Whilst many lawyers successfully implemented a risk management framework to facilitate compliance with the SRA Handbook and appease the insurers in 2013, it is important to remember that none of this is static and that an ongoing focus on regulation and compliance, together with continuous review of the business and the risks that it faces, is imperative for survival in 2014.
The slaying of the COLP/COFA
January saw the one year anniversary of the COLP/COFA and there is still confusion as to what constitutes a material breach of the Handbook. Whilst this is unsurprising given the lack of guidance available from the SRA, it seems that the regulator will look unfavourably on non-compliance, having hinted that 2014 will be ‘the year of enforcement’.
The SRA is currently consulting on increasing its power to place higher fines on traditional law firms, bringing the penalties closer to those which apply to alternative business structures (ABSs). At present, the SRA can only impose fines of up to £2,000 on traditional firms, with referrals to the Solicitors’ Disciplinary Tribunal (which can impose unlimited fines) necessary for anything greater. In contrast, it can fine an ABS up to £250 million! No doubt this is an eye watering discrepancy, but is increasing the penalty powers of a regulatory body that both investigates and decides the sanction really the best way to ‘fix’ the problem?
ABSs are not a panacea
Due to the volume of activity being undertaken by the SRA in relation to “traditional law firms”, as well as the relative infancy of most ABSs, the latter could be forgiven for believing that they are not on the immediate radar of the SRA.
However, those responsible for compliance within ABSs should not rest on their laurels. It is envisaged that the SRA will be making initial visits over the coming year to ascertain compliance with the Handbook, which could result in further investigation/enforcement action. Therefore, it is critical that these new entities ensure that their compliance regime is effective to avoid becoming SRA casualties.
“I don’t need to worry, I am in-house..”
Yes you do! Until recently, you could be forgiven for believing that in-house lawyers seldom appear on the SRA’s radar, enjoying certain freedoms within the Handbook. However, the SRA’s wholesale review of the rules applying to in-house lawyers (including the recent report commissioned on “The role of in-house solicitors”), designed to ensure a proportionate approach to regulation, seems to indicate that there is growing interest in the sector.
Further, the increasingly competitive environment has forced some in-house departments to reassess their business model and consider diversification or conversion to ABS. However, ABS status opens up the sector to a raft of regulation which will be unfamiliar, a sizeable risk for in-house lawyers and one that will also be recognised by the SRA. Therefore, now is the time to make sure that your house is in order.
Mike Grant is head of the Legal Services team at national law firm Weightmans LLP. He has been dubbed one of the industry’s leading litigation and regulatory professionals in the Lawyer magazine’s ‘Hot 100’ feature.