Michaela Hardwicke, part of the team at Legal Futures Associate face2face solicitors, provides solicitors with words of warning over their approach to outcomes-focused regulation
Hardwick: minimal guidance from the SRA
What do you get when you have 60 solicitors in a room discussing outcomes-focused regulation (OFR)? You get concern, frustration, cynicism, lack of trust and an overwhelming desire for answers and solutions.
At a recent seminar I delivered in London on just this topic, I was faced with an audience full of these emotions and questions. All present were very keen to hear what the new regulations would mean to them and their businesses. There was not only a natural desire to understand and comply with the new regulatory regime but also a huge amount of frustration over the lack of guidance from the Solicitors Regulation Authority (SRA).
As one attendee said to me afterwards: “As a sole practitioner, I know I have to do it and absolutely will but it would really help if someone could give me some idea of where to start. Is there a template of some kind I could purchase?” I explained that whilst there are some available, the problem is that because of the SRA’s requirement (and intention) to look at individual firm’s risk profiles, a template is not the total solution; each practice must assess its specific risk areas and factor these into its business plans, systems and processes.
OFR is a completely different animal from anything we have yet seen. There is clear evidence that a large percentage of the profession does not understand this. In my view, this is not their fault. I find it extremely worrying that there continue to be messages from authoritative sources (including one magazine published very recently) that it won’t make much difference from how firms have operated so far.
Add to this the fact that many of the words and regulatory provisions are familiar and it is no wonder that apathy and confusion abound. In my humble opinion, the SRA could have done a lot more to prepare the profession for what is to come.
Putting aside for a moment the requirement to have compliance officers for legal practice and for finance and administration (whole topics in themselves), the philosophy behind OFR is an entirely new approach.
At the seminar there were some who believed that they would be sitting waiting for the SRA to notify them of a visit which they then could prepare for and get their house in order. Those days are gone. Firms will now be asked to report to the SRA on an annual basis (as well as ad hoc) and provide evidence demonstrating how they ensure that they comply with the 10 mandatory principles and achieve the numerous mandatory outcomes.
If the SRA is not satisfied with the evidence they receive, they will enter into a dialogue with the firm and may appoint a relationship manager to work together to achieve compliance. A major breach is, however, likely to mean an immediate visit with potentially more serious consequences.
The difficulty facing legal businesses is that there has been minimal guidance from the SRA as to what this ‘evidence’ should comprise, the reason being that the SRA wants OFR to be flexible and allow firms themselves to decide how they will comply with the principles and achieve the outcomes.
The last-minute rush which has accompanied these changes has occurred because the SRA is not where it should be in the process, and only in the last week or two has the SRA started sending out renewal requests to selected firms. None of the 60 solicitors in the seminar was in this group. For reasons unknown, the SRA has chosen to publish neither this renewal form nor the associated guidance note (reference to which I located only after extensive searching, only to find that the 41 page PDF was not accessible).
Throughout the lead up to the introduction of OFR, the SRA has constantly told us that it is changing its approach and that the new regulatory regime may rely upon the profession trusting the authority. Inadvertently, I’m sure, but what message is the SRA sending out to the profession by failing to publicise this vital information which could help firms prepare?
So what are legal businesses to do? As trying a time as we are in, there are solutions – but some firms will find these harder to implement than others. As mentioned, the key is to be found in evidence, systems and processes. Existing firms may not need to ‘reinvent the wheel’ in that they will have systems in place or ways of working, even if these are not written down. The key here is to evidence these systems and consider how they demonstrate that your firm complies with the principles and ensure that you achieve the outcomes.
Another key element is business planning, risk analysis and management, which is a mandatory principle (number 8 – run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles).
What is meant by ‘proper governance’? As a regulator the SRA is not likely to set the bar at a low level. I suggest the bar will be set high. Co-operative Legal Services is an ethical provider with deep pockets and to be one of the first alternative business structure applicants. The Co-op has stated that it has had input to the SRA, so it is possible that the SRA will interpret ‘proper’ using the Co-op as its benchmark.
Firms simply have to take OFR seriously, and now. OFR is completely different and merely tweaking the old regulatory approach will not be sufficient or appropriate.
Michaela Hardwick of Beyond Expectation is a non-practising solicitor with 13 years in practice as a solicitor and quality audit manager in a UK top 20 law firm. She is part of the face2face solicitors team, which provides franchisees with state-of-the-art technology, robust compliance and risk management systems as well as initial and ongoing business strategy, mentoring and coaching
