SQE1 · FLK1 · Free samples
Legal Services — free SQE1 sample questions
172 free, worked single-best-answer questions for Legal Services, shown in the official SRA SBAQ format with the correct answer and a cited rationale. Drill the full bank in timed practice once you’ve worked through these.
Question 1
A solicitor suspects that a client's instructions to incorporate a company and open a business bank account may involve money laundering. The solicitor makes an authorised disclosure to the National Crime Agency under section 338 of the Proceeds of Crime Act 2002 and receives a notice from the NCA that the moratorium period is running. The client telephones the next day asking when the incorporation will be completed. What is the solicitor's best course of action?
- A.Tell the client that the NCA is investigating the matter and that work is on hold pending the outcome.
- B.Tell the client that there are some administrative delays but that the matter will proceed in due course, without revealing the existence of the suspicious activity report or NCA involvement.✓ correct
- C.Tell the client that the solicitor suspects money laundering and cannot continue to act.
- D.Cease all contact with the client immediately and without explanation.
- E.Tell the client that the solicitor is awaiting further documentation before work can proceed and invite the client to come in to discuss the matter further.
Why B is correct
**The tipping-off offence and the 'consent' regime** Once an authorised disclosure has been made under **s 338 POCA 2002**, the solicitor must not proceed until either appropriate consent is given or the moratorium period expires without a refusal notice. Crucially, the solicitor must also avoid committing the **tipping-off offence under s 333A POCA 2002**, which is committed where a person discloses that a suspicious activity report (SAR) has been made, or that an investigation is being contemplated or carried out, if that disclosure is likely to prejudice any investigation. **Why B is correct:** Giving a neutral, anodyne explanation — such as 'there are administrative delays' — allows the solicitor to manage the client relationship without revealing (a) that a SAR has been made, (b) that the NCA is involved, or (c) that the solicitor harbours suspicions. This is consistent with the SRA's guidance and the Law Society's guidance on POCA, which acknowledge that solicitors often cannot give a truthful explanation for a pause in work and may use a non-committal holding response, provided it does not itself constitute a false statement intended to assist money laundering. **Why the other options are wrong:** - **A** expressly discloses NCA investigation — a clear breach of s 333A. - **C** expressly discloses the suspicion — a further breach of s 333A and likely to prejudice any investigation. - **D** is not required by law and would be conspicuous; ceasing all contact without explanation could itself alert the client and is not mandated by POCA or SRA rules. - **E** inviting the client to come in to 'discuss the matter further' risks creating a situation in which the solicitor is pressed for details and may inadvertently tip off the client, or may make misleading statements; it is therefore less safe than option B. **Key authorities:** Proceeds of Crime Act 2002, ss 327–329 (principal offences), s 333A (tipping off), s 338 (authorised disclosures); Law Society Anti-Money Laundering Practice Note; SRA Warning Notice on AML (2023).
Question 2
A solicitor holds £25,000 in client account for Client A. Client A instructs the solicitor to transfer £25,000 to Client B, another client of the same firm, to settle a private debt between them. The solicitor is satisfied there is no fraud or money laundering involved and makes the transfer between the two client ledgers without withdrawing the money via office account. Has the solicitor breached the SRA Accounts Rules 2019?
- A.No, because the solicitor is merely re-allocating money already held in client account and no third-party bank transfer is needed.
- B.Yes, because using client account to settle a private debt between two clients amounts to providing a banking facility, which is prohibited.✓ correct
- C.No, provided both clients confirm the transfer instruction in writing before the ledger entries are made.
- D.No, because the solicitor holds money for both clients and the transfer is internal to the firm.
- E.Yes, because client money must always be routed through office account before being credited to another client's ledger.
