Richard Collins outlined the key objectives for the next three years.

Transcription

1 Linda Lee Report on the Solicitors Regulation Authority (SRA) event Driving Forward Regulatory Change: The next three years 14 th December 2012 Birmingham Opening remarks Anthony Townsend opened the event by saying that in the 12 months since the launch of OFR it had been a year of major upheaval in the legal sector and a year of transformational change at the SRA. It had now been 8 months since the SRA had licensed the first ABS. Notwithstanding an heavy workload for 2012, the SRA had voluntarily imposed a cut on its operating budget of around 2million (approximately 7%). Presentation on strategic plan 2013 to 2015 Richard Collins outlined the key objectives for the next three years. He stated that the SRA had to meet the regulatory objectives within the Legal Services Act and also the Better Regulation objectives. However the SRA also had requirements to meet under other legislation such as the Solicitors Act. He intended to set out the SRA s progress and current position and also outline the external environment in which they worked. The SRA have responsibilities under the Solicitors Act etc to regulate solicitors in addition to their responsibilities to regulate entities under the Legal Services Act and that there are differences between these obligations. The Legal Services Board ( LSB ) are heavily focused on the 2007 Act and do not entirely understand the SRA s duties under the Solicitors Act. He said that there has been an evolution in the legal services market. Some firms have seen a competitive advantage in becoming Alternative Business Structures (ABSs) and some firms have developed closer ties to major suppliers such as insurance companies. There are new, more complex structures being formed and there are other issues such as legal outsourcing which are impacting on traditional firms. Although firms are seeing an advantage in entering new markets and establishing more complex structures, this presents a challenge to the SRA to identify and regulate new risks that are developing. There are continuing economic pressures on firms and the SRA knows that some firms are running on empty and this is of concern to them. The SRA have to use supervision to identify difficulties. However, at the same time the SRA are trying to reduce the number of times they have to intervene in firms as this is very costly and they would prefer to deal with the problems by supervision and by an orderly wind down. There are also economic pressures on the market, the ban on referral fees, the changes to the fees in the RTA portal, the implementation of Jackson and the changes to legal aid which will come into force in April of Also impacting on the market are the new entrants as ABSs. However, Richard Collins reported that at the present time ABSs are having the least impact on the market. To date there are approximately 40 ABSs licensed and 150 applications pending. The number of ABSs is relatively small and they are not providing something significantly different from traditional firms but over time he expects this to change. 1

2 The major focus for the SRA is not really on ABSs but on changes to traditional firms. There are also still areas of the Legal Services Act to be implemented; for example, there is a period of grace for Law Centres and Not For Profits until 2015 to be regulated in a similar manner to law firms. However, it will not necessarily be the same regulations. There are also legal disciplinary partnerships (LDPs) - traditional firms with non-lawyer managers -and it is now likely that they will not become ABSs until The Legal Services Board function will be to continue to challenge the SRA s approach to regulation and therefore there will be a number of challenges for the SRA to react to. They hope to utilise their resources in a more targeted way. He then went through the SRA objectives: Ensure the SRA have the capability and capacity to deliver risk-based, outcome focused, regulation effectively and efficiently and to meet future challenges in a rapidly changing legal services market. Richard Collins explained that effectively this objective was to successfully embed Outcome Focused Regulation (OFR) into the SRA. He believed they were half way there now and this will be completed over the next three years. There is a new IT system, OFR Handbook and publication of a risk framework. Six hundred staff have shifted from applying rules to looking at proportionate risks. The SRA will spend the next year embedding the risk framework in the organisation. He sees the SRA as a factory churning out decisions - the quality of the decisions will determine how the SRA will be judged. There are a greater range of options for staff, for example, they can pick up the phone to discuss problems with firms. The SRA accepts that a lot of people are questioning if this approach will work as people often say that what the SRA say they will do is not reflected on the ground. He said it was about the confidence, experience and behaviour of the staff and also to ensure that the IT is in place to bolster decisions. Objective 2: Deliver risk based outcome focused regulation so as to achieve positive outcomes for consumers in the public interest and do so in a way that is justifiable to all our stakeholders Essentially this is delivery of risk based regulation in the public interest. Richard Collins reported that they have a lot of work to do with firms. They need to encourage firms to embed OFR and they are working with firms in difficulty to manage risk. They are asking firms to take control of their own destiny and to either manage the problem or manage an orderly wind down. Firms need to ensure that COLPs/COFAs are in effective operation as soon as possible. The Quality Assurance Scheme for Advocates (QASA) will not now come into force in January but there is further work to be done with the Bar Standards Board (BSB) and there will be an announcement as to how this will be done at the end of January There will also be a review of in-house and overseas practice which was something the SRA knew had not been dealt with effectively and that they would need to come back to. 2

