The Solicitors Regulation Authority (SRA) today recognised that it has “much to do” to build the confidence of law firms in their regulator if it is to succeed in delivering outcomes-focused regulation (OFR).
The launch today of its consultation on how OFR will work (see www.sra.org.uk/consultations) also came with words of caution from the Law Society about the implementation timetable, cost and regulatory burden that may result. There will also be concern that the profession is far from engaging with this fundamental overhaul of regulation yet – the SRA’s first OFR publication, a strategy paper issued in January, received just 23 responses.
OFR aims to move away from the SRA’s current prescriptive regime and focus on low-level breaches, and concentrate instead on the high-level principles and outcomes that should drive the provision of services for clients, giving firms more freedom in deciding how they deliver them.
This will mean a shorter online Handbook that will encompass all of the regulatory requirements currently contained in the Code of Conduct, accounts rules and other rules – the consultation also raises the prospect of other bodies providing guidance on the Handbook which the SRA could approve. The goal is to work with firms to comply, rather than looking over their shoulder for non-compliance.
The consultation said: “The SRA’s successful move to OFR will require the majority of firms and individuals to take responsibility for identifying and managing the risk of not delivering the required principles and outcomes, acting ethically and professionally, exercising judgement on how to deliver good outcomes and engaging positively with us when difficult issues emerge. Firms that can do this will then be allowed to get on with running their businesses, leaving us free to focus our resources on the small minority of firms and individuals that cannot or will not comply.
“We realise this entails a high degree of confidence between us and the firms and individuals we regulate and we recognise that we have much to do to build this confidence. Good firms and individuals will need to be confident that we will not seek ‘to catch them out’, taking enforcement action either on reasonable decisions made in good faith or in respect of a firm or individual that has run into problems but shows the willingness and capability to work with us to put things right. Good firms will also want to be confident that we take decisive action against those who make bad decisions or represent risk to the public.”
With risk-based regulation at the heart of OFR, the consultation explains how the SRA will identify risk, how it will supervise firms (with large and/or complex commercial firms likely to have dedicated supervisory staff), how the enforcement strategy will work and why the financial stability of firms is part of the project. The consultation also addresses how the SRA will itself change to meet these challenges.
The consultation is the second stage part of the SRA’s programme to introduce OFR and alternative business structures (ABSs). A draft of the new handbook will be published for consultation on 28 May 2010, with a second consultation in October 2010. The new handbook will be published in April 2011 and come into force on 6 October along with ABSs.
SRA chairman Charles Plant said: “To help us to transform regulation we need to hear the views of all of those with an interest in the future of legal services. Our consultations, our dedicated ‘Freedom in Practice’ website, and our programme of roadshows for the profession will help us to achieve that.
“We want to bring in a regulatory system which allows good firms greater flexibility in how they run their businesses. Firms will have to comply with broad principles, but they will be able to choose how they do this. This is not light-tough regulation, however. Firms which will not or cannot fulfil their responsibilities will face tough sanctions.
“A flexible market will allow firms to innovate to provide the best legal services to consumers. The SRA will support firms to make this vision a reality.”
Law Society president Robert Heslett said: “The concept of outcomes-focused regulation may promise benefits for solicitors as well as consumers, but the detail of this type of regulation and how enforcement will fairly operate is critical to the reasonableness of the proposition. It is important that the solicitors’ profession feeds into what is a vital consultation.”
Encouraging solicitors to respond to this consultation, Mr Heslett said the society “has some concerns about the very ambitious timetable for implementing outcomes-focused regulation, the undisclosed cost of the proposals and the implications for the regulatory burden on firms, concerns we will raise in our response”.