City solicitors warn SRA that whistleblowing plan could undermine compliance officers

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25 February 2013

City: lawyers call for more comprehensive policy and guidance on reporting

City solicitors have called for clarity from the Solicitors Regulation Authority (SRA) over the reporting of rule breaches and misconduct, while arguing that compliance officers should be the first port of call for whistleblowers.

The call was made by the City of London Law Society (CLLS) in its response to the SRA’s proposed co-operation agreements regime and follows a number of criticisms made by the national law society. While it believed such agreements had some merit, the CLLS raised several serious concerns.

It said the agreements were only relevant in “a small sub-set of matters” that firms will have to report to the SRA. In this context “a more comprehensive policy and guidance from the SRA generally on the reporting (including internal reporting) of breaches and misconduct by law firm participants” was necessary.

It would support the SRA’s proposals only if the policy was redrafted so as not to “contradict or undermine” compliance officers for legal practice and financial administration (COLPs and COFAs), which it said was of particular concern in larger recognised bodies. To support the new compliance roles properly, the SRA should require potential witnesses seeking to co-operate with it initially to report their concerns to the officers.

Compliance officers would then be obliged to report promptly to the SRA and in doing so would fulfil any potential reporting obligation of the individual. Also, that person should expect the same degree of leniency from the SRA as they would have done if they had reported directly.

The CLLS said these changes would mirror well-established procedures for reporting to a nominated officer under the Proceeds of Crime Act 2002 and would assist the fledgling compliance regime to become effective.

If, on the other hand, warned the society, potential witnesses had to contact the SRA directly, then compliance officers may not know about matters about which their firm had concurrent obligations to other authorities, regulators and so forth. Further, clients’ best interests were more likely to be protected if a COLP or COFA was involved, in terms of preserving privilege or confidentiality, it argued.

Elaborating, the CLLS said that “adverse consequences” might occur in a far larger number of cases than the handful the SRA expected to be suitable for co-operation agreements, if direct self-reporting to the SRA was adopted.

While “in appropriate cases”, co-operation agreements could be beneficial in encouraging reports on serious wrongdoing to be made, it said, the SRA’s proposed regime could actually encourage “false or inappropriate reporting”, for example by a disgruntled employee.

Other unintended consequences of the whistleblowing policy as currently propose included “individuals overlooking money laundering reporting requirements” and “firms failing to meet their obligations to insurers with potentially serious financial consequences”.

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