It's all in the STARs
The SRA Standards and Regulations have arrived and solicitors and firms must be able to justify their decisions if they want to demonstrate compliance, says Tracey Calvert
On 25 November 2019, the Solicitors Regulation Authority (SRA) Handbook will be thrown into the metaphorical bin and the SRA Standards and Regulations (STARs) unwrapped and put on lawyers’ bookshelves.
The profession has had ample advance warning of the change, so it’s unlikely there will be a honeymoon period during which we’ll be allowed to become comfortable with the new requirements. So are you ready?
Many firms have already considered what’s needed for a smooth transition to the replacement toolkit, but if you haven’t, there’s no need to panic as there is still time to plan and implement changes.
There’s comfort in the knowledge that we’re dealing mainly with evolution rather than revolution, so much of what’s needed to hit the ground running is adaptation rather than overhaul. There are various steps compliance professionals can consider taking to ensure they are compliant, including:
1. Read the STARs
This may be obvious, but without reading the raw materials it will be difficult to identify how you will be affected by the changes and whether you want to choose to make changes to your current methodologies.
The SRA describes the STARs as “the standards and requirements we expect our regulated community to achieve and observe, for the benefit of the clients they serve and in the public interest”.
Firms must evaluate who is affected (if at all) by each section and whether it’s necessary to change systems and processes to demonstrate compliance. Don’t miss the significance of the introduction to the new Code of Conduct for Firms which says the standards and business controls which follow “aim to create and maintain the right culture and environment for the delivery of competent and ethical legal services to clients”.
With this in mind, standard 4.3 is self-explanatory: “You ensure that your managers and employees are competent to carry out their role and keep their professional knowledge and skills, as well as understanding of their legal, ethical and regulatory obligations, up to date.”
Demonstrating compliance is essential, not only because the standards expect it but because it will improve regulatory interaction on a practical level. Reading the materials will assist with formulating vital compliance answers where your thinking must be demonstrated, for example:
- Which parts of the materials are relevant to the firm and why;
- Which requirements should be internalised with systems and controls;
- Which parts we can safely ignore and why do we believe this to be the case.
2. Further regulatory guidance
The SRA’s handbook was a long read and offered more non-mandatory guidance than the STARs; and while we often disliked the indicative behaviours, at least they sat with the outcomes they were designed to support.
This made interpretation less complicated. However, the STARs contain the barebones of the requirements. Guidance and commentary are located alongside rather than within the text. Extra care will be required to ensure the complete regulatory picture is harvested and used for an appropriate firmwide and individual compliance response.
We already have a glut of guidance notes supplementing our understanding of the new rulebook, and these should be read. Worryingly, we already have one corrective note about what is meant by new phrases and language.
Anyone concerned about the new and seemingly more onerous conditions attached to the operation of a client’s own account must know that this regulatory stance has been softened by the SRA’s publication of a statement of its position regarding firms operating a client’s own account. The regulator suggests we need not strictly comply with all regulatory requirements in rule 10.1 of the SRA Accounts Rules 2019 if we can comply with alternative expectations. Given some of the more unusual expressions and nuances of the STARs, it’s probable more statements will follow.
3. Read the SRA enforcement strategy
This explains when and why the SRA will take action against firms and individuals. It is invaluable as a way of managing risk priorities internally and ensuring correct messages are delivered to colleagues.
The supporting topic guides are good indicators of the regulator’s 24/7 interest in us with steers about criminal convictions and social media misuse. This is particularly relevant to your firm’s response to sections 2 and 3 of the code for firms which describes standards connected with compliance and business systems, and cooperation and accountability.
4. Brief the leadership
Standard 8.1 of the code for firms is blunt and unambiguous: “If you are a manager, you are responsible for compliance by your firm with this Code. This responsibility is joint and several if you share management responsibility with other managers of the firm”. Rule 1.2 in the accounts rules continues this thinking.
‘Manager’ is defined as the sole principal, member of a limited liability partnership (LLP), director of a company or partner in a partnership.
The application of responsibility means the owners of the business should be briefed so they’re aware of the regulatory expectations of them, the appropriate response given their seniority, and the conversations the SRA is entitled to have with them.
5. Update current documentation
Having read these materials, the impact on the firm and its individuals will be clearer. It appears that many firms have no cause to make sweeping changes, but every firm will need to look at the wording of internal systems and controls and at least update the referencing and language to fit the language of the new materials.
6. Special projects – client concerns and supervision skills
Those with the resources to develop their compliance response might want to consider two particular topics.
There are many standards and rules specifically dealing with our relationship with clients. Using the references from the code for solicitors (mirrored in the code for firms), consider how you would collect evidence to demonstrate the following:
- We understand who our client is.
- Instructions from a third party are properly authorised.
- We have the skills and resources to provide an appropriate level of service.
- We have considered the needs of the client.
- We are confident the person is who they say they are.
- We have managed the client’s expectations about what we will do, and sometimes more importantly, what we won’t do for them.
- The costs will not be a surprise.
- We have scoped the retainer clearly and thoroughly. Standards 3.5 and 3.6 of the code for solicitors are aimed at individual lawyers supervising others providing legal services or managing others.
Think about these potential pitfalls:
- Would the personal obligations be a surprise to the supervisor or manager?
- Do they even know they are such a role holder?
- Does the role holder have the competence to fulfil their regulatory duties?
- How does the firm support the achievement of effective supervision and ongoing awareness of individual competence?
7. Devise a training programme
Ensure all colleagues are aware the SRA handbook has been replaced with the STARs. The internal messages can focus on the compliance team’s help, and that there are clear expectations of each individual – whether a manager, supervisor, fee-earner or support staff.
Individuals and the firm must justify decisions to demonstrate compliance, so consider internal expectations. It might be attendance notes on the file, or an awareness of how risky decisions should be documented. How will these requirements be monitored for effectiveness and for adherence to the internal requirements?
It’s reassuring that the changes are, for the most part, developing a style launched to coincide with the emergence of the SRA as our oversight body.
The STARs ensure the compliance response becomes a team effort between compliance professionals and their colleagues, with a reminder that personal ethical behaviour remains the starting point for delivering good quality legal services.
Tracey Calvert is a consultant at Oakalls Consultancy Ltd oakallsconsultancy.co.uk