Regulation: Solicitors responsible for maintaining own professional obligations
Too many solicitors only check their professional obligations when things go wrong and are over-reliant on their firm’s compliance officer for legal practice (COLP) to keep on top of regulatory issues, according to Solicitors Regulation Authority (SRA) research.
The thematic review found solicitors not as knowledgeable about their responsibilities as they thought they were.
Indeed, it showed that few solicitors actually read the SRA’s thematic reviews.
The SRA said: “Solicitors are responsible for maintaining their own professional obligations… [It] cannot be delegated. Risks to consumers are heightened when firms and solicitors fail to recognise this.”
The regulator surveyed 250 solicitors, visited 20 firms – speaking with an individual responsible for compliance plus a fee-earner – and reviewed the training records of 20 fee-earners.
The focus was on five areas of regulation which applied to all firms: reporting obligations, continuing competence, the transparency rules, cybercrime and anti-money laundering (AML).
Respondents to the survey “overwhelmingly” described their understanding of these areas as knowledgeable or very knowledgeable. But solicitors interviewed in the visits showed a lack of knowledge and understanding.
“This suggests that many solicitors may overestimate their actual levels of regulatory knowledge and skills,” the SRA said.
Generally, compliance was motivated by a fear of negative consequences and benefits for firms and employees, rather than the potential benefits for consumers.
“This may support a misconception that regulation is a purely administrative burden, of no inherent social value.
“Interviewees occasionally referred to it detracting from ‘real’ legal work. One interviewee stated: ‘Lots of lawyers want to get on with the job but it is difficult in light of all the emphasis on reviews and audits.’
“This potentially undermines the purpose and benefits of regulation and supports a negative narrative.”
The regulator identified a small number of firms that “aligned compliance and best practice with mutual benefits for consumers and the firm”.
They championed compliance as “an important part of the job which makes us stand out from the competition”, one said.
The review went on: “This was achieved by repeatedly emphasising the value of regulatory controls such as file audits and complaints. Regulatory information was reframed in more positive terms, for example ‘getting it right’.
“COLPs reiterated there was no quick fix and changes were dependent on a continued reaffirmation of this belief.”
The SRA found that, although fee-earners said they were undertaking regulatory training, it was routinely not recorded. “In practice, more emphasis and importance were attributed to legal training.”
Half of the firms were also reliant on “ad-hoc methods of disseminating regulatory information”, such as informal discussions and via e-mail, which again were rarely recorded by fee-earners.
Generally, knowledge of the free resources provided by the SRA was poor; 20% of COLPs were unable to answer any technical questions about reporting obligations and had not reviewed the SRA’s resources on this. They had also never made a report to the SRA.
On AML, seven COLPs wrongly believed their firms fell within scope of the regulations, while seven fee-earners did not know the identity of their firm’s money laundering reporting officer.
The review suggested that firms and employees relied on their COLPs to review and understand regulatory risks.
“This, coupled with the lack of record keeping by fee-earners, meant it was often difficult for interviewees to explain and evidence how compliance with professional obligations were promoted within firms.”
There was a reliance on e-mailed material without many firms checking whether employees had actually read and understood it.
Half of the firms visited were regulated and/or audited by third parties who had their own requirements, such as the Financial Conduct Authority, the Legal Aid Agency and the Law Society for its various accreditations.
“These relationships often led firms to develop enhanced controls and policies, but occasionally led to misunderstandings. Whilst some of these requirements may overlap, they sometimes have a different focus and are not always aligned. This can cause issues.”
Unsurprisingly, the review found that firms with a dedicated compliance team were more on top of what the SRA was doing and promoted a more positive culture around compliance.
“Internal compliance teams clearly provide firms with additional time and resource to check regulatory compliance. By sharing these responsibilities among more people, it reduces the reliance on the COLP and provides an opportunity to amplify the message about compliance.
“However, this is achievable by all firms by promoting and encouraging personal responsibility for understanding and complying with our regulatory requirements.”
All of the firms visited used external compliance companies. “We acknowledge firms may find this useful given the demanding and technical nature of the legal services market,” the SRA said, although it warned against over-reliance.
It also came at a cost and the SRA said “COLPs often appeared to be relying on this advice without reviewing our free regulatory resources”.
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