SRA outlines firm governance arrangements

The Solicitors Regulation Authority (SRA) has announced a strategic approach towards improving firm governance arrangements in a bid to safeguard consumers from potential harm. The regulator's commitment to mitigating risks within the legal sector remains paramount, and it has pledged to take decisive action when risks are identified. The SRA's recent initiatives reflect a broader commitment to ensuring that compliance officers are equipped to manage the significant power that certain individuals hold within law firms.

As part of a wider monitoring strategy, the SRA has introduced new methodologies to comprehend and manage risks within the legal sector. By enhancing engagement with firms, the SRA aims to develop ongoing monitoring strategies and, when warranted, impose corrective measures to address risks that could potentially harm consumers. Emphasising the importance of appropriate governance, the SRA is keen to ensure that compliance functions possess the independence necessary to operate effectively.

In response to feedback received from stakeholders, the SRA has temporarily paused the implementation of new rules that would have mandated the separation of compliance and unilateral roles within firms. This decision aims to prevent unintended negative consequences for smaller firms and sole practices. Aileen Armstrong, Executive Director of Strategy and Policy, stated that "As the regulator, we are committed to acting decisively where consumers are being placed at potential risk of harm." This pause will facilitate further discussions with stakeholders in order to explore alternatives and better understand the implications of governance arrangements within regulated firms.

Law Society of England and Wales president, Brett Dixon, said: “We are pleased to see the SRA has listened to the serious concerns raised by the Law Society and our members about its compliance officer measures and committed to take action to address them. We welcome the commitment to establishing working groups which must have representation from those businesses and practitioners most affected. 

“The regulator is right to take these measures off the table to allow time to review the impact of the current proposals and make appropriate changes to ensure a risk-based approach is taken which draws on reliable data and evidence. It’s vital that any new measures reflect operational realities for law firms and solicitors, while also protecting consumers.”

The SRA plans to utilise this period to engage in meaningful conversations with industry stakeholders, as insights gained will likely inform the next steps in regulatory requirements. Armstrong noted, "Already we have had productive conversations with stakeholders and will have even more moving forward." By thoughtfully considering these aspects, the SRA is committed to ensuring that the legal sector operates under governance structures that effectively protect consumers while allowing firms to function optimally. Once a comprehensive review is completed, the SRA will provide appropriate lead-in time for firms to adjust to any new changes.