Compliance and the successful freelance solicitor

T he much-heralded new freedoms in practising rights are in operation with the recent launch of the Solicitors Regulation Authority (SRA) Standards and Regulations (STARs). We are now living and working in the era of freelance – or independent – solicitors. This entitles the individual to disregard the SRA’s rules on authorisation of firms and its code of conduct for firms, so there’s no need to obtain authorised status or install compliance officers. Despite these liberating features, no one should conclude that this means light touch regulation or a compliance-light way of practising. The freelance style of practice is not without regulatory and compliance considerations. Freelance solicitors must be confident they can comply with paragraph 7.2 of the SRA Code of Conduct for Solicitors and can justify decisions and actions to demonstrate compliance with their regulatory obligations. So, what must be taken into account when considering a freelance legal career? TO BE OR NOT TO BE AUTHORISED? There is a fundamental restriction in respect of the provision of reserved legal services (broadly, conveyancing, probate and litigation). Freelancers can provide these services only if they have been practising for at least three years. Authorisation is the alternative, but a sole practitioner might still be unable to provide these activities because an authorised body (such as a recognised sole practice) must still have at least one lawyer who has practised as such for a minimum of three years and supervises the work that is undertaken. Other restrictions which might rule out freelance status include: — If you want to practice with a trading name or through a service company or with employees. — If you want to provide claims management or regulated financial services, as the need for authorisation must be considered. In the absence of SRA authorisation, it will be necessary to seek authorisation from the Financial Conduct Authority (FCA) to provide both claims management and financial services. While the first option will be an obvious consideration, the provision of financial services could catch more people out as it is more likely these services will be incidental in nature. Bear in mind solicitors are entitled to provide exempt regulated services without being directly authorised by the FCA only where they can comply with the SRA’s financial services rules. A condition of these is that they only apply to SRA-authorised entities. — If you want to provide immigration services, you must consult the SRA about the authorisation requirements and the overlap with the requirements of the Office of the Immigration Services Commissioner. REGULATORY CONDITIONS — You must have a UK practising address. This is a matter of public record so are you willing to have your home address published if it’s also your practice address? — Are you happy to practise in an unlimited style (ie not as a company or similar)? — Can you obtain the correct level of indemnity insurance? You are obliged to arrange ‘adequate and appropriate cover’ for the services you provide so are you confident your cover will sufficiently protect you and your clients? The SRA principles will apply to you both in your professional and private life. The regulator says these are “fundamental tenets of ethical behaviour” and nothing must fetter your ability to comply with them. Have you considered whether anything about your practice choices will create a tension with compliance? The SRA solicitors’ code of conduct will apply to you, so you must meet the ethical behaviours that will apply to your professional dealings with clients and others. For example, do you understand your personal responsibilities when giving an undertaking? Do you take steps to ensure you have identified your clients and are confident you are acting on properly given instructions? Do you understand the difference between conflicts of interest and the conflict between confidentiality and disclosure duties? Do you give clients clear information? Do you inform clients about your status and their regulatory protections? Remember the need to maintain your personal competency. This extends beyond your legal knowledge to professional judgement, ethics, regulatory knowledge and other skills which are all needed to demonstrate that you are a trusted adviser. Have you considered how you will maintain your competency levels? The SRA Transparency Rules also apply. Are you providing the types of services that generate the need to deal with price and service information and, in any event, noted the need to publish complaints information (which applies to everyone)? HOLDING CLIENT MONEY? The SRA’s regulations on authorisation of individuals apply and place restrictions on freelancers holding client money. You are entitled to hold client money only on account of costs and disbursements that you have not yet billed; and only if the latter relates to costs and expenses incurred on the client’s behalf and for which you are liable and have given the client advance notification about how it will be held. You are prohibited from holding any other type of client money and this will require preplanning because of the practical consequences of such a restriction. You would be able to make arrangements to hold such funds in a third-party managed account in compliance with the Accounts Rules 2019 – with appropriate information provided to the client. MANAGING THE RISKS Will you able to manage your risks appropriately? The SRA is a risk-based regulator: it prioritises its work and resources to deal with major threats to the collective professional reputation and is entitled to challenge any individual solicitor as to how they manage their risk profile. Fortunately, the regulator provides copious resources to support our understanding of this topic. COMPLIANCE CONSIDERATIONS? The SRA expects you to comply with the law and there will be regulatory repercussions if you fail to do so. Only you will know which legislation is relevant to your