Legal Foundations and Compliance
Legal Foundations and Compliance tests your grasp of the legal scaffolding a matter sits on: who has authority to instruct, what the engagement actually covers, and which statutory and regulatory obligations must be met alongside the substantive advice. Expect questions that mix contract law, authority, and compliance duties into one scenario.
Authority and the retainer
- A retainer is a contract: offer, acceptance, consideration, and certainty of terms. It defines scope, fee basis, and who may give instructions.
- Authority may be actual (express or implied) or apparent. Apparent authority protects a third party who reasonably relies on a firm's representation, but it does not protect the firm from its own negligence.
- Instructions from a company must come from someone with delegated authority; check the constitution or board resolution where the transaction is significant.
Statutory and regulatory compliance
- Anti-money-laundering rules require client due diligence, beneficial ownership identification, ongoing monitoring, and internal reporting of suspicion. Tipping off the client is prohibited.
- Sanctions screening is a strict-liability area: a match must be escalated before work continues, regardless of the client's explanation.
- Consumer and fair-trading rules constrain fee information, cancellation rights, and unsolicited marketing.
- Record-keeping and retention duties run in parallel with data protection limits: keep what the rules require, no longer than necessary, and securely.
- Complaints handling and professional indemnity insurance are usually conditions of authorisation, not optional extras.
Worked example
A client engages a firm to carry out due diligence on a share purchase. Midway, an associate also advises on the tax treatment of the deal and the advice is wrong. Two failures arise: the associate acted outside the agreed scope, and the firm's compliance records show no engagement extension or competence check for tax work. The correct analysis is that the firm owes a duty in negligence for the advice it actually gave, the insurer must be notified, and the file needs a scope letter going forward.
Traps that cost marks
- Assuming a compliance manual or policy is itself a defence; regulators assess whether controls operate, not whether they exist.
- Treating a compliance sign-off as ethical clearance.
- Ignoring apparent authority because the person "seemed" authorised.
- Continuing work after a sanctions or suspicion flag while waiting for instructions.