SRA: back to basics

The shift in legal services to ‘outcomes-focused regulation’ in October 2011 was heralded as the most fundamental change to the way in which lawyers were policed since the first rule book was drawn up.

Many solicitors, however, are still struggling to come to terms with its practical implications. You might expect the SRA would concentrate on getting the detail right, evangelise about it and make sure that firms understood what they should be doing. Actually, no.

The regulator recently announced no fewer than
four new consultations: on indemnity insurance, the compensation fund,
multidisciplinary practice and accounting requirements.

Those fascinated by such a barrage of words were further encouraged by the news
that there would be more consultations later this year, on subjects such as reducing the regulatory burden on small firms, the separate business rule and regulating in-house solicitors.

New SRA chief executive
Paul Philip has indicated that
he wants a new “back to basics” approach for the regulator. He believes the existing rules “still err too much on the side of caution” and that clear regulatory philosophy
was needed to ensure that proposals were coherent.

The already weary cohort
of COLPs and COFAs may be excused for wondering where they might find the time to get
to grips with all of this. Since the new SRA handbook became fact in 2011, there have been no fewer than eight further versions.

However, the latest consultations promise further fundamental changes. The proposed changes to accounting requirements, for instance, would probably see an end to the well-established ‘reporting accountant’ regime, to be replaced by an extra burden of responsibility on the COFA.

There will be unhappy accountants, who stand to lose significant income, but the proposal will probably get a positive response from solicitors. The SRA sees little regulatory risk value in the reporting accountant function and has been looking at abandoning it for a number
of years.

Other proposals in the
recent consultations are also significant. The SRA wants to reduce the level of minimum professional indemnity insurance to £500k and
reduce the run-off cover.

More controversially, it proposes to prevent mortgage lenders from claiming on solicitors’ PII. Law Society
chief executive Des Hudson
has already responded by
saying that this will “destroy high-street conveyancing”.

On multidisciplinary
practices, the SRA thinks that non-reserved legal activities within ABSs should be taken out of regulation. The regulator also believes all consumers of legal services might not need the same level of protection, and that some might not need protection at all. These are
not minor proposals.

Philip clearly does not see
any need for a period of calm in regulation. He seems to favour a philosophical review of why the SRA regulates, what impact it is having on solicitors and whether it listens enough. There is criticism, in his words, of “piecemeal changes” from the SRA and the still “ridiculously long” 650-page handbook.

For the time being, the regulator’s new executive director of policy, Crispin Passmore, appears to be driving the agenda. He joined the
SRA from the Legal Services Board and, unsurprisingly, his agenda is similar to that which the board has been pursuing
for several years.

The LSB has been critical of the SRA for not moving quickly enough, being resistant to change and, on ABSs, being obstructive to multidisciplinary practices. In the longer term, Philip seems to have something even more far-reaching in mind.

Most lawyers accept constant change is an inevitable part of their working lives and that regulation is no exception. Nevertheless, there is a limit
to how much change can be sensibly absorbed.

It is difficult to accept that outcomes-focused regulation
is already in need of substantial reform. The implication is that
at least some of the reform was misconceived and that we cannot wait for a pattern of empirical evidence to emerge before condemning it.

I suspect that the SRA and
LSB would both rather say that the 2011 reforms didn’t go far enough, which is now being
put right. Solicitors might be forgiven for thinking that they deserve better. SJ

Stuart Bushell is managing director of SIFA