Countdown to Legal Services Act: Preparing for outcomes focused regulation
Radical changes are being implemented by the Solicitors Regulation Authority (SRA) to help regulate alternative business structures allowed from October 6 2011 under the Legal Services Act.
The new approach aims to protect the public interest and benefit clients through a regime of outcomes focused regulation (OFR). By focusing on overarching principles and specific outcomes, the new system is designed to enhance service provision for clients.
Responsibility for meeting requirements stipulated in the Handbook lies with practitioners. The new SRA Code of Conduct is much more streamlined than the previous Code and gives solicitors the scope to use judgment and flexibility to implement appropriate systems.
New regime is governed by Principles and Code of Conduct
Solicitors will be familiar with the ten principles which are similar to the core duties in rule 1 of the current Code, although there are some new ones. The principles support all the regulatory requirements and are based on the SRA’s expectation that solicitors will comply with the principles in all their activities. Whenever a regulatory issue has to be considered, the first point of reference must be the principles.
Instead of the 2007 Code’s prescriptive rules, the new Code contains mandatory outcomes and non-mandatory indicative behaviours. Outcomes describe what solicitors are expected to achieve to comply with the principles in specific contexts set out in the Code.
Greater flexibility in Account Rules
The principal purpose of the Accounts Rules is to protect client money. To achieve, they have to be clear, specific and detailed. Large parts of the existing rules have been retained in what is accepted to be a high-risk area. However, some operational flexibility has been introduced, for example in relation to the payment of interest and signing on client account. According to the rules, these are areas where firms can exercise appropriate judgment without unnecessary prescription.
However, where an Alternative Business Structure exists, external owners of firms who are neither managers nor employees are not allowed to sign on client account as there needs to be some element of proximity to client matters when determining appropriate client account signatories.
Straight-talking is vital in identifying and managing risks
The SRA wants practitioners to manage and mitigate their own risks in relation to meeting the Handbook’s requirements. Solicitors will be expected to be straightforward when dealing with the SRA, which will want to see clear evidence of forward thinking to identify potential risks.
Karen Hain is partner and head of professional practices at Moore and Smalley Chartered Accountants and Business Advisors.