Green light for new regime on when to report rule breaches


SRA: Early investigation rule needed

New requirements for reporting rule breaches to the Solicitors Regulation Authority (SRA) have been approved by the Legal Services Board (LSB).

The changes include a new ‘early investigation’ rule, which the SRA told the oversight regulator was needed to cover cases where a law firm lacked “sufficient knowledge of the facts” to decide whether there had been a reportable breach.

Further, telling a firm’s compliance officer about a reportable issue will not be sufficient if the solicitor is not sure that it will be passed on to the regulator.

The changes will come into force with the SRA’s new Standards & Regulations regime in November.

The regulator said differing opinions over when to report a breach emerged in the debate over non-disclosure agreements, while it also promised earlier this year to review its guidelines on whistleblowing, following the high-profile case of Emily Scott, a whistleblower who was struck off after qualifying as a solicitor.

The SRA launched a consultation on its reporting rules last November, setting out four options to replace the existing rule, which requires law firms to report “promptly serious misconduct”.

The new rule 7.7 will read: “You report promptly to the SRA or another approved regulator, as appropriate, any facts or matters that you reasonably believe are capable of amounting to a serious breach of their regulatory arrangements by any person regulated by them (including you).”

Under the ‘early investigation’ rule 7.8, solicitors will be required to “inform the SRA promptly of any facts or matters that you reasonably believe should be brought to its attention in order that it may investigate whether a serious breach of its regulatory arrangements has occurred or otherwise exercise its regulatory powers”.

This is followed by a rule to protect those who report breaches (rule 7.9): “You do not subject any person to detrimental treatment for making or proposing to make a report or providing or proposing to provide information based on a reasonably held belief… irrespective of whether the SRA or another approved regulator subsequently investigates or takes any action in relation to the facts or matters in question.”

The rules are different from those the SRA had consulted on. The regulator told the LSB that the consultation made it clear there was “no strong preference or consensus” for any of the four original options, and it was “necessary to include a specific rule to allow for early investigation”.

This would allow the regulator “to cover the scenario where a firm has not gained (or is not able to gain) sufficient knowledge of the facts to satisfy itself whether the matter is capable of comprising a serious breach of SRA regulatory arrangements (and is therefore reportable)”.

The SRA could “use its wider regulatory powers to investigate in situations where a firm cannot”, including where the evidence was within another firm or with a client.

The regulator also had the power to compel the production of documents, impose practising conditions or intervene in a firm.

On protection for those who report rule breaches, the SRA told the LSB that it would prioritise updating its whistleblowing guidance, which it intended to publish before long alongside the new reporting rules.

The regulator said it would be holding a series of roundtables with City law firms on the issue.

“As well as discussing the changes with them, the SRA will also invite them to contribute anonymised case studies, including on matters that have not been referred to the SRA.”

The SRA said it had “started to develop scenarios and case studies to address ‘grey areas’ and to help compliance officers and others decide at which point during an internal investigation they should consider reporting a serious breach to the SRA and why”.

It was also developing an ‘at a glance’ assessment tool, which was being tested internally before being made available to law firms.

Responding to a query from the Law Society on who should report a rule breach, the SRA said that where a solicitor has notified their compliance officer, their obligation is “only discharged on the understanding that the compliance officer” would report it to the SRA.

“The regulator said solicitors would retain ethical responsibility where they are in a position to form a view, consider that a report should be made and are not satisfied the compliance officer will do so”.

The LSB said it was satisfied that the SRA had addressed the issue.




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