UK legal firms should treat regulator’s fining consultation as a wake-up call

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13 February 2014


Legal firms in England and Wales are awaiting the outcome of a consultation that could see their regulator gain more power over its fining capabilities. The Solicitor’s Regulation Authority (SRA) is proposing that it should be able to increase its fining powers to £100,000 for – among other reasons – consistency, fairness and prompter action on regulatory infringements – and it has huge implications for legal practitioners who are not paying enough attention to the regulator’s expectations, and those of their own clients.

It is a shot across the bows for those which are not up to speed with the SRA Code of Conduct 2011. Stephen Carris, Head of CPD Training at LBS Legal, specialists in legal business support who offer training, accreditation and support for solicitors, says that currently some are only paying lip service to the requirements of the 2011 Code and are unwittingly already vulnerable to attracting SRA investigations, actions which may lead to graver consequences for solicitors in breach if the regulator’s proposals are granted.

“This proposed increase of fines could easily and instantly destroy a law firm. They need to recognise this and act to protect themselves, through risk assessment, by meeting accreditation benchmarks, and by training staff on best practice so frameworks can be put into place and followed,” he says. “It can take only one small slip, one minor error of judgement, to bring a legal practice to its knees.”

The major issue, he says, is risk management, a protocol so important to the ongoing success of a law firm that he includes it in almost every training programme he delivers, from data protection to anti-money laundering. “Anecdotally, I’m aware that solicitors under-estimate threat and therefore don’t take the necessary steps to safeguard their businesses. Audits we conduct during the process of helping a practice become accredited, for example, have revealed worrying risk management issues.”

When risk management matters

Stephen cites business continuity plans as one cause for concern, with some law practices failing to carry out a risk assessment to address the absence of a key staff member. Take this scenario: the cashier for a sole practitioner becomes ill and has to take extended sick leave. With no contingency plan in place, the solicitor updates the book-keeping. Errors come to light and the practitioner is called to an SRA tribunal to account for not only the errors, but why a business continuity plan had not been put into place.

“Clearly, a risk assessment would have prompted planning for an unpredictable event like the sickness of a key member,” says Stephen. “The effects of being brought before a solicitor’s disciplinary tribunal can be catastrophic both in terms of financial cost and reputational damage, and with the potential to end their career if they are struck off.”

Other common threats include mistakes on cases that can be avoided if a risk management framework is put into place. In Stephen’s opinion, a risk assessment should be carried out on all cases.

“Fraudulent personal injury insurance claims, if not detected by the solicitor, can be detrimental, especially if they are high-value. It should be a matter of procedure to run simple checks on this type of claim to ensure they are legitimate and save time, money and spare the attention of the regulator. We uncover questionable, risky claims on a regular basis while conducting audits; rather us than the SRA.”

A case-by-case risk assessment will also reveal those which are beyond the expertise of the designated fee earners. One such example was revealed when LBS Legal was asked for advice when a case got out of hand. It had been allocated to a fee earner who was newly-qualified and a supervisor with no relevant experience. What began as a simple personal injury case was in fact a brain injury case – a highly sensitive and specialist area – with the complication that the claimant was probably not insured for that type of injury.

Stephen says: “Had they carried out the relevant risk assessment at the start of the matter, it would have highlighted these issues and they would’ve probably declined to take it on, having recognised the required specialist knowledge in this area. We were able to advise the practice what to do, though by this time they had already failed to meet their client’s expectations and a complaint was made to the Legal Ombudsman.”

The effects can be catastrophic

The Ministry of Justice has indicated it would be willing to sanction the move to bring the regulation of traditional firms and solicitors more in line with that of alternative business structures. The breach of the SRA’s code would still mean that the matter would go to tribunal, incurring more costs and perhaps further penalties.

How much of a fast-track fine could your legal practice stand? Currently the maximum fine for traditional firms and solicitors in England and Wales is £2,000 and potentially a referral to a disciplinary tribunal, which can impose unlimited fines. Is a fine of £100,000 the deterrent the SRA hopes it will be? And how much of a hit to reputation could you stand once the story hit the press, even if your case does not go to a tribunal?

Stephen concludes: “The thing is, if risk management is embedded into, the psyche of all staff and becomes integral to a company’s culture, if a proper structure is put in place, it becomes second nature rather than a time-consuming activity.  And it protects a company from fines and tribunals, and protects their reputation too.”



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