Without guidance the SRA's compliance regime is a heavy burden on small firms
Before 2011 even well-managed firms sometimes got into hot water with the Solicitors Regulation Authority (SRA), perhaps by straying over the line on conflicts. Governance and complaints handling was often poor. Many firms had latent financial problems as a result of things such as dilapidations, under-funded pension schemes, retired partner annuities and guaranteed profit shares for underperforming partners. Financial instability, with the risks that a collapse entails for clients, was a disaster waiting to happen. The legal profession was far from perfect. Outcomes-focused regulation (OFR) has done much to address the problems because the SRA investigates perceived risk areas and compliance officers have personal responsibility for implementing appropriate systems and reporting obligations. Firms now know that they cannot get away with anything.
January 14, 2014 at 07:31 AM
5 minute read
Regulator's focus on stability is helpful but it must work on relationship building and fixing problems
Before 2011 even well-managed firms sometimes got into hot water with the Solicitors Regulation Authority (SRA), perhaps by straying over the line on conflicts. Governance and complaints handling was often poor. Many firms had latent financial problems as a result of things such as dilapidations, under-funded pension schemes, retired partner annuities and guaranteed profit shares for underperforming partners. Financial instability, with the risks that a collapse entails for clients, was a disaster waiting to happen. The legal profession was far from perfect.
Outcomes-focused regulation (OFR) has done much to address the problems because the SRA investigates perceived risk areas and compliance officers have personal responsibility for implementing appropriate systems and reporting obligations. Firms now know that they cannot get away with anything.
For a boutique such as Maurice Turnor Gardner, OFR is not too burdensome now the systems are in place. But it was a struggle to get there, especially because the rules applied before standard IT packages became available and we had to follow the lengthy consultation documents and successive editions of the SRA Handbook by ourselves. Hopefully, it will be much easier for new firms in the future because numerous IT products and precedents, as well as external consultants, are available to provide support.
Monitoring is now relatively straightforward, on the basis of a simple compliance plan, supporting policies and processes and short monthly meetings of our small compliance team. Larger firms often had effective risk management processes and it was relatively easy to adapt their risk management systems to ensure compliance.
Compliance does, however, come at a cost, especially for complex and international firms. This is a result of compliance inflation setting in, with some officers for legal practice vying with one another to have more elaborate processes, even where there is little practical risk.
The SRA could do more to help firms avoid the need for disproportionate compliance costs. The recent red tape initiative hardly felt relevant to a small firm such as ours. The SRA's and Law Society's regular bulletins – especially on key areas of risk – are helpful but more is needed to reassure firms that the sky will not fall on their heads if something goes wrong because their compliance focus could have been improved with hindsight.
The SRA has said that it should not publish its perceptions of best practice, or indeed minimum acceptable safeguards, arguing that every firm is different and therefore needs a different approach. But firms would find the publication of the SRA's views on best practice – minimising the costs of compliance and common problem areas for other firms – enormously helpful. In the world of OFR, compliance officers should be sophisticated enough to understand that, in doing so, the SRA is not offering a carte blanche for all firms.
There is no SRA compliance 'helpline' and, while the Law Society Risk and Compliance Service's panel of experts will advise on specific issues, and stand behind that advice, it is much more difficult to obtain assurance about the firm's whole risk and compliance framework.
Many firms feel that the SRA's relationship management programme still needs work. It is a solid initiative in principle but, while early teething problems were understandable, firms are still experiencing frustrations.
Some causes of unhappiness cannot be addressed, such as personnel changes. But the SRA could better address the complaint that relationship managers do not adopt a risk-based outlook and are reluctant to engage in useful two-way dialogue.
Firms would welcome the opportunity to discuss compliance challenges with an informed SRA representative with whom they have a solid relationship.
Of course the effectiveness of OFR depends on firms actively embracing risk management as part of their DNA. There is a fear that some firms may even now be burying their heads in the sand, or actively working against the grain. The focus on high-impact firms is understandable, but most are well-run already. Is there a more cost-effective way to monitor them so that a Halliwells or Dewey can be spotted in advance without unnecessary intrusion into all firms?
The SRA's recent focus on financial stability is helpful, because this is a key performance indicator (KPI) and the information is – or should be – readily available. The same is true of other KPIs, such as staff turnover, breaches registers and complaints to the Legal Ombudsman being out of normal ranges, or failure to secure professional indemnity insurance. By narrowing the focus, the regulatory burden for well-run firms may be eased considerably.
Work is also needed to simplify and clarify the rules, especially in relation to the Legal Services Act. For example, anyone who has read the provisions of that Act, SRA Authorisation Rules and SRA Practice Framework Rules to establish whether an overseas law firm setting up a UK operation needs authorisation as an alternative business structure knows they often seem opaque, contradictory and repetitive.
Finally, it is important not to lose sight of society's wider needs. If greater flexibility in law firm structure leads to better quality, competition and value for money, all well and good. But if the new tiger firms scoop up all the profitable work, drive less efficient practices out of business and refuse to undertake less profitable and perhaps publicly funded work, who will ensure access to justice? Is anyone looking at that?
Richard Turnor is a partner and Corinne Staves is an associate at Maurice Turnor Gardner.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View All'Almost Impossible'?: Squire Challenge to Sanctions Spotlights Difficulty of Getting Off Administration's List
4 minute read'Never Been More Dynamic': US Law Firm Leaders Reflect on 2024 and Expectations Next Year
7 minute readTrending Stories
- 1Trailblazing Broward Judge Retires; Legacy Includes Bush v. Gore
- 2Federal Judge Named in Lawsuit Over Underage Drinking Party at His California Home
- 3'Almost an Arms Race': California Law Firms Scooped Up Lateral Talent by the Handful in 2024
- 4Pittsburgh Judge Rules Loan Company's Online Arbitration Agreement Unenforceable
- 5As a New Year Dawns, the Value of Florida’s Revised Mediation Laws Comes Into Greater Focus
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250