3 Objective 3: Develop the SRA regulatory arrangements and tools to better meet the regulatory objective and principles of better regulation and to mitigate emerging risks and anticipate changes in the external environment This is essentially to develop the regulatory tools to support OFR. However, in 2013, there will also be the work done on the legal education and training review (LETR). The External Research Team spent 2012 gathering information and in early 2013 they will publish their review and at that stage the SRA will develop policy issues to support any findings. In April 2013, there will be the ban on referral fees in personal injury as work will go on throughout the year on this. There will be supervisory work with firms who have traditionally been reliant on referrals to make sure they are compliant. Sole principals will still need to be regulated and Richard Collins stressed he had used that term as distinct from sole practitioner but it is important that sole principals are regulated in the same way as other entities. However, this work will be done in 2014 rather than There will also be the power to run a single compensation scheme. Richard Collins reported that the SRA were still not sure whether a single scheme should be offered or whether or not there should be a different structure. He felt that what was needed was a fundamental review of compensation. This was not just about alternative business structures, it was to find the best way to compensate consumers- should there be a fund or not? It was agreed with the LSB that the SRA would look at all possible options. He reiterated that at the present, alternative business structures are very similar to traditional law firms and that a possible split will be areas of business undertaken or some other split. It is not certain that the split will be ABSs/traditional firms to decide which way consumers should be compensated. There will be a review as to how to recover fees. At present, SRA income is split between practising certificate fees and fees for certain activities. The SRA will review their fee structure and consider whether or not the balance is right. Are fees for individual activities at the right level? Another large area of activity for the SRA will be the regulation of will writing and estate administration. The Legal Services Board is looking at making will writing and estate administration a reserved activity. They have made it clear that they do not think that this activity should necessarily be regulated by the current regulators. It is inevitable that the SRA will apply to regulate solicitors undertaking will writing and estate administration. The more fundamental issue is should the SRA apply to regulate non-solicitor will writers etc. The SRA already regulate entities with no solicitors for example, an ABS with a barrister as the only legally qualified head of legal practice. However, they need to take this work forward jointly with the Law Society and ultimately this will need to be decided by the Law Society Council. Objective 4: Ensure effective operational delivery, the effective operation of the new systems and processes already implemented so as to realise the business benefit and financial efficiency they were designed to deliver and address the control weaknesses pertinent to the SRA identified by the Law Society Group external auditors They are determined to move the SRA forward, so that it runs in a professional way, efficiently and effectively. The SRA s priorities are to complete online interactions with those regulated. Richard Collins then explained how the Law Society Group is divided into three, the SRA, the Law 3

