Bell: What are firms doing when they discover non-compliance?
The Solicitors Regulation Authority’s (SRA) new rulebook – Standards and Regulations (STaRs) – comes into force today, with experts highlighting several areas of significant change and opportunity for firms.
These include new rules on reporting concerns about regulatory breaches, the chance to use third-party managed accounts (TPMAs) to replace client account, and questions over disciplining staff for non-compliance.
It sees a smaller list of core principles (seven, rather than 10), introduces separate codes of conduct for individuals and firms, and generally slims down the rules governing practice.
The most controversial reforms allow solicitors to practise from unregulated organisations and to operate as freelancers.
Also from today, law firms need to use the SRA’s digital badge on their websites, while the standard of proof at the Solicitors Disciplinary Tribunal moves from the criminal to the civil standard.
Amy Bell, director of Amy Bell Compliance, said that whilst at first glance the codes may look like a more concise version of the previous 2011 version, “firms should not be lulled into a false sense of security and expect there is little to do”.
She explained: “The emphasis on the controls the SRA expects firms to have in place moves the legal sector away from just having policies and procedures and towards making sure they know they are working.
“For many firms, this will be new activity, which will need to be resourced.”
She urged firms to read the SRA’s enforcement strategy carefully. “It is clear that the SRA expects to see compliance within the firm, but what are firms doing when they discover non-compliance?
“In my experience, there is very little in terms of disciplinary processes. Firms may want to consider how they will deal with breaches, particularly those which are persistent, and make sure this is communicated to staff and most importantly, applied consistently.”
Ms Bell also pointed to “subtle changes” in wording that could have a considerable impact on firms.
For example, whereas the old rules said solicitors must not make unsolicited approaches in person or by telephone to members of the public, new rule 8.9 simply bans unsolicited approaches to members of the public, “with the exception of current or former clients”.
This was causing “many firms to review their marketing activity”, for example in relation to building class actions, Ms Bell said. SRA guidance on this is awaited.
Brian Rogers, regulatory director at Riliance, said the fact that some guidance has not yet been produced would make moving seamlessly from the old code to the STaRs difficult. Further, there were probably some firms that were “totally oblivious to what the new regime means for them and their staff”.
One of the big issues for firms to address, he said, was how reports of serious matters should be handled, “especially for non-solicitors who strictly speaking are required to report such matters directly to the SRA”.
Solicitors, however, are expected to report serious matters via their compliance officers – so long as they are happy those compliance officer(s) will take the same view as them over the report.
Mr Rogers added: “The SRA has said that ‘the effect of the code [for firms] is that a non-solicitor employee cannot turn a blind eye to serious unethical behaviour within a law firm.”
David Gilmore, director of DG Legal, predicted that the explicit provision for law firms to use TPMAs would see an increasing number “cutting out the headache of operating a client account”.
He said: “This will appeal to small firms and new entrants. Whether larger firms will be tempted will depend upon the deal they negotiate with the TPMA provider.
“The case for larger firms to use TPMAs would ordinarily be less apparent given the benefits of keeping client account interest but ShieldPay, for instance, has struck deals with large firms including White & Case.”
He said firms that did not hold client money other than payments on account of costs and disbursements would similarly be tempted to ditch client account.
“Further, those firms that operate what used to be known as agreed fees – eg, fees paid up front for immigration visa application fees, advocacy at the magistrates’ court for motoring law etc – will similarly be tempted to ditch the client account and pay the money into office account.
“The position is not simple though and the SRA has agreed to provide further guidance about this in the next week or so.”
Mr Gilmore thought the new models of practising would make a slow start. “For instance, the freelancer model seems an interesting model that allows individuals to provide legal advice from home, which the SRA hopes will lower the cost of access to justice.
“The model suffers though from an apparent inability to employ staff and being unable to restrict liability by operating via a limited company. Insurers are understandably nervous about this.”
The SRA is to review this model in around a year “and they will need to be more flexible if this model is to succeed”, he said.
Mr Gilmore added he was working with some firms that were encouraged by the SRA’s “apparent encouragement of delivering legal services online”.
Gary Yantin, director of best practice at VinciWorks, said he agreed with the SRA’s opinion “that if you were complaint before and nothing has changed in your business, then you are probably compliant still”.
He added: “The introduction of a new code for individuals is particularly interesting as it shifts the onus onto individual solicitors to be more aware of their conduct at all times and take responsibility for their decisions. The code makes compliance an issue for all solicitors not just the COLP.”
As we report separately today, the SRA has agreed at the last minute to suspend the new provision allowing immigration solicitors to practise from businesses regulated by the Office of the Immigration Services Commissioner.
Two other changes were approved on Friday to rectify errors:
Clauses 3.3, 3.6 and new clause 4.8A of annex 1 (SRA Minimum Terms and Conditions of Professional Indemnity Insurance) to the SRA Indemnity Insurance Rules have been amended to provide that any insurance excess must not apply to defence costs, and to clarify the conduct of a claim pending resolution; and
New paragraphs 2A of annex 1 and 4A of annex 2 to the SRA Application, Notice, Review and Appeal Rules have been amended to restore a right of appeal for decisions on disqualification made under rule 7.2 of the SRA Regulatory and Disciplinary Procedure Rules.
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