The new rules of the compliance game

When Antony Townsend started as chief executive of the newly established Solicitors Regulation Authority in 2007, he found an organisation creaking at the seams.

There were 10,000 solicitors on the regulatory database with a date of birth of 1 January 1990 because their records had been lost, no IT support team to speak of, and only one person in the whole of the UK qualified to deal with problems, he said last week at the SRA's COLP conference.

Much has changed since, both internally and externally. In the main, the regulatory arm of the profession seems a leaner, more focused organisation. Undoubtedly outcomes-focused regulation will be remembered as the defining moment of SRA Mark I, together with the policy realignment of divisions to spend more in policy and supervision, and less in interventions. This much was reasonably under control, even the teething problems of OFR.

What was not predictable was the extent to which the impending recession would shatter the profession and affect the regulator's plans. OFR was always going to be a challenge, but the scale of financial instability has gone to the regulator's core.

Its aspiration for a targeted, cost-efficient approach to regulation has been battered on all sides by the protracted downturn of the economy. By the first quarter of this year, it had already spent its annual intervention budget. And only last month, it issued further warnings that hundreds of firms could be in serious financial trouble.

OFR can help firms manage risks, but it cannot counter the sapping effect of the recession. In the current economic environment, it is less of a risk management tool and more of a damage-limitation framework. But the SRA cannot afford for OFR to fail. So to ease its own burden, it is already remodelling some of the key implementation features. There is no longer an obligation to report non-material breaches and it has not prescribed a mechanism for the annual reporting of material breaches. Which means firms will have to figure out what they deem to be a non-material breach, how they record it, at what point a pattern becomes a material breach - and develop its own recording and reporting systems.

However frustrating this may be, these are the new rules of the compliance game. '¨The best firms can do is to turn the problem around and think back to what compliance and ethics are about: managing risk and reducing complaints. The reason why you need to take this even more seriously now is that your new competitors have a head start in this respect. They are good at systems. They're also better at resolving complaints. And they don't really care about the solicitor badge as long as the public comes to them for legal services. In this new environment, complacency with compliance, at all levels, will be your worst enemy.

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