Why B is correct
**Correct answer: B** **Legal basis – SRA Accounts Rules 2019, rule 3.3** Rule 3.3 of the SRA Accounts Rules 2019 provides that a solicitor must not use a client account to provide banking or payment facilities to clients or third parties. This prohibition applies regardless of whether the solicitor holds money for both parties and regardless of whether instructions are given in writing. The critical issue here is the *purpose* of the transfer. The £25,000 is being moved to discharge a **private debt** between the two clients — a transaction that has nothing to do with the delivery of legal services by the firm. The SRA's guidance on rule 3.3 makes clear that it is the nature of the transaction, not the identity of the parties, that determines whether client account is being misused as a banking facility. Where money passes through client account solely to settle obligations between clients (or between a client and a third party) rather than in connection with a matter on which the firm is providing legal services, the prohibition is engaged. **Why the other options are wrong:** - **A & D**: The fact that the firm holds funds for both clients is irrelevant; rule 3.3 still prohibits use of client account as a payment mechanism for non-legal-service transactions. - **C**: Written authority from both clients does not cure a rule 3.3 breach. There is no provision in the SRA Accounts Rules 2019 that permits an otherwise prohibited banking-facility transfer simply because both clients consent in writing. (The original keyed answer conflated this with an entirely different scenario — a legitimate ledger-to-ledger transfer in connection with a matter on which the firm acts for both parties — which is permissible but must still comply with rule 3.3's purpose test.) - **E**: The Rules impose no requirement that intra-firm client-to-client transfers must be routed through office account; that is a misstatement of the Rules. **Key principle**: Client account exists to hold client money safely in connection with the firm's legal work. Using it to effect payments that merely settle private obligations between clients — even with their consent — breaches rule 3.3 by converting client account into a quasi-bank account.
Question 3
A trainee solicitor is reviewing the firm's client files. She notices that a file for a property purchase completed six months ago contains no evidence that customer due diligence (CDD) was carried out on the client, even though the retainer letter states that AML checks were required. She raises this with the supervising partner, who says it was 'probably just misfiled' and tells her not to worry about it. What is the most appropriate course of action for the trainee?
- A.Accept the partner's explanation, as she has no personal responsibility for a file she did not work on.
- B.Report the matter directly to the National Crime Agency by submitting a Suspicious Activity Report.
- C.Report the partner to the Solicitors Regulation Authority immediately without taking any internal steps first.
- D.Make a note on the file and focus on ensuring her own future files are compliant.
- E.Report the matter to the firm's Money Laundering Reporting Officer (MLRO), given the absence of CDD records on a completed property transaction.✓ correct
Why E is correct
**Why E is correct** Under the **Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), regulations 28 and 40**, regulated firms must carry out CDD before or during the establishment of a business relationship and must keep records of that CDD for at least five years after the relationship ends. The absence of any CDD documentation on a completed property matter is therefore a potential breach of MLR 2017. Property transactions are a recognised high-risk sector for money laundering. When a fee-earner in a regulated firm discovers facts that may indicate a failure of AML controls — or that give rise to a suspicion of money laundering — the correct internal route is to report to the **Money Laundering Reporting Officer (MLRO)**, as required by **MLR 2017, regulation 21** (the internal reporting obligation) and the firm's own AML policy. The MLRO is then responsible for deciding whether a Suspicious Activity Report (SAR) must be submitted to the National Crime Agency under **Proceeds of Crime Act 2002, s 330** and for addressing the compliance failure. The **SRA Standards and Regulations** (including **SRA Principle 7** — acting in the best interests of clients — and the broader obligation to uphold the rule of law) require individuals to take appropriate action when they identify regulatory breaches, rather than deferring to a more senior colleague who is dismissing the concern. **Why the other options are wrong** - **A**: Dismissing a regulatory breach simply because a partner has offered an unverified explanation would itself be a failure of the trainee's personal obligations under the SRA Standards and Regulations and MLR 2017. - **B**: Submitting a SAR directly to the NCA is the step the *MLRO* takes after evaluating an internal report. A fee-earner's obligation is to report *internally* to the MLRO first (MLR 2017, reg 21); bypassing the MLRO would be procedurally incorrect unless the MLRO is implicated. - **C**: Escalating directly to the SRA without first exhausting the firm's internal procedures would be premature and disproportionate at this stage. The SRA would ordinarily expect internal processes to be used first. - **D**: Merely noting the file and moving on does not address the identified breach or the potential money-laundering risk. It does not discharge the trainee's reporting obligation under MLR 2017.
Question 4
A solicitor in private practice receives £15,000 in cash from a new client who wishes to instruct the firm on the purchase of a residential property. The client explains that he has been saving the money at home because he distrusts banks. The solicitor personally finds the explanation plausible but is aware that the firm has a policy requiring all large cash receipts to be escalated internally. Under the Money Laundering Regulations 2017, which of the following best describes the solicitor's obligation?
- A.File a Suspicious Activity Report directly with the National Crime Agency, because the receipt of cash in a property transaction automatically constitutes suspicion of money laundering.
