Since the introduction of the SRA Handbook, firms have been asking whether they should introduce or improve a file review system. Corinne Staves, a senior associate at Maurice Turnor Gardner LLP [1], considers the issues.
[2]
Unlike the Lexcel requirements, the SRA code does not contain a specific requirement of file reviews. However, the guidance to the Authorisation Rules (AR) makes clear that each firm needs to consider whether it has suitable arrangements to ensure compliance.
Suitability will depend on the firm’s size, nature and the risks associated with its work. The guidance suggests a number of approaches, including a system of file reviews (AR8 guidance (iii)).
Some firms are playing it safe by implementing a system of file reviews simply because this is suggested in the SRA Handbook, in case the SRA regards this as tantamount to an absolute requirement in practice. Others are confident that other arrangements are sufficient to ensure compliance and are better suited to their particular circumstances.
Should a firm have a system of file reviews?
As well as being a useful business tool, file reviews can help firms to meet a number of Handbook requirements, such as having effective systems and controls to achieve compliance (O(7.2)) and ensuring partners and staff comply with the Handbook (AR 8.2(a)(i)).
A system of file reviews can also reassure the compliance office for legal practice (COLP), who has to take all reasonable steps to ensure compliance (except under the SRA Accounts Rules), record failures to comply and report material failures to the SRA (AR 8.5(c)).
File reviews can:
- detect and deter inappropriate behaviour;
- support the learning and development of both reviewee and reviewer;
- embed the compliance culture throughout the firm, particularly if good compliance behaviour is discussed and praised (or even rewarded) during annual appraisals; and
- provide the opportunity to identify areas for an individual’s development and mitigate risks associated with poor compliance behaviours.
What should file reviews cover?
File reviews can be used to check whether the firm’s internal systems and processes, which have been designed to ensure compliance with the SRA Handbook, are being followed, and to identify any shortfalls. Deterrence can be secured by choosing files both at random, and on the basis of particular indications of risk.
Reviews need not extend to double-checking the legal advice – it is not a substitute for proper supervision. However, if the reviewer has the relevant experience, they should be encouraged to highlight any legal issues identified.
The reviewer should check, for example, that:
- all necessary client-care information has been provided (including regular updates on likely costs);
- anti-money laundering procedures have been followed and recorded;
- arrangements have been made to ensure that key risks are managed and key deadlines met;
- work has been properly supervised by someone with appropriate experience, and external resources, like counsel, have been used where necessary or desirable; and
- the file has been progressed in a timely manner and properly maintained, including attendance notes of all meetings and calls, explanations of caveats or assumptions and discussions of risks to the client associated with the advice.
The reviewer needs to have the necessary experience to be able to assess these issues. Indeed, involving fee-earners in reviewing others’ files may teach them best practice.
Is there an alternative to file reviews?
Some firms, particularly large global firms, may consider that a formal system of file reviews is unnecessary. For example, if the firm’s work consists of complex, multi-jurisdictional and specialist transactions with teams of partners and senior fee-earners constantly accessing the central client file and delivering advice with oversight by a central relationship partner, a continuous file review may in effect be built into the conduct of the matter.
This may be sufficient to achieve the objectives outlined above, provided that this is combined with appropriate business acceptance, file-opening and client-care procedures. This approach may be more thorough and effective than a stand-alone file review process.
Whether a firm chooses to perform file reviews or not, the need for a systematic approach to compliance and risk management cannot be ignored. Any system must be proportionate, achieve the firm’s objectives and support the firm’s business.
Two possible file review approaches
Internal
- Each fee-earner reviews a specified number of files per year against a firm-wide file review checklist.
- Files allocated by the COLP (mix of random and risk-based selection of files for review, to ensure that each fee-earner has a specified number of files reviewed annually).
- Strict time-frames to mitigate loss of chargeable time.
- Reviewer submits bullet-point report in specified format to the COLP’s team, highlighting material issues. A whistle-blowing policy will be essential to ensure staff feel comfortable reporting issues.
- The COLP’s team reviews reports, prepares summary report identifying themes and action points (comparing these against previous years’ findings).
External
- The COLP’s team appoints an external reviewer/team. This might be a team from the firm’s internal auditor or former team-members (this could be a good opportunity for the firm to retain talented staff who want a change in their work-life balance, perhaps after retirement or following maternity leave).
- The COLP and reviewers agree scope of reviews (including a checklist).
- Files selected by reviewers on a random and risk basis following discussions with COLP.
- Reviewers report to the COLP and submit written report identifying themes and action points (comparing these against previous years’ findings)
Both
- The COLP reports to partners/board/SRA (if material or systemic issues identified) and seeks approval for action to address issues.
- The COLP updates risk register and provides relevant feedback to team-leaders for appraisals.