SRA survey: OFR confusion for many firms – and their compliance officers

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Townsend: risk of unintentional non-compliance

Nearly half of solicitors’ firms are not clear what regulatory outcomes they are expected to deliver, a survey on outcomes-focused regulation (OFR) has found – despite more than four out five people questioned being those responsible for ensuring compliance.

The survey of 1,000 law firms, carried out by the Solicitors Regulation Authority (SRA) into the impact of OFR on private practitioners a year after it was launched, also found that while attitudes had warmed since then, still only half of firms looked on it favourably.

The results have to be viewed in the context that more than 80% of those consulted were either compliance officers for legal practice or for finance and administration (COLPs/COFAs) or both – people the survey said “are instrumental in creating a culture of compliance throughout a firm”.

Worryingly for the SRA, 12 months on, just 51% of those surveyed agreed that “OFR makes it clear what outcomes the SRA expects” to be delivered. “This is a concern as a lack of understanding of the outcomes could lead to them not being delivered… [and] firms attempting to comply in a way that leads them to experience higher costs or firms failing to effectively manage risks to themselves or their clients,” said the survey.

SRA chief executive Antony Townsend responded: “Some firms’ lack of understanding of what’s expected of them presents a risk of unintentional non-compliance. We will continue to engage with firms and listen to their concerns… in order that we can provide further clarity where it is needed.”

Although specific understanding of the COLP and COFA roles was much better – more than 80% felt “reasonably” or “very” well informed – one in seven of even the compliance officers themselves were not absolutely sure what they were supposed to be doing.

On the issue of the resources required to comply with OFR, 44% believed compliance with OFR takes up too much time and 34% said it “costs too much money”. Respondents felt compliance officers would have to spend roughly one day a week on regulation matters, an obligation which the survey acknowledged would hit smaller firms disproportionately harder.

“For a firm with only a small number of fee-earners, this time requirement will take up a greater proportion of the firm’s overall fee-earning capacity,” the survey said.

Although 40% of firms had done nothing more to prepare for OFR than appoint compliance officers, a number of firms had spent time and money on such things as reviewing procedures, creating new policies and training. Some spent significant sums. For instance, administrative costs associated with OFR cost 5-10 partner firms an average of £22,360 and even sole practitioners spent on average more than £12,000 across the board.

On the profession’s perception of the claimed benefits of OFR, the results will have disappointed the SRA. A mere 3% of firms said they were “taking full advantage of the flexibility that is offered by OFR”; this suggested that “the SRA needs to do more to encourage firms to consider and understand the ways… they can benefit from greater efficiency by reducing any unnecessary costs”.

Only 38% of those surveyed agreed with the proposition that the SRA focuses its resources on matters that present the most risk to the public.

Overall, attitudes towards OFR had improved from a smaller survey conducted just before the new approach to regulation was brought in. Then, just 36% of firms viewed it favourably compared to 50% now. “This indicates that firms’ attitudes towards OFR might be shifting towards greater levels of favourability as they increase their experience of working with the new regime of regulation,” said the survey.

Also encouragingly for the SRA, 85% of firms agreed with the proposition that even if complying with OFR was not mandatory, they would continue doing what they do currently to comply “simply in order to run your firm well and look after your clients’ interests”. Meanwhile, 80% of firms described risk management as part of their day-to-day business activities and most of the remainder had plans to improve their management of risk.