4 Society and the Organisation Services Group which provides services to all sections of the Law Society Group. They will work closely with the Law Society to ensure this works effectively. For example, the keeping of the Roll which is currently a paper based activity and more of this will move to an online process throughout The SRA want to ensure there is a strong cost control environment across the organisation and high levels of efficiency. They also want to make significant investment and it is a real challenge to make sure that benefits are realised. The SRA were asked how they will communicate to the profession, their progress against these objectives, particularly those relating to costs and efficiency. Richard Collins said that the Board had recently approved a new set of Key Performance Indicators (KPIs) which will be contained within quarterly reports, particularly looking at efficiency. On questions regarding the implementation of OFR, Richard Collins said that the SRA were not trying to trip people up although it was early days and there may be further changes to OFR as the process developed. He said the amount of work going through to the Solicitors Disciplinary Tribunal and the number of interventions was falling. An attendee stated that he owned five entities and had received five waivers from the SRA stating he need not appoint a COLP/COFA for each entity. He then received five letters demanding that he appoints someone as a COLP/COFA. The tone of the letters were very threatening and demanding. Anthony Townsend apologised and said that unfortunately he knew this was not a unique example. A further question was a follow up question about the tone of the letters. Samantha Barras replied that the SRA have started off with the firms that had not made nominations in carrot mode and so now that all approaches had failed, the tone was entirely appropriate because the letters were sent to firms that were repeatedly refusing to nominate COLPs and COFAs. It was pointed out from the floor that this was except when the letter was sent in error. There was then a discussion about those still waiting for approval. The SRA said that they were contacting those who had problems with approval and therefore in a sense no news was good news. The SRA would get out all of those approvals by the end of the year. Someone asked if they had not heard at all, would they be deemed to be approved but the SRA felt that it would not happen that someone was not contacted at all. In any event, Samantha Barras said that this was not a power delegated by statute but a regulatory requirement and therefore, someone would not be deemed to have approval. Update on the file SRA Risk Based Approach to regulation. Andrew Garbutt opened by saying that there was little research or literature available to the SRA on risk based regulation. It was very new and they had to tread new ground. They were today launching their new document, Regulatory Risk Framework to be found at 4

5 He then outlined the process [page 7 of the Regulatory Risk Framework]. 1 Identify: before acting, the SRA will identify risk based on essential risk index; 2 Assess: - the SRA will assess risk consistently and share these assessments across the SRA to aid understanding; 3 Monitor: the SRA will monitor risk levels against the SRA s tolerance to direct control activities; 4 Control - the SRA will control unacceptable risk levels through regulatory tools; 5 Evaluate - the SRA will constantly evaluate their effectiveness by monitoring changing outcomes; 6 Learn and adapt - the SRA will learn and adapt their tolerance, resourcing levels and approach to controlling risk. The risk management process is dynamic with a constant feedback loop enclosed ensuring that they adapt their approach to improve their control of risk and deliver better outcomes. To take all of these steps, the SRA will need to come together to embed the culture. Andrew Garbutt then turned in more detail to the risk management process. 1 Identify The SRA will use a range of sources and intelligence. They will also use the Regulatory Risk Index and they will use this to prioritise work. The SRA have decided it is important to use a common language and view and this will evolve as risks change. The SRA have added new risks, one example is Group Contagion. For example, there may be a risk in say the food arm of a business which could escalate into its legal services. They have no data information etc on group contagion at present but they will need to be prepared because it is a foreseeable risk. Andrew Garbutt said there were misconceptions about risk and it is important that there is a common language as this improves the way risk is understood. The feedback from firms 5

6 collected via supervision or reporting would help develop the SRAs understanding of risk and the SRA will need to ensure they have got it right in judging the risk At present, the Regulatory Risk Index is at Appendix 1 page 14 of the Regulatory Risk Framework 1 The SRA have divided the risk as following: - Firm viability and structure. 2 Fraud and dishonesty. 3 Firm operational risks. 4 Competence, fitness and propriety. 5 Market risks. 6 External risks. 2. Assess The SRA will look at those risks that have the highest impact first so that the SRA are focused on the right things in the right ways. The risks will be assessed. There are two types of risk assessment. The first relates to firms and individuals. This will depend on firm profiling and what firms tell the SRA and they will also use a statistical analysis of past history. The second area of risk is market-wide and sector specific. It is not about identifying bad firms and punishing them; it is about engaging with firms and using regulatory tools to make decisions about a firm. An example he gave was looking at the impact the ban on referral fees will have on personal injury firms. They will eventually publish and produce those predictions to help firms think about how they will be impacted by changes in the market. 3. Monitor & 4 Control. This is about knowing when to take action, when to take no action, and keeping a watching brief because something poses a concern. The SRA will only take action because the risk warrants attention or because the risk taken is unacceptable. Andrew Garbutt said that robust governance is in place to consider risk assessment and respond proportionately. There are now clear reporting lines within the SRA. 5. Evaluate The SRA have no track record on this and they have to invent this from scratch. They have formed a tactical risk group and a strategic risk group. There is also a Regulatory Risk Committee. It is important that risk processes are correct and that findings are reported back. The SRA have had to invent some assessment techniques, for example, risk profiling of firms which no-one else had done. They will then look at a firm s evaluation, if intervention has ultimately proved necessary and see if the profile could have correctly predicted this. 6

