A pilot of how the Solicitors Regulation Authority (SRA) could supervise law firms through dedicated relationship managers will begin this autumn, it has emerged.
Relationship management (RM) – involving supervisory staff/teams who have regular contact with individual firms – is seen as one possible approach to supervision when the SRA adopts a risk-based approach under outcomes-focused regulation, which is due to start in October 2011.
The SRA is proposing two forms of RM: permanent and temporary. Permanent RM would be targeted at large and/or complex commercial firms, including alternative business structures. It would focus on a firm’s internal systems, periodic assessments of whether or not the firm is delivering the required outcomes, and the exercise of judgement.
Permanent RM is resource intensive and not seen as practical or proportionate for all firms. However, it may be suitable on a temporary basis for a wider range of firms, such as new firms and those in the assigned risks pool.
A cross-section of 15 law firms is being sought to trial RM until summer 2011. Two particular questions for the pilot will be whether it is ever proportionate to provide any firms with dedicated staff/teams and, if so, whether the proportionality arises as a result of the risk posed, the size and complexity of the firm, or a combination of both factors. It will also address the danger of ‘regulatory capture’, ensuring independence is maintained in regulatory oversight.
The pilot firms will draw up risk registers and regulatory compliance plans, and have meetings and/or telephone conversations at least every month with their relationship manager. These will include the nominated contact at the firm outlining whether any significant risk or compliance-related issues have arisen since the last meeting, and the relationship manager informing the contact of emerging risks or other issues they have identified for discussion or review.
If a rule breach comes to light, the SRA said it would expect the relationship manager to work with the pilot firm to put things right. It explained: “We will not seek to take 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. However, enforcement action will be necessary where there is serious misconduct or a risk to the public which cannot be mitigated.”
The SRA said it would also expect pilot firms to produce and develop plans setting out how they will deal with the transition from their current regulatory obligations to the requirements of the new Handbook that will be introduced as part of outcomes-focused regulation.