The SRA Handbook & Outcomes-Focused Regulation (OFR)
This new approach to regulation starts on 6 October 2011. As well as holding numerous road shows around the country and holding a series of webinars, the Solicitors Regulation Authority (SRA) has been keen to try and provide as much information as possible to the profession in advance of that date. The draft Handbook was published on 6 April 2011 to ensure the profession had time to prepare. They have also produced a summary of the Handbook and ‘OFR at a glance’ which are available on their website. Of course we will all continue to have access to their ethics helpline if there are any queries – 0870 606 2577. In the same spirit I endeavour to now set out some of the key points which I hope that you will all find useful:
What is it – and what is it all about?
• A new regulatory approach
• SRA Handbook
• SRA Code of Conduct
• SRA Authorisation Rules
New approach – why?
• Legal Services Act 2007 (LSA)
• New regulatory regime
– LSB (Legal Services Board)
– LeO (Legal Ombudsman)
– Approved regulators (there will be 8 including The Law Society who have delegated to the SRA, ILEX, patent agents, notaries, Bar etc.)
• New legal services providers –
• Regulatory Objectives
LSA – regulatory objectives (section 1)
• Protecting and promoting the public interest;
• Supporting the rule of law;
• Improving access to justice;
• Protecting and promoting the interests of consumers;
• Promoting competition in the provision of legal services;
• Encouraging an independent, strong, diverse and effective legal profession;
• Increasing public understanding of the citizen’s legal rights and duties;
• Promoting and maintaining the professional principles
New approach – more than just new rules
• Outcomes focused regulation:
– emphasis on improved outcomes for clients
– more flexibility to tailor services to needs of individual clients
– greater ability to innovate
• New approach to enforcement:
– much closer relationship between SRA and firms
– emphasis on identifying real risk to clients/public through better information
– better targeting of resources
– less tick box approach
Achieved by –
• Principles and high level outcomes setting the standard
– principles preface the Handbook
– outcomes preface all sets of rules
– in the code they replace rules
• Regulation of firm rather than individual (entities based regulation):
– control of the firm rather than the individual;
– emphasis on governance and management;
– greater use of sanctions against the entity rather than the individual.
Using these controls
• Contains all the principles, outcomes, sets of rules and regulations which govern the individual and firm regulated, or applying to be regulated, by the SRA.
• ABSs and recognised bodies subject to exactly the same requirements.
• The Code of Conduct forms part of the Handbook.
Handbook – contents
• The Principles
• Code of Conduct
• Specialist Service Rules
• Authorisation Rules
• Accounts Rules
• Indemnity Insurance Rules/Compensation Fund Rules
• Disciplinary Procedure Rules
• All training requirements
Principles and the Handbook
• Principles stand alone – no longer part of the Code of Conduct.
• The Code [and other rules] need to be read in the light of the principles.
• Principles comprise current core duties plus 4 new requirements
• Six are familiar:
– best interests of clients;
– proper standard of service;
– uphold rule of law and proper administration of justice; and
– maintenance of the trust the public places in you and the provision of legal services.
• Four are new and require that you must:
– comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner;
– 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;
– run your business or carry out your role in the business in a way that encourages equality of opportunity and respect for diversity;
– protect client money and assets.
Code of Conduct
• Centre piece of the SRA’s new outcomes focused approach.
• Deals with professional conduct in the context of relationships (with client, court, regulators and others).
• Sets out requirements for firms’ management and governance arrangements which will underpin compliance.
• The good news – many of the provisions are familiar but may be in unfamiliar places.
The new Code structure
• You and your client
• You and your business
• You and your regulator
• You and others
• Application, waivers and interpretation
Each section is subdivided into chapters –
For example “You and your client” has chapters covering:
– client care, including costs and complaints handling;
– equality and diversity;
– conflicts of interest, duty of confidentiality and disclosure;
– your client and the court;
– your client and introduction to third parties.
The Code – look no rules!
Outcomes replace rules (with very limited exceptions) and must be achieved to ensure compliance with the Principles.
They are supported by indicative behaviours (tell you what compliance/non-compliance looks like)
How this works
Indicative behaviours (IB)
Outcomes in practice
• More flexibility for services to be tailored to the individual client – particularly in client care section.
• But loss of clarity so greater onus to explain how compliance has been achieved.
• Much of the “tick box” material will be non mandatory but may help provide evidence of compliance.
Note – many outcomes deal with material which does not allow flexibility e.g. undertakings, duty of confidentiality.
How the Code uses Principles, outcomes /IBs
Section 1 – You and your client
Chapter 1 – Client care
• You act in the best interests of clients
• You provide a proper standard of service to your clients
Example outcomes and IBs – general client care
Outcome 1 – “You treat your clients fairly”
• agreeing an appropriate level of service with your client, for example the type and frequency of communications;
• explaining your responsibilities and those of the client;
• telling the client who is dealing with their matter and who supervising (plus their status);
• explaining any (e.g. fee sharing/referral) arrangements relevant to the clients instructions:
• taking account of the client’s mental capacity/other vulnerability, etc.