7 6. Embed He then referred to a diagram of what he called a maturity model at page 13 of the document as set out below. It should be noted that the IT model will not be developed until The SRA will touch on some IT issues in 2013 but they will set out establishing the basics first. All stakeholders should recognise the work done and support the SRA. The risk framework should be as important to firms as it is to the SRA. There will be a change of mindset for the SRA staff in making risk at the heart of everything they do. There is a long way to go to embed the culture but the SRA are working on it. The question was asked from the floor what this actually meant for firms. Andrew Garbutt said it was important to give some certainty. The framework would give firms insight into the way the SRA operates and this should prompt thoughts around regulatory risks in the firms approach. The risk based outcomes focused approach is here to stay and will not be changed but they would like to hear views that the SRA have identified the right risks. Another question was asked as to whether or not the complaints process should be put on letters to firms and Andrew Garbutt replied that there should be the ability to give feedback to the SRA. It was asked whether or not firms will have access to profiles and Andrew Garbutt said no. The risk profile is in two parts and one part of that is what is declared to the SRA by firms and there is not much that can be done with that as firms will already know this information and the SRA will not disclose the second part of the profile. He said that firms were unlikely to change areas of work to reduce their risk profile; also, some firms said that they would not wish to have their risk profile as they may have to declare this to insurers. He said that all of 7

8 the work was carried out with the aim of giving firms more tools to deal with risk so the SRA might well give a contextual profile to firms. He said that risk information was available to the firm s supervisors who can log on and see all of it if they want to. They will make decisions how to best treat the risks. He was asked if the SRA would give safe harbour and he said no that they would not reconsider this. He said that they were like every other regulator in that they would not give a safe harbour as they would be advising on partial information but they will give information to enable firms to make their own decisions. Someone asked if they should re-jig their own risk register to match those that the SRA were working from? He said that the framework had slightly different risks, it was not about completely redesigning but it was worth checking that everyone was using the same language and terminology. He felt it would be helpful if firms get used to the language and feedback and consistent language is helpful. Andrew Garbutt was asked how does risk profile fit in with reports by compliance officers-are there expected figures. He said no, there was a well established method of doing the assessments and what needs to be known is what a material risk is and what a non-material risk is. He felt that non-material risks were the most difficult. The SRA want to see firms picking up trends and reporting trends that were useful to the SRA. They want to see commonality. A question was asked about the referral fee risk? There is nothing particularly flagging at a high level other than PI and traditional issues of independence and transparency and it was unlikely that the ban will spread to other areas of work. He said that you needed to start recording sooner rather than later and need to report issues. Andrew Garbutt was asked about how the report should be formatted e.g. though my SRA or individual reports. Mr Garbutt replied that they were bottoming this within the next few weeks. He was also asked about how he differentiated between what is material and nonmaterial risk. He said that the SRA did not want to be overwhelmed with necessary reports and they did not want a huge spreadsheet submitted. They will give guidance as soon as possible. The SRA were then asked if they would change the timetable as the SRA were not yet ready so that firms started actually reporting in the correct format which would assist both the SRA and the firms as there would be considerable cost to firms in altering the data to fit any reporting requirement that may later be developed. Andrew Garbutt said they would provide as soon as possible in quarter 1 a method of reporting non-material breaches but they would not delay the requirement to report. The SRA were asked what training had the supervisors had and were told that the recruitment process was almost concluded and they were recruiting people with experience in relevant law practice where possible. The SRA s Red Tape initiative - Removing unnecessary Regulations and simplifying processor s consultation 14 th December 2012 closing date 8 th February 2013 Charles Plant introduced the consultation paper. He said the SRA recognised the need to reduce cost of regulation as this falls on firms and ultimately on clients as well as the SRA. He had a meeting with City firms and they had raised ten points and the SRA had accepted nine of them. The tenth point that they had rejected apparently was to record non-material 8

