12 April 2012

Firms “need to develop” whistleblowing and client account interest policies

Law firms need to establish policies on whistleblowing and the interest they pay to clients, according to a leading regulatory solicitor.

Listing the top five issues he has found troubling firms, Tony Guise of London firm Guise Solicitors said the others are preparation of a business plan, compliance with provisions on outsourcing, and selecting compliance officers for legal practice (COLP) and for finance and administration (COFA).

Outcome 10.4 of the SRA Handbook requires those regulated by the Solicitors Regulation Authority to report serious misconduct, supplemented by indicative behavior (IB) 10.10, which states that having a whistleblowing policy may tend to show that the firm has complied.

Mr Guise said: “You should therefore develop such a policy which explains the process which a person within the firm should go through if they encounter misconduct either within or outside of the firm. In both situations this should includes clear reporting lines and the people responsible within the firm for reporting to the SRA.”

The Solicitors Accounts Rules now give firms a large degree of flexibility when deciding on what interest will be payable to clients on money held in client accounts, including agreeing that clients will contract out of the provisions.

Mr Guise advised: “When contracting out, the client must give informed consent and therefore all relevant information must be made available to them at the outset to enable them to do so. The policy should therefore be included in your firm’s terms of business and any existing clients will require a letter explaining the policy and requesting their agreement. The policy should also be included in your firm’s office manual.”

Mr Guise said the SRA will expect firms to plan well in advance if they are considering any change to the structure and to have a business plan in place which shows that they have considered and regularly review the financial viability of the firm.

“The new approach enables the SRA to concentrate its resources on business models that rely too heavily on, for example, introducers of large volumes of work, or on models that have a slim profit margin, potentially endangering the business viability of the regulated entity. It will also be necessary to review your business plan periodically to assess its effectiveness and consider possible changes.”

On outsourcing, Mr Guise said firms must also ensure that they make adequate arrangements with their outsourcing provider to give the SRA the same access to the information which they store regarding the firm as it would if the service was being provided by the firm itself.

On COLPs and COFAs, Mr Guise said that whilst it was previously understood that solicitors would be passported through the suitability test – including Criminal Records Bureau checks – the SRA has confirmed that this might not now happen.

He said: “This process may present issues for those solicitors who have not previously undergone the suitability test or its predecessors. This may pose particular issues for the smaller firm with more limited choice of candidates for the COLP and COFA roles.”

 

By Legal Futures

Tags: client account interest, COFA, COLP, compliance officer for finance and administration, compliance officer for legal practice, outsourcing, Solicitors Regulation Authority, SRA Handbook, whistleblowing