAI's method of operation is to generate new content. We have previously discussed England & Wales cases and guidance in the June 2026, March 2026 and December 2025 editions, and in our June 2025 article about the leading case of Ayinde.

A Parisian researcher is keeping track of hallucinated citations cases (of which there are now a staggering 1,809 worldwide, at the time of writing), and this reveals seven such cases in Singapore (five of which were High Court cases) and two in Hong Kong (one in the District Court and one in the High Court; both from 2025). Of the nine cases, three of them arose from a lawyers' use of AI, rather than a litigant-in-person's.

The key messages in the Advisory are for lawyers to use paid or enterprise versions of genAI applications only, after reviewing the tool's terms of use and satisfying themselves that their use of the technology will not lead them to breach the PCR.

In a move that will be welcomed by practitioners, the Advisory confirms that the Law Society's Generative AI Committee is preparing more detailed guidance. In the June 2026 edition of Lawyers Covered, we noted that barristers in England & Wales and solicitors in Northern Ireland now have the benefit of detailed guidance from their regulators, leaving England & Wales solicitors in a more difficult position with only sparse guidance from the SRA available until the warning notice was published this week. In Singapore, the Advisory helpfully sets out a number of key reminders that practitioners should follow when using AI, such as:

1. Avoiding inputting/uploading privileged information or documents or personal data.
2. Ensuring that they "opt out" of the use of their inputs for model training purposes.
3. Checking that the tools they propose to use have adequate cybersecurity safeguards.

All legal practitioners should familiarise themselves with the Advisory, especially in light of pressure to use AI by clients and arising from competitors' use of the technology. In particular, practitioners will no doubt have spotted the UK Jurisdiction Task Force's paper on liability for AI harms, which suggested that lawyers who do not use AI could be negligent for failing to do so, especially since the law of professional negligence in Singapore shares common law origins with England & Wales.

With thanks to our additional contributors Aimee Talbot and Sally Lord.

Disclaimer: The information in this publication is for guidance purposes only and does not constitute legal advice. We attempt to ensure that the content is current as at the date of publication, but we do not guarantee that it remains up to date. You should seek legal or other professional advice before acting or relying on any of the content.