9 breaches. The points consulted on in the Red tape initiative, if accepted, will be added to the changes to the Regulations in April The ten proposals raised in the consultation are as follows: Proposal 1 Remove restrictions on charging by in-house lawyers employed on not for profit organisations. The purpose of this proposal would be to enable in-house lawyers employed by a Law Centre, Charity or other non-commercial advice service to charge for the provision of legal services. Proposal 2 Allow in-house solicitors employed by local authorities to charge charities for legal services. To enable local government solicitors to actual charities and to make a charge for both contentious and non-contentious work. The current rules require the employer to indemnify the charity in relation to the solicitor s costs insofar as they are not recoverable from any other source. Proposal 3 Approval of registered European lawyers and registered foreign lawyers as new managers and owners. It is proposed that changes are made to the SRA Authorisation Rules so that registered European lawyers and registered foreign lawyers are deemed to be approved as suitable to be managers or owners of authorised bodies. This would be subject to strict notification requirements on the part of individuals concerned and additional safeguards including the possibility of withdrawal of the approval where the individual is not considered to be suitable for that appointment. Proposal 4 COLPs and COFAs in related entities Where there is a main UK regulated body, it is proposed that it should be possible for the COLP and the COFA for that body to be able to apply to be the COLP and COFA for any related entities without the need to be a manager or an employee of the related entities. It is also proposed that it should be possible to complete applications to the SRA relating to multiple-related entities in one process. Proposal 5 Remove the need for SRA approval for trainees secondments. To remove the need for training establishments to apply for approval to second their trainees to other organisations. 9

10 Proposal 6 Introduce the lifetime authorisation for training establishment. Remove the requirement for authorised training establishments to seek reauthorisation every three years. Proposal 7 Remove half equivalent provisions in training contract reductions. To amend training regulations to remove the half equivalent provision which recognises previous legal experience but only allows a reduction in the period of a training contract by half of this time. Proposal 8 Remove the time limit for an academic award to remain valid. The validity period of the academic award i.e. qualifying law degree and graduate diploma in law or professional examination in terms of eligibility to commence the legal practice course is set at seven years although the SRA has the discretion to revalidate certificates on the completion of the academic stage if they are satisfied that an individual has undergone legal updating and exceptional circumstances exist. Proposal 9 Remove the need for student re-enrolment after four years. All students have to enrol with the SRA before starting the legal practice course. This process acts as an early check on a prospective solicitor s character and suitability. The SRA also requires students to apply for periodic re-enrolment to manage the risk involved in character and suitability issues. Proposal 10 Remove the need for QLTS Certificates of Eligibility in certain specified circumstances. To amend the Qualified Lawyer s transfer Scheme Regulations to enable the SRA to allow applicants who do not need to take any of the QLTS assessments to progress to admission without a certificate of eligibility being issued. SRA consultation on Handbook and Amendments relating to International Practice This paper was introduced by Samantha Barras. She said that the SRA are proposing a new outcome in Chapter 7 of the Code Managing Overseas Risk and a new Chapter 13 Applying Principles to Individuals and Entities established overseas. There will also be new notes to principles and a suggested approach to the application of the new Chapter. She said that the new Overseas Chapter will ensure compliance with SRA principles 10

11 but accepted that local law and regulation may qualify this. However the overriding requirement would be to behave in a proper and appropriate way. There needed to be a flexible and proportionate approach for protection (for non-local or non-sophisticated clients). The SRA s biggest concern relating to overseas practice related to confidentiality and conflicts. There will be a new Outcome 7.11 which gets to the heart of risk concern relating to contagion. At this stage they will not rule out the COLP and reporting requirements internationally. However, there will be a single simple annual report/statement. There will be a workshop in the spring explaining how this will work. This was not intending to catch best friend relationships. However, if firms were operating in jurisdictions not recognised by the SRA, Samantha Barras recommended that firms picked up the phone to discuss this with the SRA. Conclusions Richard Collins then concluded the meeting by saying that the SRA accepted they had not got the organisation where they want it to be but they hoped to get it there soon. They had outlined the steps to enable them to get to where they wanted to be. Linda Lee Radcliffes Le Brasseur 20 December