specific circumstances, but everyone must consider equality and diversity, data protection and financial services law, as well as all legislative requirements relating to money laundering, terrorist financing, criminal finances and so on. An important decision is whether you’re obliged to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the money laundering regulations). If you are, bear in mind the need to seek the SRA’s approval for your role as beneficial owner of your practice. Also, the money laundering regulations require management of risk and the keeping of records and similar; and all solicitors are subject to SRA oversight and supervision in respect of this. CAN YOU DEMONSTRATE COMPLIANCE? Solicitors who have recently worked in authorised firms will be familiar with the development of compliance systems in the SRA regulatory era. Internal governance is required and this must be effective and appropriate for the specific environment. The SRA Code of Conduct for Firms contains copious mandatory requirements about compliance and business systems. Though the code for firms does not apply to freelancers, the SRA still expects effective compliance evidence. This means systems must be adopted and consistency achieved so that the SRA can be satisfied you’re managing the risks of operating in this format and able to deliver a good quality, ethical legal service. To be a successful freelance solicitor, you must have an understanding of what must be in place to facilitate a constructive relationship with the regulator. To that end, consider the following: — Are you confident you have met all the conditions? — Have you thought about how you will demonstrate compliance with personal duties? — Are you satisfied you will be able to demonstrate the characteristics of a trusted adviser? These are changing times and the ability to practice in freelance form is innovative and exciting. Do you understand the difference between conflicts of interest and the conflict between confidentiality and disclosure duties? Do you give clients clear information? Do you inform clients about your status and their regulatory protections? Remember the need to maintain your personal competency. This extends beyond your legal knowledge to professional judgement, ethics, regulatory knowledge and other skills which are all needed to demonstrate that you are a trusted adviser. Have you considered how you will maintain your competency levels? The SRA Transparency Rules also apply. Are you providing the types of services that generate the need to deal with price and service information and, in any event, noted the need to publish complaints information (which applies to everyone)? HOLDING CLIENT MONEY? The SRA’s regulations on authorisation of individuals apply and place restrictions on freelancers holding client money. You are entitled to hold client money only on account of costs and disbursements that you have not yet billed; and only if the latter relates to costs and expenses incurred on the client’s behalf and for which you are liable and have given the client advance notification about how it will be held. You are prohibited from holding any other type of client money and this will require preplanning because of the practical consequences of such a restriction. You would be able to make arrangements to hold such funds in a third-party managed account in compliance with the Accounts Rules 2019 – with appropriate information provided to the client. MANAGING THE RISKS Will you able to manage your risks appropriately? The SRA is a risk-based regulator: it prioritises its work and resources to deal with major threats to the collective professional reputation and is entitled to challenge any individual solicitor as to how they manage their risk profile. Fortunately, the regulator provides copious resources to support our understanding of this topic. COMPLIANCE CONSIDERATIONS? The SRA expects you to comply with the law and there will be regulatory repercussions if you fail to do so. Only you will know which legislation is relevant to your specific circumstances, but everyone must consider equality and diversity, data protection and financial services law, as well as all legislative requirements relating to money laundering, terrorist financing, criminal finances and so on. An important decision is whether you’re obliged to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the money laundering regulations). If you are, bear in mind the need to seek the SRA’s approval for your role as beneficial owner of your practice. Also, the money laundering regulations require management of risk and the keeping of records and similar; and all solicitors are subject to SRA oversight and supervision in respect of this. CAN YOU DEMONSTRATE COMPLIANCE? Solicitors who have recently worked in authorised firms will be familiar with the development of compliance systems in the SRA regulatory era. Internal governance is required and this must be effective and appropriate for the specific environment. The SRA Code of Conduct for Firms contains copious mandatory requirements about compliance and business systems. Though the code for firms does not apply to freelancers, the SRA still expects effective compliance evidence. This means systems must be adopted and consistency achieved so that the SRA can be satisfied you’re managing the risks of operating in this format and able to deliver a good quality, ethical legal service. To be a successful freelance solicitor, you must have an understanding of what must be in place to facilitate a constructive relationship with the regulator. To that end, consider the following: — Are you confident you have met all the conditions? — Have you thought about how you will demonstrate compliance with personal duties? — Are you satisfied you will be able to demonstrate the characteristics of a trusted adviser? These are changing times and the ability to practice in freelance form is innovative and exciting.

Tracey Calvert is a consultant at Oakalls Consultancy Limited oakallsconsultancy.co.uk