In part one of this blog, I set out what the Solicitors Regulation Authority (SRA) says it is concentrating on as ‘priority risks’, and some others that they have missed.
These are the ‘imminent threats’ to the profession and the users of legal services, and it is absolutely right for the SRA to focus on them.
However, instead of these priority risks, here is what you are likely to hear most about this year:
The SRA is intent on getting the rulebook down to a skeleton document. OFR 2.0 if you will. It is taking principles-based regulation to its natural conclusion.
Now, there is nothing wrong with that, per se. Most lawyers would prefer fewer rules so long as it does not create uncertainty and confusion. We are promised lots of new guidance, which would be welcomed. (Personally, I still carry copies of the 1999 and 2007 Codes as a bit of a crutch.)
It won’t stop at the code of conduct of course. The accounts rules are being ‘simplified’, although as has been pointed out, the transition to a new set of bookkeeping rules across 10,000 firms is anything but simple.
And the Handbook also contains all the other regulatory rules and procedures that most of us rarely ever encounter (authorisation, enforcement, insurance, financial services, etc). These are all on the radar for major overhaul, all in the name of getting the Handbook into a pocket-sized version. Expect lots of consultations this year.
But step back for one second. Is any of this necessary? And is it a sensible use of regulatory resource?
The current Handbook is barely five years old. Granted, it is too long. It is poorly drafted in parts. And it always looked like an unfinished, rushed job. In an ideal world, we would have the perfect Handbook. Fifty pages long, full of clarity and guidance and witty side notes.
But does anyone expect that is what we will end up with? The consultation process will be long and inevitably a compromise. I suspect that the new rules will be thoroughly underwhelming and not much different to those currently in force.
Given the very real commercial and professional pressures currently faced by legal professionals and the rule of law, is now the right time to be tinkering with the presentation of rules?
I would argue that the profession and its regulators have much more important things on their plate.
The SRA is about to make a change to the regulation of solicitors that is potentially more impactful than the introduction of alternative business structures. If it gets its way, solicitors will be able to practise as solicitors (i.e. providing services to the public) in unregulated businesses, so long as they do not provide any of the narrowly defined reserved activities.
That means, for example, anybody will be able to set up an unregulated practice and offer general legal advice provided by solicitors. Without minimum terms insurance, legal privilege, a compensation fund, etc.
Yes, this will provide commercial opportunities. However, this is a legal regulator proposing to prop up the unregulated sector, potentially to the detriment of the public. Barmy.
Solicitors Qualifying Examination
The route to qualification as a solicitor is important, of course. And the current system is almost certainly less than perfect. But the legal education and training reform process has already taken up a huge amount of time and resource.
The result? Proposals from the SRA for a central assessment that appeals to no-one. It will continue to be a battleground, and no doubt the regulator will end up telling us why they were right in the first place.
The Competition and Markets Authority (CMA) published its final report on the legal services market in December 2016. There are several recommendations that the regulators have been directed to address. Of the stand-out recommendations, we have the transparency issue.
The CMA concluded that the legal market is not working, largely because individuals and small businesses do not have enough information to make informed choices. The report recommends regulators take steps to improve information available about price, service and quality.
This was jumped upon by our regulators. We now have the CMA, SRA and Legal Services Board all determined to make law firms more ‘transparent’. Which means what, exactly? Collecting more data on price, complaints, and other metrics (insurance claims?). Then publishing that data through (unaccountable, commercial) comparison sites and directories.
There are several concerns about this as a direction of travel. For instance, it will no doubt cannibalise some of law firms’ own marketing efforts. Yes, that’s right – your regulator wants to hand over hugely valuable marketing data to middlemen, who will then compete with you for potential clients. And they will then undoubtedly take a slice of every client they send your way.
The kicker is that the burden will be on law firms to collect the additional data. There will be punishments for those who do not comply. This will take up valuable time. There will always be the suspicion that some firms are gaming the system, massaging the figures to gain competitive advantage. That will present its own pressures and anxieties.
And this is all on the assumption that (a) you can in fact ever give meaningful information to prospective clients, and (b) it is going to make a blind bit of difference to their purchasing behaviour. Law, after all, is not a commodity purchase.
Let’s just hope this infatuation with market interference and comparison sites will not have unforeseen consequences for our legal system.
Regardless of what we may think of this agenda, the SRA will spend a lot of time and effort selling it to the profession (and anyone else that will listen).
Independence from the Law Society
This is going to become increasingly bitter. The SRA, bolstered by support from the Legal Services Board, wants to be fully independent of the Law Society. The Law Society is unsurprisingly clinging onto its guaranteed income (roughly £35m per year from your practising fees).
Neither side will back down – there is too much at stake for the senior figures. It will take up a lot of their energy and focus. Whichever way it goes, it will not address any of the priority risks.
The SRA is going to continue its fight to make it easier to come down hard on regulatory offenders. It will push to increase its fining powers above £2,000 without a referral to the Solicitors Disciplinary Tribunal. It will also lobby for a change in the burden of proof at the tribunal, from criminal to civil, to make prosecutions easier.
I must admit to not having a great insight into disciplinary matters. But unless the current system is broken and desperately weighted against ‘the prosecution’, this seems to be an area of regulation that does not need fixing. The bad apples do get struck off when they are caught – as Legal Futures regularly reports.
The Risk Outlook is a good start and should form part of every firm’s compliance planning.
Don’t forget to include the glaringly obvious omissions to the Risk Outlook, and add your own firm-specific risks to your risk register.
The SRA will continue to largely ignore the priority risks it has identified, and will instead focus on other reforms and agendas.