- B.Refuse to accept the cash in any circumstances, because the Money Laundering Regulations 2017 prohibit solicitors from receiving cash payments above €10,000 for property transactions.
- C.Submit an internal disclosure to the firm's nominated officer (Money Laundering Reporting Officer), because the receipt of £15,000 in cash in a property transaction gives reasonable grounds to know or suspect money laundering, regardless of the solicitor's personal assessment of the explanation.✓ correct
- D.Accept the cash and apply enhanced due diligence to the matter going forward, with no further reporting obligation unless additional suspicious circumstances emerge.
- E.Accept the cash provided that standard customer due diligence has been completed and a written receipt is issued to the client, as the client's explanation removes any reporting obligation.
Why C is correct
## Correct Answer: C ### Legal Framework **Regulation 21(1) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017)** requires relevant persons — including solicitors — to have in place internal policies, controls and procedures, including an internal reporting channel to a nominated officer (MLRO). Critically, **section 330 of the Proceeds of Crime Act 2002 (POCA 2002)** imposes a duty on persons in the **regulated sector** (which includes solicitors engaged in property transactions: Schedule 9, POCA 2002) to make an **internal disclosure to the nominated officer** where they **know, suspect, or have reasonable grounds for knowing or suspecting** that another person is engaged in money laundering. The threshold is **objective** — 'reasonable grounds' — and is not satisfied or negated merely by the solicitor's personal belief that the explanation is credible. The receipt of £15,000 in cash for a residential property purchase is precisely the type of transaction that a reasonable person in the solicitor's position **would** have reasonable grounds to suspect, given that property transactions are a well-known vehicle for money laundering and large cash payments are unusual. The internal report must therefore be made to the MLRO under s.330 POCA 2002, who then decides whether to file an external Suspicious Activity Report (SAR) with the NCA under **s.338 POCA 2002**. ### Why the Other Options Are Wrong - **Option A** is wrong: the initial statutory obligation under s.330 POCA 2002 is to report **internally** to the MLRO, not directly to the NCA. Direct reporting to the NCA is the MLRO's function under s.338 POCA 2002 if the MLRO decides to do so after considering the internal disclosure. - **Option B** is wrong: the MLR 2017 do not contain an absolute prohibition on accepting cash above €10,000 from private clients. The EU's 2021 proposed cash payment ceiling has not been enacted into UK domestic law. Firms may accept cash subject to appropriate AML controls and due diligence. - **Option D** is wrong: enhanced due diligence (EDR 33 MLR 2017) addresses higher-risk situations but does **not** replace or discharge the internal reporting obligation under s.330 POCA 2002 where reasonable grounds for suspicion exist. - **Option E** is wrong: completing standard CDD and issuing a receipt does not extinguish the reporting obligation. The objective 'reasonable grounds' test under s.330 POCA 2002 is independent of whether CDD has been carried out. ### Key Authorities - Proceeds of Crime Act 2002, ss. 330, 331, 338 - Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692), regs. 21, 28, 33 - POCA 2002, Schedule 9 (regulated sector definition) - SRA guidance on AML (2023 edition, consistent with above)
Question 5
A solicitor's firm is instructed by a company to act in a commercial property acquisition worth £2.5 million. During client due diligence, the solicitor asks for details of the company's beneficial owners. The client provides details showing that three individuals each own 20% of the shares, with the remaining 40% held by a trust registered in Jersey. The client refuses to provide information about the trust's beneficiaries, stating it is confidential. What should the solicitor do?
- A.Proceed with the retainer as UK solicitors have no jurisdiction over Jersey trusts.
- B.Decline to act until satisfied about the beneficial ownership of the trust.✓ correct
- C.Proceed but file a suspicious activity report with the National Crime Agency.
- D.Accept the three individual shareholders' details as sufficient compliance.
- E.Proceed provided the matter is supervised by a partner of the firm.
Why B is correct
Regulation 28 of the Money Laundering Regulations 2017 requires firms to identify beneficial owners who own or control more than 25% of a body corporate. The trust holding 40% exceeds this threshold, so the firm must identify its beneficial owners. Regulation 31 provides that firms must not act if they cannot apply customer due diligence measures. The jurisdiction of the trust does not exempt the requirement. Option D is wrong because the trust's 40% holding means its beneficial owners must be identified. Option C is incorrect as inability to complete CDD requires refusing instructions, not just reporting.