Ten years ago, very few large law firms needed external legal advice on dealing with their regulator. This was because the Solicitors Regulation Authority (SRA) would normally only take action against an individual within a firm rather than the firm itself. Since then, the SRA has increasingly used its powers to regulate entities and shown a much greater interest in how law firms are run. With that has come the era of big fines for firms that have breached the SRA’s Handbook.
While all large law firms will have experts in-house that deal with regulatory and risk issues, they are unlikely to have had extensive experience of the SRA’s investigation and enforcement procedures. In addition, external advisers can act as a sounding board on difficult issues, such as if, how and when to report a matter to the SRA.
On the SRA’s Hot List for 2019
The SRA has responded to the widespread reports of inappropriate behaviour within law firms by setting up a special team to manage these cases. The substantial increase in reporting to the SRA, coupled with their stated intention to enforce, has been a huge area of SRA activity in the last 18 months.
While often seen as part of the #MeToo movement, NDAs raise distinct issues for law firms. These are not about partner behaviours but are about ensuring the firm’s internal documents are ethical and that the teams which advise on NDAs understand the ethical aspects of the advice they give. This is also a topical area of SRA enforcement coupled with the warning notice issues by the SRA in Spring of last year.
The creation of the Office for Professional Body Anti-Money Laundering Supervision has placed pressure on the SRA to be more aggressive in its approach to enforcement of anti-money laundering procedures within firms. This is likely to be an area of growing enforcement by the SRA against firms for the foreseeable future.
‘Iain Miller has advised almost all the legal services regulators, advised firms and individual partners, and acted in relation to over 100 cases.’
Operating client account as a bank
The SRA has been keen to enforce the requirement under the Solicitors Accounts Rules (SARs) that money passing through a firm’s client account only relates to an underlying legal transaction. Rule 14.5 of the SARs (soon to be Rule 3.3 of the new SARs 2019) has caught many large firms out and remains an area where care needs to be taken.
At the end of 2018, the SRA implemented the Competition and Markets Authority’s recommendations that law firms should be required to publish costs information. While most firms have been reluctant adopters, those that have not fully implemented the scheme are likely to find that the SRA will become increasingly aggressive in its approach.
New SRA standards and regulations
On 25 November 2019, the SRA will adopt an entirely new regulatory framework. While many obligations will remain the same, it will mark a further step in the increasing focus on the regulation of law firms themselves, as opposed to the lawyers they employ, with a new code of conduct specifically for law firms. It will also introduce a new SRA Enforcement Strategy and reporting obligation.
Ethics and culture
One of the biggest challenges for law firms is going beyond systems and processes to embed an ethical culture within the firm as a whole. Many of the problems that arise come from a culture of non-compliance at a senior level, particularly in relation to issues as diverse as anti-money laundering and inappropriate conduct in the workplace.
Legal advice for the legal profession
Kingsley Napley’s regulatory team has developed and grown a specialist practice in advising law firms in response to this emerging area of work. It is led by Iain Miller, who for over 20 years was one of the SRA’s main external legal advisers and is one of the leading authorities on SRA regulation in the country. Over that time, he has advised almost all the legal services regulators, advised firms and individual partners, and acted in relation to over 100 cases, including some of the most serious, complex and high-profile solicitors’ disciplinary cases over the last two decades.
The team is able to provide practical and valuable insight as to how the SRA is likely to approach matters and seeks to engage with the SRA at the earliest possible stage to steer the matter to the best outcome.
‘The SRA said there has been a 70% jump in reports of cases of money laundering involving solicitors in a little more than a year.’ – Legal Futures, July 2018