Example outcomes and IBs – costs
Outcome 13 – “Clients receive the best information (at the outset and as their matter progresses) about the likely overall cost”
• clearly explaining your fees and if and when they are likely to change;
• warning about other payments the clients may be responsible for;
• discussing how the client will pay (public funding /insurance/trade union);
• where acting under a CFA giving the client all relevant information etc.
Outcomes in other areas less flexible and impose “rule like” obligations.
Example (Your client and the court):
Outcome 1 – You do not attempt to deceive or mislead… or recklessly deceive or mislead the court.
Many other outcomes dealing with e.g. undertakings, duty of confidentiality have very specific requirements.
Changes of substance
• Complaints handling
• Referral arrangements
• Conflict –conveyancing
• Management of your business
• You and your regulator
• Clients need to be told in writing of right to complain to Legal Ombudsman at outset of instructions and after a complaint has been investigated by the firm (NB – in force now)
• Commissions/other financial benefits received – no de minimis and even with disclosure and client consent you must be able to justify retention
• When referring clients for investment business advice to an IFA, new definition requires that the IFA must offer the option of paying fees rather than just payment through commission
• Referral arrangements
– significant reduction of detail but must still tell clients of financial benefit received;
– referral fees between solicitors must be disclosed;
– allow arrangements with introducers who operate on contingency fee basis unless against clients’ interests.
• No separate prohibitions relating to acting for seller / buyer and lender / borrower, general conflict applies.
• Firms will need to make decisions about how they approach this issue.
• IBs warn about acting in a negotiating situation and suggest inappropriate to use “substantially common interest” exception.
Management of your business
• Clear and effective governance structure and reporting lines
• Effective systems and controls to achieve [Principles, rules, outcomes] and comply with [the Handbook]
• Monitor risks to compliance
• Systems and controls for monitoring financial stability
• Ensure outsourcing does not affect ability to comply
• IB – whistle blowing policy
• “Authorised and regulated by the SRA”
You and your regulator
• Cooperation key
• “notify the SRA promptly of any material changes… including serious financial difficulty, action taken against you by another regulator and serious failure to comply with or achieve the Principles, rules, outcomes…”
Deal with requirements for:
• Authorisation of recognised bodies (RBs)
• Licensing of ABSs
Note: once achieved, authorisation/licence is for life of firm but subject to general conditions.
General conditions for remaining authorised
Rule 8 requires:
• Compliance with regulatory arrangements
• Suitable arrangements to ensure compliance – a compliance plan
• Periodical fee
• Compliance Officer for Legal Practice (COLP)
• Compliance Officer for Financial Arrangements (COFA)
• Approval of other managers
• Annual information report
• Annual report required – will form basis of SRA’s risk assessment of firms
• Permission required for SRA to:
– provide a report on the documents submitted; and
– seek verification from others [clients, employees, managers, banks, other financial institutions] of information provided.
• Update with changes [about itself, owners, managers etc] – including non compliance
COLPs and COFAs
• Required of all authorised bodies including sole practitioners.
• Must be in place at all times and must be:
– a manager or employee;
– designated by the firm as its COLP/COFA;
– of sufficient seniority and responsibility to fulfil the role;
– designation approved by the SRA
– COLP must be a lawyer
• Key personnel in the firm.
• Authority from the managers/management board to carry out their role – helpful if documented.
• Contact point with the SRA over compliance issues – will probably do the annual compliance report.
• Must report any failure to comply which is material “either taken on its own or as part of a pattern”.
• Must record all non compliance.
• Appointment will not absolve other managers from responsibility for compliance.
• All managers, owners, COLPs and COFAs must be approved.
• Solicitors (with pc), RELs and authorised bodies deemed approved.
• Others must satisfy “suitability test” requiring disclosure of criminal offences, financial behaviour, disciplinary findings by other regulatory bodies, disqualification from being a director or trustee of a charity etc.
• SRA has powers to revoke or suspend authorisation
• Also to publish decisions about a firm or individual
• 10 August 2011 – new ABS applications accepted
• 1 October – Indemnity Insurance Rules in force
• 6 October 2011:
– Code, Principles, rest of Handbook comes in force
– LDPs can elect to transfer to ABS status from this date
• 31 March 2012 – all recognised bodies and sole practitioners (who become recognised bodies) transitioned to become subject to Authorisation Rules: must by this date notify SRA of COLP/COFA
• 31 October 2012
– all LDPs passported to become ABSs
– grace period ends for approval of COLPs and COFAs for recognised bodies
Some key changes:
• Interest on client account must be paid where it is fair and reasonable to do so – amount paid must be fair and reasonable
• a policy on in interest required which must be provided to clients
Accounts Rules – changes
• Signing on client account:
– firms can decide but must have appropriate systems and procedures governing withdrawal;
– only restriction in on non lawyer owners;
– authority for withdrawals may be signed electronically.
• Firms must not provide banking facilities for their clients.
• Introduction of concept of “out of scope” monies for MDPs.
• Designates client accounts – must be reconciled every 5 weeks in line with the requirements for general client account.