The long road
UK law firms should be focusing more on risk-based systems, says Partner Frank Maher of Legal Risk
UK-based law firms of all sizes will have a lot to do between now and the proposed implementation date of 6 October 2011 to prepare for the new outcomes-focused regulation.
A key point in the UK Solicitors Regulation Authority’s (SRA’s) proposals for the risk-based regulation is the enhanced requirement for business management, which will present new challenges for all firms. Much of the comment in the SRA’s roadshows has focused on the need to reduce the number of firms failing.
Since then, it has become painfully apparent that even the largest national firms can fail too, and we can expect that the SRA will be considering how it should monitor larger firms in particular. However, many will doubt whether the SRA can acquire the competence to do so, as this is far outside the traditional role of the legal profession’s regulator in any jurisdiction, not just in the UK.
The SRA’s Authorisation Rules require firms to have a compliance officer for legal practice (CoLP) and compliance officer for finance and administration. Larger firms will need to consider whether the CoLP role will be fulfilled by a member of the risk and compliance team or the managing partner or another senior partner/manager.
Principal 8 in the draft code of conduct requires that you “run your business/carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles”. This is mandatory, and is elevated to the status of the current overarching core principles in Rule 1 of the Solicitors’ Code of Conduct 2007.
The mandatory outcomes in chapter 7 of the draft code (‘management of your business’) set out more detailed requirements, including a “clear and effective governance structure and reporting lines” and “appropriate systems and controls for compliance with the handbook”. Of concern to international firms, these provisions also apply to overseas practices, though they appear not to reflect the realities of the structures of such firms.
Systems and controls are also required for monitoring the financial stability of your practice. Perhaps in the current economic climate one should warn against high borrowings, particularly to pay drawings. Note too that indicative behaviours in chapter 10 (‘you and your regulator’) require actively monitoring your financial stability.
Finally, the requirement to “identify, monitor and manage risks to the achievement of all outcomes, rules, principles and other requirements in the handbook... and take steps to address issues identified” will mean that, in practice, firms will need a risk register which helps them track compliance with every provision of the handbook (not just the code).
frank.maher@legalrisk.co.uk