Solicitors can now make more use of Chinese walls after changes to the Code of Conduct were waved through by the Legal Services Board.
However, the Solicitors Regulation Authority (SRA) has warned that few firms are able to set up compliant Chinese walls – known officially as information barriers – and so should treat them with “extreme caution”.
Rule 4 of the code, which deals with confidentiality, includes a duty not to put a client’s confidentiality at risk by acting for another client on a matter in which such information would be material, subject to two exceptions: first when the clients give informed consent; and second when it is not possible to get the informed consent of the client whose information needs to be protected – because, for example, it cannot be contacted or because making the request would itself breach confidentiality – but the firm has already started acting for another client when the problem arises. In these circumstances, the rule allows the firm to continue acting provided a Chinese wall is put in place.
The second exception has now been extended to allow firms to accept instructions in the knowledge that it would not be possible to get consent from the client whose information required protection.
In the consultation paper on this earlier in the year, the SRA said: “We recognise that only those firms large enough to have institutionalised structures and systems for putting these barriers in place will be able to comply, but that is an inevitable consequence of the common law requirements.”
The rules surrounding Chinese walls are unchanged, and in a statement the SRA emphasized that “most firms will not have the infrastructure to set up legally compliant information barriers and they should, therefore, continue to be used with extreme caution”.
The Legal Services Board approved the changes to rule 4.04 and the guidance to 4.04 and 4.05 (paragraphs 32 and 37) by way of an exemption procedure that meant it did not go through its usual approval process.
The changes are tracked on the SRA website here. They had effect from 13 July.
The February consultation also looked at allowing firms to act in any circumstances where there is a conflict of interest between sophisticated clients and they consent to the firm acting, but the SRA pulled back from this after the consultation response. A more fundamental look at the conflicts rule is now taking place as part of the consultation over outcomes-focused regulation and the new code of conduct.