Strangely familiar: the old and the new combine in the recently approved handbook
The 2019 SRA handbook takes us further down the road opened by its predecessor, but there are also new markers you need to prepare for, says Tracey Calvert
The SRA is a terrible timekeeper. When it launched its regulatory review, we were told that it would all be done and dusted by 2017. By now, the SRA Handbook 2011 would be a distant memory and we would all be working with a more appropriate, shorter, regulatory toolkit. Well that didn’t happen and the regulatory package was not approved by the Legal Services Board until last November with an implementation date between April and July 2019.
So, finally, we are on the cusp of the much-anticipated changes and you might already be reading copious amounts of commentary about the new handbook. More is to come, including some imminent guidance, but for the time being, I would like to offer some initial thoughts about the changed regulatory regime.
NEW SOLICITOR BREEDS
The headlines are quite unsettling. We will be joined by freelance solicitors and solicitors providing legal services to the public from unauthorised businesses. You might be contemplating this style of practice yourself in which event I’d suggest that you are very familiar with the exact detail of what you can and can’t do when providing services in this way and your personal responsibilities. Insurance, client money and undertakings would be my starting point.
If you provide your services from within an authorised structure, it is prudent to be aware of these radical developments and understand how they might have an impact on you. What do you need to know about these styles of practice? What safeguards will you be putting in place to ensure that you safeguard your client’s interests?
Away from the headlines, don’t forget there are more changes which must be accommodated if you want to continue to have a good relationship with the regulator.
The principles remain but in an amended form. They are reduced in quantity from the current ten down to seven. Those that have been removed, have not disappeared com- pletely and are now included elsewhere in the handbook.
This is an indication of the key messages which the SRA needs to deliver not only to us, but also to all those external stakeholders who watch them and watch us. In 2011 it was important to emphasise the transparency of the relationship between the SRA and those it regulated. We also needed to be clear about the importance of internal management. These messages were delivered in the overarching principles.
For example, my personal ‘go to’ principle, the principle I describe as the compliance practitioner’s friend, is principle 8. This demands proper governance and risk management in law firms and was quite striking when it was introduced. Why were entities described as businesses? What was proper governance? What risks were we expected to manage? It was all tied up with the new style of risk-based regulation.
This principle has not survived the cull, although the same expectations are found in other areas of the handbook. Internal governance remains an important regulatory expectation but maybe the message is better understood now than it was in 2011. We now know how to manage the risks of providing regulated services.
The new suite of principles are used in a more traditional, core values, way to set markers about professional duties. We have a new principle – a duty to act with honesty – and this sits alongside but separate from the familiar duty to act with integrity. The SRA says this is so each behaviour can be considered separately.
So what’s the difference between honesty and integrity? Can you be honest and lack integrity or dishonest but still have integrity? No doubt SRA and SDT disciplinary decision-making will develop our understanding of these points in due course. In the meantime, I’m reminded of my favourite ethics quotes of 2018, by Lord Justice Jackson in Wingate and Evans. “Honesty is a basic moral quality which is expected of all members of society”, he said, while integrity was “a useful shorthand to express the higher standards which society expects from professional persons and which the professions expect from their own members”.
We also now have not one but two new codes of conduct. The first code is the personal property of solicitors, RELS and RFLs; they are bound by it wherever and however they practice and it sets out the personal standards which they must meet.
Two highlights which stand out to me as being noteworthy:
1. You (the solicitor etc.) – must identify your client and you must think about the appropriateness of the instructions you receive from them and from third parties. I welcome this clarity. Too often, I see lack of evidence on le audits and from discussions with lawyers, that they have actually considered who their client is and why they are acting on instructions. This worries me. Sometimes, and I am not saying this with any flippancy intended, it is hard to establish the identity of your client. I welcome the regulatory expectation that we will do this. In compliance terms, I would like to see firms asking their fee earners to confirm as part of their file-opening risk assessment that these questions – and all ancillary points such as vulnerability, capacity, duress etc. – have been considered.
2. I also see a clearer emphasis on personal responsibility so that you, the solicitor, remain accountable for the work of all those you supervise and manage. There’s a sting in the tail with this duty; supervision and management are not defined terms. It would be foolish not to consider all the relationships you have where you have the ability to influence, or you have some role in the work of your colleagues.
My prediction for SDT decision-making in the immediate future is that there will be a heightened scrutiny of e ective supervision and disciplinary censure of those who fail to supervise, and manage, their colleagues in a way that is compassionate but decisive, open but responsible.
The second code has a wider audience as it is dealing with regulation, compliance and ethics in authorised firms. It applies to solicitors working in these entities, plus all managers, compliance officers and employees. Again it sets out the professional standards for everyone employed in the business. There are language variations, but no changes in substance to our core ethical behaviours. We still need to consider conflicts of interest, duties of confidentiality, the need to monitor referral arrangements for ethical and legal suitability etc.
Compliance officers remain with their recording and reporting duties. Now, however, reporting refers to serious breaches rather than material breaches. In truth, I feel that this is largely a linguistic change and your COLP and COFA will still be making the same judgement calls.
And then we have the new, short accounts rules. These had a starring role in the earlier parts of the consultation process, but the SRA has ditched some of their more controversial ideas. Instead, the final version is a new set of rules which have been designed with the brief that they need to meet the demands of 21st century practice. Precise time-keeping has been replaced with the need to be prompt; you must pay client money into client account promptly and you must account to the client promptly. There are new de finitions of client money and disbursements.
So, the time for change is upon us. What steps should you be taking now? I’d suggest that the compliance officers and compliance professionals should be taking the lead in educating their colleagues about the changes. At the very least the language of internal systems and processes needs to be modernised. But the work should be deeper than this. My action points would be a baseline assessment of the old and new handbooks; a briefing note to the decision-makers; the rewrite of policies as necessary and then delivering the change messages to relevant colleagues.
Tracey Calvert is a consultant at Oakalls Consultancy Limited